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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:-
Five appeals filed by assessee are directed against the different orders of Commissioner of Income Tax (Appeals)-Central-I, Kolkata and assessments were framed by ACIT, Central Circle-XX, Kolkata u/s 153A/144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 29.12.2006 for assessment years 1999-00, 2000-01,2002-03 2003-04 & 2005-06 respectively.
-1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 2 Shri Subash Agarwal, L’d Authorized Representative appeared on behalf of assessee and Shri G. Mallikarjuna, L’d Departmental Representative appeared on behalf of Revenue.
All the appeals are heard together and are being disposed of by way of this consolidated order for the sake of convenience.
At the outset, it was observed that Ld AR has filed additional grounds in all the appeals except which are legal in nature. On the contrary, Ld. DR has raised no objection regarding admission of assessee’s additional grounds in all the four appeals, hence the additional grounds are hereby admitted.
First we take up AY 99-00. 4. In this appeal various grounds have been raised by assessee as under:- “1. That the ld. CIT(A)erred in law while deciding that if assessment of the relevant assessment year was not completed under section 143(3), all the issues irrespective of the fact whether the same was disclosed in the original return or whether the same were the findings of the search can be considered in assessment under section 153A.
2. That the Ld. CIT(A) erred in confirming the addition of Rs.2,74,664/- against the sale of Gold/Silver jewelleries declared under VDIS, 97 without considering the Balance Sheet of the appellant for the period before VDIS, 97 where no such jewelleries were shown.
3. That the Ld. CIT(A) erred in sustaining the addition of Rs.2,40,000/- made by the Ld. AO considering the gifts of Rs.80,000/- each received by the appellant from three donors as unexplained which were duly disclosed in the return of income of the appellant. 4. That as the order of the Ld. CIT(A) is devoid of merit, and bad in law, the same should be quashed and your appellant be given such relief(s) as prayed for. 5. That the appellant craves your ld. Permission to add, amend and modify the above grounds on or before the date of hearing of the appeal.”
-1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 3 Additional ground of appeal.
2. The additional ground of appeal raised now is as follows:- For that the addition of items of regular assessment in the proceedings u/s. 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings is liable to be deleted.”
The issue raised by assessee in ground No.1 and additional ground of appeal appears to be similar, therefore, the same are clubbed together and disposed of by way of this common order.
6. The issue raised in these grounds is that whether the assessment completed u/s 143(1) of the Act can be considered in assessment proceedings u/s 153A of the Act without finding any incriminating materials during search.
Both Ld. AR and Ld. DR have advanced their arguments on this point of issue at length and submitted various case laws in support of their respective arguments. However, at the end of hearing, Ld. AR for assessee expressed his willingness to withdraw the issues raised of assessee’s appeal. In rejoinder, Ld. DR objected on the withdrawal of the grounds of assessee’s appeal and submitted that detailed arguments have already been advanced on this issue, so it is not justified to withdraw the same. However, we find that the issue involved in this appeal on merit stands for small amount and therefore, we are inclined to dismiss the same as not pressed.
The 2nd issue raised by assessee in this appeal is that Ld. CIT(A) erred 7. in confirming the action of Assessing Officer by sustaining the addition of ₹2,74,664/- on account of sale of gold/silver jewellery.
The facts in brief are that assessee in the present case an individual and had declared his income from business and other source. A search A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 4 operation was conducted at the residential and business premises of assessee on 09.03.2005 u/s.132 of the Act. Accordingly, a notice was issued upon assessee u/s. 153A of the Act. It was observed that assessee has not filed his return of income u/s 139(1) of the Act for the year under consideration. However, assessee in response to the notice u/s. 153A of the Act filed his returned declaring a total income of ₹1,07,760/-. Thereafter notice u/s. 143(2) was issued and served upon assessee. The assessee, during the year, has sold silver utensils for an amount of ₹2,03,934/- and gold ornaments for ₹70,734/-. The assessee has claimed that these ornaments were purchased prior to AY 1981-82. On the sale of ornaments assessee has claimed Long Term Capital Loss after giving the effect of indexation. On query by AO about the details of such purchase of ornament, the assessee failed to give any documentary support in support of his claim except a cash memo demonstrating the sales of ornaments to M/s Junjunwala & Co. of Chadni Chock, Delhi. In the absence of any documentary evidence regarding the possession of old ornaments, the AO has made the addition of ₹ 2,74,668/- to the total income of assessee.
Aggrieved, assessee preferred an appeal before L’d CIT(A) whereas assessee submitted that details of silver and gold were duly declared under VDIS Scheme 1997 and this disclosure of gold was duly accounted for in balance-sheet as on 31.03.1998. However, Ld CIT(A) rejected the plea taken by assessee and upheld the action of AO by observing as under:- “4. The submissions are carefully considered. The infirmity in the claim of the appellant is that the certificate about the disclosure under the VDIS 97 is missing. In the absence of these crucial documents the app’s own statement of affair under VDIS 97 as on 31.3.97 is not adequate evidence of the declaration about these assets under the VDIS 97. At the same time the sale bill is good evidence of the sale of silver utensils and gold ornament. It is not necessary to have evidence of traveling to Delhi for the purpose of such sale. Since the appellant is unable to produce the VDIS 97 certificate issued by the department, the benefit of indexation and presumption about the acquisition of these assets is not available to the appellant. Under the circumstances second ground of appeal
is dismissed.” -1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page
5. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld AR has filed paper book which is running pages from 1 to 96 and drew our attention on pages 1a to 3 of the paper book where ITR along with financial statements were placed reflecting the aforesaid transactions. The ld. AR stated that the transactions of sale purchase of old ornaments were duly disclosed in his return of income. On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
We have heard rival contentions and perused the materials available on record. From the foregoing discussion, we find that assessee, in the instant case, failed to produce documents regarding the purchase / possession of silver and gold ornaments. In the absence of supporting evidence, it is inferred that assessee was having undisclosed income which was accounted in the form of sale purchase of gold and silver. We find that there is no substance in the transactions as claimed by assessee. Accordingly, we find no reason to interfere in the order of Authorities Below. We uphold accordingly and ground raised by assessee is dismissed.
Next issue raised in this appeal is as regards that Ld. CIT(A) erred in confirming the action of AO by sustaining the addition of ₹ 2.40 lakh on account of unexplained income.
During the year, assessee has shown to have received gift of Rs.2.40 lakh from the following persons:- Amount (₹) Sl.No Name of persons 1 Bhupendra Nath Saha 80,000 2 Parimal Ch. Ghosh 80,000 3 Kamakkhya Pada Saha 80,000 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 6 During the course of assessment proceedings, assessee filed to substantiate the claim of gift received from the aforesaid parties. Therefore, AO disallowed the same and added back to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- “… In my opinion these gifts have to be accepted as genuine. As far as the other gifts are concerned, the assessing officer has not been furnished with confirmations from the donors. The verification on the basis of the confirmation from the donors is subsequent event. The assessing officer did not have any document for the purpose of initiating verification of the gifts of Rs.80,000/- each from Shri Bhupendra Nath Shah, Smt. Kamkhya pada Sha and Sri Parimal Chandra Ghosh. In my opinion these 3 gifts are justifiably disbelieved. Accordingly ground No. 3 is partly allowed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
We have heard rival contentions and perused the materials available on record. We find that assessee failed to furnish any documents in support of gift received from the above stated parties. In the absence any documentary evidence, we find no reason to interfere in the order of Ld. CIT(A). We hold accordingly and ground raised by assessee is dismissed.
Issue No. 4 and 5 are general in nature and do not require any adjudication.
In the result, assessee’s appeal is dismissed. Coming to A.Y 00-01.
The grounds raised
by assessee in this appeal and additional ground are reproduced below:- “1. That the Ld. CIT(A) erred in sustaining the part of the addition made by the Ld. AO estimating the higher profit on surmises and conjectures and ignoring the fact that no evidence of higher profit was found during search and seizure operation. -1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 7
2. That the Ld. CIT(A) erred in not giving cognizance to the interest factor for net loss from M/s Mukta Bricks though the corresponding loans and their utilization were reflected in the Balance Sheet.
3. That the action of Ld. CIT(A) in upholding the estimation of profit @ 9% on a turnover Rs.478,350/- instead of 12% estimated by the Ld. AO in place of net loss of Rs.57,403/- declared in the return of income by the appellant is unwarranted and bad in law.
4. That as the order of the Ld. CIT(A) is devoid of merit, and bad in law, the same should be quashed and your appellant be given such relief(s) as prayed for.
5. That the appellant craves your Ld. Permission to add, amend and modify the above grounds on or before the date of hearing of the appeal.” Additional ground of appeal.
2. The additional ground of appeal raised now is as follows:
For that the addition of items of regular assessment in the proceedings u/s. 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings is liable to be deleted.”
Since the issue in ground No. 1 to 3 is interlinked, these are being taken up together for adjudication. The relevant issue is that Ld. CIT(A) erred in confirming the action of AO by estimating a profit @ 7% on the turnover of ₹ 4,78,350/-. Assessee is engaged in business of brick making and during the year under consideration has declared a loss of ₹ 1,08,662/- from its business. During the course of assessment proceedings, AO observed that gross profit (GP) ratio of assessee’s business is fluctuating very abruptly as evident from the following chart:- A. Yr Turnover GP(%) NP(%)
99-00 4,42,310 35.76 15.1 00-01 4,78,356 35.21 Loss 01-02 6,84,500 30.02 Loss 02-03 7,17,700 22.70 Loss 03-04 7,44,200 28.68 Loss 04-05 3,10,398 40.20 8.96 -1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 8 On query by AO, the assessee failed to submit his books of account and other documents in support of loss claimed. The AO further observed that assessee has declared net profit @ 15.1% in AY 99-00 and 8.96% in AY 04-05. Therefore the AO in the absence of any documentary evidence has assumed the profit of assessee @ 12% which is average net profit ratio for AYs 1999-00 and 2004-05. Accordingly, AO disallowed the loss suffered by assessee and worked out the net profit of ₹57,403/- and which was added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before the ld. CIT(A) submitted that the loss is arising due to the interest expense for Rs.1,58,833/- claimed during the year on the loan obtained for the purpose of business. However, the Ld. CIT(A) has rejected the plea of assessee and upheld the action of assessee after giving partial relief to assessee by observing as under:- “3.3 The submissions are carefully considered. The written submission do snot state the basis for the claim of interest far higher than the preceding assessment year. At the same time the assessee is not maintaining books of account. Therefore, some estimate of net profit would not be out of place. In my order for assessment 2004-05, the net profit of 9% was held to be reasonable and acceptable. In relation to the absence of proper explanation about increased interest expenditure it is held that net profit rate of 7% would be appropriate in the present case. The assessing officer is directed to apply this rate to the turnover of Rs.4,78,356/-. The second ground of appeal is partly allowed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR reiterated the submission as placed before Ld. CIT(A). the ld. AR alternatively submitted that income on the turnover can be estimated at the rate of 1% / 2% of the assessee’s turnover. He submitted that assessee has incurred loss from the brick business and estimating profit from the said business will be hardship to assessee. On the contrary, Ld. DR vehemently relied on the order of Authorities Below. -1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 9 22. We have heard rival contentions and perused the materials available on record. From the facts of the case, we find that assessee has incurred loss from his brick business on account of interest expenses on unsecured loan for an amount of ₹1,58,833/-. But the lower authorities have estimated the profit on percentage basis on the turn over. In case we remove this amount of interest expenses then there comes profit to the business of assessee. From the facts of the case, we find that nature of business of assessee has not been doubted by the lower authorities. We understand that if assessee is carrying on his business, there will be several indirect business expenses besides the direct cost. The lower authorities have not doubted the amount of loan which assessee has borrowed for the purpose of his smooth running of business. If we analysis the balance-sheet of assessee we find that loan amount has been utilized exclusive for the business. However, at the same time, we cannot ignore the fact that assessee has failed to produce his books of account which was very important aspect for making the scrutiny assessment. We find that assessee has claimed total indirect expense for ₹2,77,086/- which is inclusive of interest element of ₹1,58,833/-. So it means only indirect expense of ₹1,18,253/- has been claimed by assessee. In view of the mater and after considering the facts in totality of the case and in the interest of justice and fair play, we are inclined to limit the net profit @ 4% of assessee’s turnover. Considering the facts and circumstances of assessee, we reverse the order of Authorities Below and ground raised by assessee is allowed partly in terms of above finding. AO is directed accordingly.
Next issue in grounds No. 4 and 5 are general in nature and do not require any separate adjudication.
Additional ground was not pressed by the assessee. Hence the same is dismissed as not pressed.
In the result, assessee’s appeal allowed partly.
ITA No.1906-1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 10 Coming to for AYs 03-04 & 05-06.
In both appeals grounds have been raised out of which grounds No.4 & 5 in [ITA No. 1909/Kol/2009] and grounds No. 3 to 5 in [ITA No. 1910/Kol/2009] general in nature and do not require separate adjudication. The other grounds in ITA No. 1909/Kol/2009 are as under:- “1. That the Ld. CIT(A) erred in sustaining the part of the addition made by the Ld. AO estimating the higher profit on surmises and conjectures and ignoring the fact that no evidence of higher profit was found during search and seizure operation.
2. That the Ld. CIT(A) erred in not giving cognizance to the interest factor for net loss from M/s Mukta Bricks though the corresponding loans and their utilization were reflected in the Balance sheet.
3. That the action of Ld. CIT(A) in upholding the estimation of profit @ 8% on a turnover Rs.744,200/- instead of 12% estimated by the Ld. AO in place of net loss of Rs.84,368/- declared in the return of income by the appellant is unwarranted and bad in law.”
Further assessee raised additional ground in “2. The additional ground of appeal raised now is as follows- For that the addition of items of regular assessment in the proceedings u/s. 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings is liable to be deleted.”
1. That the Ld. CIT(A) erred in sustaining the part of the addition made by the L. AO estimating the higher profit on surmises and conjectures and ignoring the fact that no evidence of higher profit was found during search and seizure operation.
2. That the action of Ld. CIT(A) in confirming the addition of Rs.175,909/- out of the aggregate addition of Rs.403,931/- made by the AO by estimating higher profit without any evidence and material.”
26. Since we have already discussed same inter-connected issue in A.Y. 2000-01 in Para 19 to 22 of this order and taking a consistent view we allow both the appeal of assessee in part and AO is directed accordingly. -1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 11 27. At the time of hearing Ld. AR has not raised additional ground in both the appeals, hence, same dismissed as not pressed.
In the result, both the appeal allowed in part.
Coming to for AY 02.03. 29. Grounds raised by assessee are as under:- “1. That the Ld. CIT(A) erred in sustaining the part of the addition made by the Ld. AO estimating the higher profit on surmises and conjectures and ignoring the fact that no evidence of higher profit was found during search and seizure operation.
2. That the Ld. CIT(A) erred in confirming the application of the provisions of section 44AD of the Income Tax Act, 1961 as the gross receipts from contract business exceeded the limit of Rs.40 lakhs.
3. That the action of the Ld. CIT(A) in sustaining the addition made by estimating the income of Rs.548,698/- @ 8% n gross receipts of Rs.73,08,728/- from contract business in place of the profit of Rs.409,505/- @ 5.6% declared by the appellant in the return of income.
4. That the Ld. CIT(A) erred in not giving cognizance to the interest factor for net loss from M/s Mukta Bricks though the corresponding loans and their utilization were reflected in the Balance sheet.
5. That the action of Ld. CIT(A) in upholding the estimation of profit @ 9% on a turnover Rs.717,700/- instead of 12% estimated by the Ld. AO in place of net loss of Rs.127,647/- declared in the return of income by the appellant is unwarranted and bad in law.
6. That as the order of the Ld. CIT(A) is devoid of merit, and bad in law, the same should be quashed and your appellant be given such relief(s) as prayed for.
7. That the appellant craves your Ld. Permission to add, amend and modify the above grounds on or before the date of hearing of the appeal.”
Additional ground:- “1. This application of the petitioner/appellant most respectfully prays for admission of the following additional ground of appeal which is purely legal in nature.
2. The additional ground of appeal raised now is as follows- -1910/Kol/2009 A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 12 For that the addition of items of regular assessment in the proceedings u/s. 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings is liable to be deleted.
3. This additional ground is in addition to the substantive grounds raise in the Memorandum of Appeal.”
30. First we take up inter-connected grounds No. 1 to 3 in this appeal of assessee and the issue raised is that Ld. CIT(A) erred in confirming the action of AO by estimating income @ 8% on gross receipt of ₹ 73,08,728/-.
31. Assessee, in his original return filed u/s 139(1) of the Act has disclosed profit @ 5.6% on the turnover of ₹32,89,042/-. However, assessee in his return filed u/s. 153A of the Act has enhanced the turnover by ₹ 40,19,686/- and declared total turnover of ₹73,08,728/-. The assessee has shown his turnover from contractual business and in support of it has furnished payment certificates. During the course of assessment proceedings, AO observed that the audited accounts of assessee do not represent the true & fair picture of the business of assessee. The assessee failed to produce his books of accounts along with other documentary evidence in support of his turnover and net profit declared by him. The AO in absence of documents worked out the profit @ 8% to the total turnover at ₹73,08,728/- and worked out assessee’s business income at ₹5,84,698/-.
32. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
33. Before us Ld. AR submitted that actual net profit declared by assessee is 5.6% and accordingly the income was offered to tax. In this case, lower authorities have been guided from the provision of Sec. 44AD of the Act which A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 13 is applicable to the assessee having turnover up to Rs.40 lakh. It shows that Legislative is well aware that the small assessee having turnover up to Rs.40 lakh are having higher profit margin in comparison to the assessee having turnover above Rs.40 lakh. Therefore, lower authorities erred in resorting to the provision of Sec. 44AD of the Act.
On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
We have heard both the parties and perused the materials available on record. We find that it is not in doubt that the provision of Sec. 44AD is applicable only to those assessee’s who are having turnover up to Rs.40 lakh. In the instant case, assessee’s turnover is greater than Rs.40 lakh. Therefore, in our considered view, resorting to be provision of Sec. 44AD is not proper. We also find that the AO has made the estimation @ 8% of the total turnover without making any comparison with the other cases who are engaged in same category of business. Therefore, we are not inclined to uphold the order of Authorities Below. However, we are not interested in sending back the matter to the AO to avoid further litigation. Therefore, in the interest of justice and fair play we restrict the net profit @ 6% which in our considered view is reasonable from the business of assessee after considering the facts and circumstances of the case. Hence, this ground of assessee is allowed in part. AO is directed accordingly.
Next inter-connected issue No. 4 & 5 are as regards that Ld. CIT(A) erred in estimating profit @ 7% on a turnover Rs.717,700/- instead of 12% estimated by AO.in place of net loss of Rs.127,647/-.
Since we have already discussed same inter-connected issue in A.Y. 2000-01 in para 19 to 22 of this order and taking a A.Ys 99-00-00-01, 02-03,03-04 &05-06 Sh. Krishna Ghosh vs. ACIT, CC-XX, Kol. Page 14 consistent view we allow the appeal of assessee in part and AO is directed accordingly.
Next issue No. 6 and 7 are general in nature and do not require any separate adjudication.