SRI HARBINDER SINGH,PURBA MEDINIPUR vs. ITO, WD-4, HALDIA, HALDIA

The issue raised in Ground No. 1 relates to the addition of Rs.1,08,500/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by disallowing the assessee’s claim for exemption on account of agricultural income.

The assessee in the present case is an individual, who is engaged in the Hotel & Lodging business as well as in trading activity. A survey under section 133A was carried out in the business premises of the assessee on 17.10.2006. Thereafter the return of income for the year ./2015 Assessment year: 2007-2008 Page 2 of 7 under consideration was filed by the assessee on 18.08.2008 declaring total income of Rs.3,24,460/- and agricultural income of Rs.1,08,500/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that there was no agricultural land shown by the assessee in the balance-sheet filed along with his return of income. He, therefore, required the assessee to establish his claim for exemption on account of agricultural income. In reply, it was explained by the assessee that he had acquired three acres of ancestral agricultural land, wherein wheat was grown. It was also explained by the assessee that he had appointed some workers to do the agricultural work on crop sharing basis and after selling his share of wheat for Rs.1,22,461/-, net agricultural income of Rs.1,08,500/- was earned after reducing the corresponding expenses. The assessee, however, could not file the copy of crop sharing agreement with the workers as well as other documents, such as land revenue paid receipts, ‘Mandi’ bill etc. to support and substantiate his claim. The Assessing Officer, therefore, disallowed the claim of the assessee for exemption on account of agricultural income and taxed the agricultural income of Rs.1,08,500/- declared by the assessee under the head “income from other sources”.

The addition made by the Assessing Officer by disallowing his claim for exemption on account of agricultural income was disputed by the assessee in the appeal filed before the ld. CIT(Appeals) and additional evidence in the form of ‘Mandi’ receipt and letter from ‘Sarpanch’ was filed by the assessee to support and substantiate his claim for agricultural income. This additional evidence filed by the assessee was forwarded by the ld. CIT(Appeals) to the Assessing Officer for verification and after taking into consideration the remand report filed by the Assessing Officer as well as counter comments offered by the assessee thereon, the ld. CIT(Appeals) held that there was a failure on the part of the assessee to file any evidence to establish his claim of agricultural income. Accordingly, the addition made by the Assessing Officer on this issue was confirmed by the ld. CIT(Appeals). ./2015 Assessment year: 2007-2008 Page 3 of 7

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the letter from ‘Sarpanch’ was filed by the assessee before the ld. CIT(Appeals) and the same showing clearly the ownership of agricultural land by the assessee has not been properly appreciated either by the Assessing Officer in the remand report or even by the ld. CIT(Appeals) in his impugned order. Similarly, the ‘Mandi’ receipt filed by the assessee is sufficient to show that there was a sale of agricultural produce in the form of wheat as claimed by the assessee. In my opinion, the documentary evidence filed by the assessee is sufficient to show the ownership of land by the assessee as well as the sale of wheat produced from the said land and there was no justification in the action of the authorities below to deny the claim of the assessee of having earned agricultural income of Rs.1,08,500/-. I, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to accept the claim of the assessee for exemption on account of agricultural income. Ground No. 1 is accordingly allowed.

The issue raised in Ground No. 2 relates to the addition of Rs.37,524/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by estimating the income of the assessee by applying higher net profit rate of 20% as against the net profit rate of 15% declared by the assessee.

In case of his trading activity carried out in the name of his proprietorship concern M/s. H.S. Traders, net profit of 15% was declared by the assessee on a turnover of Rs.7,54,896/-. During the course of assessment proceedings, it was submitted by the assessee before the Assessing Officer that no books of account in respect of the said proprietory business was maintained and profit was offered at 15% on estimated basis. Reliance in this regard was placed by the assessee on the provisions of section 44AF of the Act. The Assessing Officer, however, ./2015 Assessment year: 2007-2008 Page 4 of 7 noted that there was no mention of section 44AF made by the assessee in the return of income and since there were no books of account available for verification, he estimated the income of the assessee from this activity by applying net profit rate of 20%, which resulted in the addition of Rs.37,524/-. On appeal, the ld. CIT(Appeals) confirmed the said addition.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that there was no basis given by the Assessing Officer for estimating the income of the assessee by applying higher net profit rate of 20% and even the ld. CIT(Appeals) has also not adopted any basis while upholding the said rate. As submitted by the ld. Counsel for the assessee, net profit rate of 14.84% was declared by the assessee in respect of the same business for the immediately preceding year, i.e. A.Y. 2006-07 and the same having been accepted by the Assessing Officer, I am of the view that the net profit rate of 15% declared by the assessee for the year under consideration was quite fair and reasonable. I, therefore, delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by applying higher net profit rate of 20% and allow Ground No. 2 of the assessee’s appeal.

The issue raised in Ground No. 3 relates to the addition of Rs.3,73,384/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by applying the net profit rate of 20% to the alleged undisclosed receipts of the assesese from the hotel ‘Sher Punjab Inn’.

During the course of survey, certain documents were found showing that the actual receipts of the assessee from his hotel business were Rs.8,59,296/- for the period of 01.04.2006 to 23.07.2006 and 12.10.2006 to 31.03.2007. By taking average of this sale for 168 days, the total receipts of the assessee from hotel business for the entire year was worked out by the Assessing Officer at Rs.18,66,923/- and by applying the ./2015 Assessment year: 2007-2008 Page 5 of 7 net profit rate of 20%, he made an addition of Rs.3,73,384/- to the total income of the assessee.

Before the ld. CIT(Appeals), the assessee filed some additional evidence in support of his claim that the alleged undisclosed receipts from hotel business were actually belonging to his father Shri Gurdev Singh, who was supplying food to the customers staying in the hotel of the assessee. This additional evidence filed by the assessee was forwarded by the ld. CIT(Appeals) to the Assessing Officer and after considering the remand report filed by the Assessing Officer and the counter comments offered by the assessee thereon, the ld. CIT(Appeals) held that the claim of the assessee that the alleged undisclosed receipts were belonging to the business of his father and brother was not supported by any evidence. He, therefore, confirmed the addition made by the Assessing Officer on this issue.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the ld. Counsel for the assessee has reiterated before me the submissions made before the authorities below and relied on the same evidence as filed before them, I find that the evidence placed on record by him is not sufficient to establish that the alleged undisclosed receipts were actually belonging to the business of his father and brother. There is no record maintained in relation to the business of the assessee as well as his brother and father in the form of relevant registers or bills to show that the undisclosed receipts were actually belonging to the business of father and brother of the assessee and not that of the business of the assessee. In the absence of such record, I find myself in agreement with the ld. CIT(Appeals) that the undisclosed receipts were belonging to the business of the assessee as rightly held by the Assessing Officer. I, however, find that the net profit rate of 20% applied by the Assessing Officer as well as by the ld. CIT(Appeals) to estimate the income of the assessee from such undisclosed receipts is on the higher side and it will ./2015 Assessment year: 2007-2008 Page 6 of 7 be fair and reasonable to apply the net profit rate of 15% in the facts and circumstances of the case. Accordingly, the impugned order of the ld. CIT(Appeals) is modified and the Assessing Officer is directed to restrict the addition made on this issue by applying net profit rate of 15%. Ground No. 3 is partly allowed.

The issue raised in Ground No. 4 relates to the addition of Rs.65,300/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of working capital allegedly required by the assessee for the purpose of undisclosed business.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the quantum of undisclosed receipts determined by the Assessing Officer has been confirmed by me while deciding Ground No. 3, I am of the view that in the absence of any material either found during the course of survey or even brought on record by the Assessing Officer during the course of assessment proceedings to show that some additional investment was made by the assessee to earn undisclosed receipts, the addition on account of such capital on presumption basis cannot be made. I, therefore, delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Ground No. 4.

In the result, the appeal filed by the assessee is partly allowed.