ITO, WARD-2(1), MIDNAPORE, PASCHIM MEDINIPUR vs. SHRI BINOD KUMAR AGARWALA, PASCHIM MEDINIPUR

Challenging the impugned order above, the appellant Revenue raised following grounds: “

The facts of the case are that the assessee is an individual and owner of a rice mill conducting his business in the name and style as “Jhargram Rice Mill” and filed his return of income on 01.11.2004 along with audited accounts declaring a total income of Rs.2,01,480/- for the assessment year 2004-05. The assessee has also cash credit facility with United Bank of India, Sepoy Bazar branch, Midnapur.

In the course of a survey action conducted under section 133A of the Act on 14.02.2008, a separate set of audited balance sheet was found and impounded by the AO, which was submitted to the bank by the assessee for availing cash credit facility. AO observed that the balance sheet filed with the return u/sec 139 of the Act was audited by Naredi & Co and the balance sheet filed with the bank was audited by Roy Ghosh & Associates. He then obtained a confirmatory letter from the partner of Roy Ghosh & Associates that they indeed examined and audited the balance sheet of the assessee which was filed with the bank and the AO tabulated the difference of amounts between two balance sheets under major heads as under: Particulars As per audited As per audited a/c Difference a/c for the year for the year ended ended 31.03.04 31.03.04 impounded submitted with from the office of return of income the assessee Opening Stock 3,34,551 30,60,172 30,25,621 Closing Stock 12,57,231 40,61,152 28,03,921 Purchases 4,79,30,960 4,90,94,578 11,63,618 Opening capital 15,88,519 40,67,915 24,79,396 Milling charges 1,01,004 --- 1,01,004 Commission paid 6,00,000 --- 6,00,000 Debtors 23,22,246 1,25,470 21,96,776 Unsecured loan 19,82,080 --- 19,82,080 Binod Kumar Agarwala Assessment Year: 2004-05 5. The AO, noticing the above discrepancies under two audited accounts filed by the assessee for the same assessment year, found that the balance sheet filed with the bank was the true and as it showed correct financial statements of assessee and accordingly, rejected the balance sheet filed along with the return and proceeded to make the under mentioned additions totaling to Rs. 1,53,03,900/- including the returned income of Rs.2,01,480/- filed in normal procedure u/s 139 of the Act. 1. Difference in opening stock (raw materials)- Rs.30,25,621/- 2. Difference in closing stock -Rs.28,03,921/- 3. Difference in purchases -Rs.11,63,618/- 4. Difference in opening capital -Rs.24,79,396/- 5. Difference in Sundry Debtors -Rs.12,50,109/- 6. Unsecured loan creditors -Rs.21,96,776/- 7. Milling charges for non deduction of TDS -Rs. 1,01,004/- 8. Commission paid for non deduction of TDS-Rs. 6,00,000/-

Aggrieved by the assessment order, the assessee preferred first appeal before the CIT-A, and he was of the view that the AO has resorted to pick and choose method between the audited accounts submitted to the Bank and with the regular process of return filed,while estimating the income of the assessee and found fault with the AO order, that inspite of rejection of audited balance sheet filed with the return he proceeded to make additions under various heads by comparing the difference between two financial statements. The CIT-A treated Rs.5,23,660/- as total income of the assessee as it was shown as net profit in the balance sheet filed with the bank.

Regarding the ground No. 2, On 14.02.2008, during the course of survey u/s. 133A of the Act and AO impounded, a deed of agreement dated 24.04.03 wherein it was noticed by him that the assessee has purchased a rice mill under the name 'Mahalaxmi Rice Mill' of Binod Kumar Agarwala Assessment Year: 2004-05 Lodhasuli, Jhargram, Midnapore(W) from Sri Prasanta Khan of Bachurdoba, Jhargram, Midnapore(W) for Rs.7.5 lakhs and on confirmation by the concerned authorities, the AO added Rs.7,50,000/- being purchase value of a rice mill from undisclosed sources. In an appeal, CIT-A, on the contention of the assessee the transaction of transfer did not materialize eventually as the vendor failed to deliver possession of the mill deleted the addition of Rs.7,50,000/-.

Challenging the order of the CIT-A, the Revenue before us contended that during survey the an agreement regarding purchase of a rice mill and two balance sheets were found and the assessee deliberately prepared to two balance sheets, on comparison of such statements, the discrepancies found thereon were rightly added by the AO. The assessee failed to disclose, regarding the source of funds in purchasing the rice mill and it was also rightly added by the AO as undisclosed income and relied on the order of AO,s order.

In reply the AR submitted that the CIT-A considered both the balance sheets one which was impounded during survey and other being filed along with the initial return of income. The CIT-A did not rely on any new document and relied on the same documents which were placed before the AO and drew our attention to the page no-11 of paper book. Regarding the ground no-2, the agreement which was said to be impounded during survey was not at all acted upon. Further, The AR submitted the order of the CIT-A is well considered and sought to dismiss the appeal filed by the Revenue.

Heard both the representatives and perused the record. It is evident from the record that the present appeal was carried on an Binod Kumar Agarwala Assessment Year: 2004-05 assessment U/Sec 147/143(3) of the Act. The appellant Revenue processed the original return filed by the assessee under normal procedure U/Sec 143(1) of the Act and accepted the income declared by the assessee in the above procedure at Rs.2,01,480/-. Again under scrutiny assessment proceedings, the AO completed the assessment U/Sec 144 of the Act at Rs.30,05,400/-.

It is pertinent to notice that on appeal from the original assessment order the CIT-(A) considered the variations in the two Balance Sheets. He also tabulated the variations in the two Balance Sheets. Further, CIT-(A) observed that the final accounts submitted to Bank showed lesser sales and higher purchases than the figures of sales and purchases appearing in the audited Balance Sheet furnished to the appellant Revenue. CIT-(A) further noted that though the figure of closing stock in this estimated balance sheet was inflated almost three times the Closing Stock with the balance sheet submitted with the original return U/Sec 139 of the Act, the gross profit shown to the Bank was Rs.5,23,659/- whereas the same shown in audited accounts furnished to the appellant Revenue was only Rs.2,01,479/-. On analysis of the varying figures of the two accounts he concluded that the higher net profit of Rs.5,23,659/- in the accounts furnished to the bank should substitute itself for the net profit of Rs.2,01,479/- disclosed by the assessee to the appellant Revenue. The said order accepting the higher net profit of Rs.5,23,659/- as disclosed by the assessee in the disputed balance sheet furnished to the bank, was not challenged by either of the parties in appeal in higher forum. Therefore order in original assessment is binding and attained finality i.e the original assessment got merged with the order of the CIT-(A). In our view, reopening of assessment on the basis of same set of facts i.e considering and Binod Kumar Agarwala Assessment Year: 2004-05 comparing the two balance sheets again for the purpose of reassessment is bad under law. Therefore, we deem it appropriate to treat the higher net profit of Rs.5,23,659/- as determined by CIT-(A) in appeal against the original assessment order as income of the assessee and that the appeal filed by the appellant Revenue has devoid of merit and dismiss the ground no-1.

Regarding ground no-2, during the Survey an agreement for sale was found. The AO relied on the fact that the assessee obtained a licence competent authority i.e from the Controller of Food to operate the mill. But, however the AR submitted that the agreement was never acted upon and it can be seen from the order of the CIT-(A) where he examined affidavit of the assessee dt:21/07/2010 where he deposed that due to some serious obstacles from the land owner the said agreement neve acted upon, affidavit of Shri Prasanta Khan who is the land lord (mill owner) himself confirmed the declarations made by the assessee in his affidavit, copy of a letter dt:17-02-2004 by the Shri Prasanta Khan to the District Controller (F & S), Midnapore as a proprietor of Mahalaxmi Rice Mill, copy of certificate dt:08-04-2004 issued by the Gram Pradhan, charging tax of Rs.100/- from Shri Prasanta Khan the owner of Rice Mill, lastly, copy of agreement of lease dt:11-06-2004 indicating that Shri Prasanta Khan had leased the said rice mill to Shri Debabrata Saha. But, However, the AO was in the impression that the in view of the discovery of the agreement of sale, that the assessee took over the mill and had operated the mill. The agreement only shows that the assessee agreed to purchase a rice mill for consideration of Rs.7,50,000/-which was never acted upon by the between the parties therein, The AO failed to show any other evidence to the contrary to the material on record. Therefore, we are of the view that the CIT-A rightly Binod Kumar Agarwala Assessment Year: 2004-05 deleted the addition made by the AO. Thus, the ground no-2 of the appellant Revenue is dismissed.

In the result, the appeal filed by the Revenue is dismissed