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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
Date of Hearing : 01.03.2016. Date of Pronouncement : 6.4.2016. ORDER This is an appeal by the Assessee against the order dated 23.08.2013 of CIT(A)-XXXII, Kolkata, relating to AY 2008-09.
The Assessee is an individual. He carries on business as a dealer in newspapers and magazines. The assessee sells newspapers and magazines to hawkers. In the course of assessment proceedings AO noticed that apart from the bank account that was disclosed in the books of accounts of the assessee there was another savings bank account maintained by the assessee in Axis bank, Barrackpore Branch bearing No.436010100192125. There was also another current account in Allahabad Bank, Kanchrapara Branch bearing no.900625 held by the assessee in the joint names of the assessee her husband and son. In this bank account the assessee is the first holder of the bank account.
AO called upon the assessee to show cause as to why the aforesaid bank accounts were not disclosed by the assessee in the books of accounts maintained by the assessee. There were huge deposits of cash in both these bank accounts. AO was of the view that the aforesaid deposits in the bank account represent moneys received by the assessee from sale of newspapers and magazines which were not disclosed by the ITA No.2604/Kol/2013-Smt. Maya Rani Mustafi A.Y.2008-09 1 assessee in the books of accounts. The total deposit in Axis bank was to the tune of Rs.35,72,117/- and the deposit with Allahabad bank was a sum of Rs.3,49,450/-. The total cash deposit in the two accounts was Rs.39,21,567/-. The gross profit declared by the assessee in the regular books of accounts for the previous year relating to A.Y.2008-09 was 5.12%. AO applied the disclosed gross profit rate on the cash deposits in the bank account and made addition of Rs.2,00,784/- to the total income on account of undisclosed gross profit earned on undisclosed sales.
3.1. Besides the above, the AO was also of the view that the peak credit in the aforesaid bank accounts should be added as monies of the Assessee from undisclosed sources to carry out the business of sale of newspapers and magazines which were not recorded in the books of accounts. The peak credit in the Axis Bank account was Rs.4,81,988/- on 27.08.2007 and the peak credit with Allahabad Bank was rs.3,01,896/- on 22.03.2008. Both these amounts were added to the total income of the assessee.
3.2. Thus income of the assessee was determined by AO as follows :- “Income as per return Rs.1,48,432/- Add: Undisclosed sales made as Rs.2,00,784/- Add: capital fund as Rs.7,83,884/- Rs.9,84,668/- Rs.11,33,100/-“
Before CIT(A) the assessee contended that since the AO has accepted that sale proceeds of newspapers and magazines was the source of fund out of which the deposits in the undisclosed bank accounts were made by the assessee, no addition on account of peak credit ought to have been made by AO. With regard to the addition made on account of gross profit on account of unaccounted sale the assessee contended that only the net profit rate should have been taxed by the AO and not the gross profit rate. CIT(A) dealt with the aforesaid contentions as follows :- “The assessee carries on wholesale stockist business for newspaper & magazines. She has a regular business set up where all necessary expenses are claimed. The g.p. rate declared is 5.12%. The A.O. has applied this g. p. rate to the undisclosed business turnover appearing as cash deposits in the undisclosed bank accounts. The assessee ITA No.2604/Kol/2013-Smt. Maya Rani Mustafi A.Y.2008-09 2
merely claims that the A.O. should not have made the g.p. addition of Rs. 200,784/- for the following reasons:- (i) the A.O. has not rejected the books of accounts (ii) no other evidences have been brought on record. (iii) The A.O. should have applied n.p. rate only. The contentions of the assessee are groundless. The A.O. has not rejected the regular books of account and the profit contained therein. The AO has found undisclosed bank accounts, which do not figure in the Balance sheet of the assessee. All the declared business transactions are already covered (both their debit & credit; & receipts & payments) from the cash book and bank book maintained for the regular business. The bank accounts which are admittedly undisclosed contain transactions of another set of business dealt only in cash. The AO could have treated the entire deposits as unexplained cash credits but since the withdrawal from the AXIS Bank of No. 43610100192125 have gone to concerns like Bennett Coleman & Co. Ltd., ABP Pvt Ltd, P.C. News agency P. Ltd. Aaj kal Publisher P. Ltd etc the AO has refrained from adding the entire sum. As regards the question of n.p addition, it is not the assessee's case that it had a different business operating set up or that the undisclosed business was carried out from another secret premises with different establishment costs. In the absence of the same the presumption is that the undisclosed turnover was only dealt the rough the regular business set up of the assessee. As the fixed costs remain the same, the AO correctly applied the g.p. rate.”
4.1. As far as addition on account of peak credit is concerned CIT(A) held as follows :-
“In these ground the assessee has questioned the addition of Rs.7,83,884/- ,made by the A.O. on account of investment made to fund the undisclosed trading activities of the assessee. The AO inter-alia has held that to acquire more periodicals, magazines and newspaper stock, the assessee must have incurred investment expense for buying stocks and other expenses like security deposits, freight payments etc. The assessee by way such arguments is feebly trying to absolve itself of all wrong doing and keeping its transaction hidden from the Revenue and seeking to put entire onus on the Revenue. The Bank account is of the assessee, the deposits therein are by the assessee, the funds are utilized by the assessee and therefore it is for the assessee to show that she had made no investment or that there was no blocked funds. It is common knowledge that in common households the newspapers vendor collects money nearly after a month and in a wholesale business the roll over can easily surpass three month's .. sales. The A.O. has found that the maximum cash balances in the two undisclosed accounts were appearing on:- (i) SB a/c with AXIS Bank on 27/08/07 Rs. 481988/- (ii) C/ A a/c with Allahabad Bank on 22/03/08 Rs.301896/- The AXIS Bank account was opened only on 08.06.2007 and the peak cash deposit of Rs. 4,81,988/- was on 27/08/07. Therefore, it is logical to presume that a similar sum must have been paid up-front to the suppliers before the sale proceeds started trickling in. Therefore the A.O. was justified to tax the sum of Rs. 4,81,988/-. However, having once added the initial rollover capital the AO shouldn't have added the second um of Rs. ITA No.2604/Kol/2013-Smt. Maya Rani Mustafi A.Y.2008-09 3
301896/-. In fact, the AXIS Bank account has very little transaction recorded for the month of March, 2008 and the Allahabad Bank account starts from March, 2008 only. Thus it seems that by this month the assessee had shifted her deposits from the AXIS Bank to Allahabad Bank. In view of the above the addition of Rs. 3,01,896/- is deleted as the assessee had the benefit of the previous addition.” 5. Aggrieved by the order of CIT(A) assessee has preferred the present appeal for the Tribunal.
The learned counsel for the assessee reiterated the submissions as were made before CIT(A). The learned DR relied on the order of CIT(A).
I have given a careful consideration to the rival submissions. As far as the question whether the gross profit on unrecorded sales or net profit on account of unrecorded sales have to be added to the total income, I find that CIT(A) has proceeded on the basis that there cannot be any expenses incurred by the assessee for the purpose of carrying the unrecorded sales of newspapers and magazines. It is for this reason that CIT(A) refused to accept the contention of the assessee that only the net profit rate ought to have added as income from unrecorded business of the sale of newspapers and magazines. This fact has not been controverted by the assessee by showing as to how other operating expenses were required or were incurred by the assessee for making unrecorded sale of newspapers and magazines. In the given circumstances the conclusion drawn by CIT(A) that the fixed cost of the assessee remained the same and therefore the gross profit rate has to be added as profits from undisclosed sales is correct and calls for no interference.
7.1. As far as the question whether the peak credit in the Axis bank has to be added to the total income or not, I find that CIT(A) has proceeded on the basis that in newspaper vending business money is collected only after a month and therefore a wholesaler has to roll over three months sales as his initial capital for doing unrecorded business on sale of newspapers and magazines. This presumption of CIT(A) is correct. The argument of the assessee before me was that moneys were withdrawn from the disclosed bank account and deposited in Axis bank (undisclosed ITA No.2604/Kol/2013-Smt. Maya Rani Mustafi A.Y.2008-09 4 bank account). This has neither been substantiated before AO or CIT(A). Even before the Tribunal no material whatsoever has been produced to substantiate the aforesaid contention. In the circumstances I am of the view that the presumption drawn by CIT(A) is correct and calls for no interference. Accordingly we do not find any merits in this ground of appeal by the assessee. Accordingly the same is dismissed.
In the result the appeal of the assessee is dismissed.
Order pronounced in the Court on 6.4.2016.