P.SRINIVASAN,SALEM vs. ITO, SALEM

आदेश / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) Salem, dated 28.03.2014 for the assessment year 2009-2010.

2. The assessee has raised the following grounds:-

I.T.A.No.986/2014. :- 2 -:

1.“The order of learned CIT(A) Salem dated 28.03.2014 is opposed to the facts of the case and is not legally maintainable.

2. The learned CIT(A)is not justified in sustaining the addition of �31,36,178/- towards negative cash balance.

3. The AO has framed the assessment on the presumption that cash withdrawals at Surat has been utilized for purchases without any evidences in his possession. An assessment has to based on facts and documentary evidences and not on presumption and surmises.

4. Even assuming for a moment but not conceding that the entire withdrawals at Surat is for purchases, the Assessing Officer in framing his assessment has not taken into account the sale proceeds arising out of such purchases which is available with the assessee to explain the alleged negative cash balance of �31,36,168/- brought to assessment.

5. In view of the above grounds the addition of �31,36,178/- made by the AO and sustained by CIT(A) may be deleted and justice rendered.

The brief facts of the case are that the assessee is an 3. individual, filed his return of income for the assessment year 2009-10 on 10.09.2009 admitting taxable income of Rs.1,93,697/- and the same was processed u/s.143(1) on 30.12.2009. Subsequently the case was selected for Scrutiny and notice u/s.143(2) was issued on 18.08.2010 and served on 21.08.2010. The authorised representative of the assessee appeared before the Assessing Officer and produced copy of bank statements, List of Trade creditors I.T.A.No.986/2014. :- 3 -: along with address and books of accounts, etc. and the same were test checked. The assessee is a wholesale and retail sarees trader, purchases sarees at Surath and sells the same in Salem. All the purchases are made at Surath only.

During examination the books of accounts of accounts produced and bank statement, it is found that, in the cash book page No.337 to 338 on April-29' 2008 ATM cash from ICICI Bank Account NO.611905043482 �30,000/- was entered six times amounting to �1,80,OOO/-. But there is no corresponding withdrawal from Bank, when the same was pointed out the Authorised Representative stated that the assessee will offer that amount as his additional income.

The Authorised Representative's attention has been drawn to the fact that cheques (listed in Annexure-A) issued to third parties and encashed / honored at Surat but in the cash book it has been shown as contra entry i.e. the cash is credited to the Cash book maintained at Salem on the same date. The cash withdrawn might be expended in Surath itself and the same is questioned, the Authorised Representative stated that the cash withdrawal at Surath has been entered in the Regular Day Book. It was I.T.A.No.986/2014. :- 4 -: repeatedly and specifically questioned the purpose of withdrawals at Surat and how it was brought to the assessee on the same date to include in the Salem cash book. These questions were never answered by the Authorised Representative, emphasis that the only cash withdrawals added in the Cash Book. When the Authorised Representative questioned the purpose of withdrawls and how the Surat Cash was physically brought to Salem on the same date, he did not give any reply. As the assessee's entire purchases are from Surath only, the Cheque withdrawal from Surat should have been expanded for some other purpose. It is impractical to say that cheque encashed at Surath and cash has been brought back to Salem every time. If these cheque withdrawals are removed from cash book, the Cash balance will show negative balance. For the assessee's day to day activity, cash from other source was physically brought in to cover the negative cash balance.

When it was questioned about negative cash balance during the hearing, no explanation was offered. Hence the peak of negative cash balance on 21.03.2009 as Rs.31,36,168/-, is income earned from the unexplained I.T.A.No.986/2014. :- 5 -: source, added with Income Returned. The assessee had failed to give explanation for the withdrawal at Surat from his Bank Accounts. In the absence of explanation, the withdrawals made by the assessee has to be treated as unaccounted purchase made at Surat. Profit earned from this unaccounted purchase is estimated at 10% profit rate, ie., Profit = the assessee has not given any evidence for returning of this deemed purchase - Sale amount from Surat to Salem, this cannot be set off against the negative cash at Salem. Against this, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).

4. Before the Commissioner of Income Tax (Appeals), the assessee had filed the written submission as under:-

I.T.A.No.986/2014. :- 6 -:

3. As could be seen from the annexure to the asst. order, AO has taken entire cash withdrawal at SURAT is utilized for purchases which total income to Rs.33,05,100/- but in the asst. order such withdrawals has been taken at a figure of Rs/31,25,100 and further a gross profit of Rs.3,12,510 at 10% has been added with income returned. The final figure added in income computation is Rs.3,35,323/- and not Rs.3,12,510/-.

Even assuming for a moment but not conceding that the entire withdrawals at Surat is for purchases, the AO in framing his assessment has not taken into the sale proceeds arising out of such purchases which is available with the assessee to explain the alleged negative cash balance of Rs.31,36,168/- brought to assessment. The assessment has been made on presumption and surmises that cash withdrawals at SURA T has been utilized for purchase, without any evidence in possession of AO. An assessment has to be based on facts and documentary evidences. Be that as it may not giving credit for sale proceeds of Rs.34,60,423/- (31,25,100 + 3,35,323) as taken by AO, while arriving at the negative cash balance is against the facts of the case."

(Appeals) called for remand report from the Assessing Officer wherein he submitted that the submission of the assesseee was sent to the assessing officer for his comments with specific direction to explain how addition can be made on both counts, ie., Gross Profit on account of unaccounted sales and also on account of negative cash balance. The Assessing Officer has submitted para wise reply for the submissions filed by the assessee is as under:-

1. During the course of assessment proceedings, I.T.A.No.986/2014. :- 7 -:

the Authorised Representative's has filed a written submission in which he has stated that "The assessee is dealing only Surat sarees." (Copy enclosed). This was mentioned in the assessment order as entire purchases are at Surat. Since 92% of purchases are from Surat, balance 8% has no effect.

3. There is a typographical error in the order. The actual working should have been G.P. earned from unaccounted purchase will be ₹ 33,05,100 X 10.72% (as per Authorised Representative’s letter - Copy enclosed) = ₹.3,54,306/- The assessee' contention "The assessment has been made on presumption and surmises that cash withdrawals at SURA T has been utilized for purchase, without any evidence in possession of AO. An assessment has to based on facts and documentary evidences" is untenable. It is very clear from the facts that the cash book CONTRA entry cheques are paid to the cloth traders of Surat [i.e. Dhiva Fashions, Opel Sulz Pvt. Ltd, Chamundeshwari Tex, Vasanth Traders, Champak Tex, Sri Rajeswari Tex, Angoori Designer, Apple Creation, Mahaveer Tex, etc], which was confirmed by the Banker. When this was questioned, the A.R. offered no explanation. Therefore the assessment was framed based on the facts and documentary evidences produced by the Banker. The assessee is instrumental to generate the black money to the tune of Rs.69,64,5001- [Purchase Rs33,05,OO + Sales Rs.36,59,400] failed to produce any evidence for the inflow of the unaccounted sales fund into the account. But in the audited accounts, wherein the Chartered Accountant certified that true and correct, the outflow for unaccounted purchases are established with evidence. The assessee has stated that A.O. has not taken into account sale I.T.A.No.986/2014. :- 8 -:

proceeds arising out of such purchases which are available with assessee to explain the alleged negative cash balance. Even after giving sufficient opportunities, the assessee has not proved with any evidence that such cash balance was utilized in the business and not elsewhere. Since the assessee failed to discharge his onus, the assessment order was rightly framed as stated in page 3 of the order "Since the assessee has not given any evidence for returning of this deemed purchase - sale amount from Surat to Salem, this cannot be set off against the negative cash at Salem."

‘’1.In the letter of Assessing Officer dated 24.03.2014, in para no.2,there is a reference to confirmation obtained from the bankers. In the course of assessment proceedings, the above confirmations were never put to the assessee for his comments. 2.Again it is submitted that the AO has not brought in any documentary evidences like purchase invoices at Surat not recorded in books of accounts to support his stand that withdrawals at Surat are for unaccounted purchases.

I.T.A.No.986/2014. :- 9 -:

The Assessing Officer has also found that no corresponding withdrawals were found for an amount of �1,84,000/-, the entries of which was found in the cash book. The assessing officer has stated that the cash withdrawn might have been expended at Surat itself, and this being the case, the cash balance would not be available in actual, leading to a negative Cash Balance. The assessing officer has calculated the negative cash balance at Rs.31,36,168/- as peak negative cash balance and states that cash from some other source must have been brought in to meet the needs of the assessee in Salem. The officer held that it would be income from unexplained sources. The officer further treated the withdrawals made at Surat, to have been utilized for unaccounted purchases, and has gone on to make a further addition of Gross Profit on the unaccounted sale. The assessee has, inter-alia, has stated that without conceding I.T.A.No.986/2014. :- 10 -: that in case the assessee had unaccounted purchases then credit should be available for the money from the sale of such purchases. The assessing officer is not correct in just taking the investment purchases and not giving credit to the sales realized, is against the basic principles of accounting.

The assessee also states that addition on both the counts i.e., Gross Profit addition and also negative cash balance is not correct. It is true that the assessing officer has through his investigation has found out the details about withdrawals at Surat and the accounting of the cash thereof. The assessee cannot dispute the withdrawals at Surat and does not have any plausible explanation for the withdrawals there and is not willing to admit that the same is on unaccounted purchases. He is asking for credit for the unaccounted sales made, only because the assessing officer treated the withdrawals as unaccounted sales. The assessee in effect, states that it can't be negative balance if it is unaccounted sales and vice versa. The assessing officer has made addition on both the grounds, ie., on account of Gross Profit and on account of negative cash balance. It has to be conceded that both additions cannot I.T.A.No.986/2014. :- 11 -: be made. Now it has to be decided that only one addition has to be made, it is to be seen the probability of event.

The assessee has not been able to provide a shred of evidence towards any unaccounted purchases or sales, and in fact he is not conceding to any unaccounted sale. At the same time the assessee also does not have any explanation whatsoever, as to why the withdrawals were made. This gives credence to the conclusion that the money was spent for other purposes at Surat, but the entries were made in the Books at Salem, without any cash being available. This can only point out that there was actually a negative cash balance at Salem as concluded by the assessing officer. In view of the above, he was of the opinion that the addition on account of negative cash balance in the books of accounts at Salem is actually the case. In case the money is not spent in Surat, then it is simply not in the normal course of business or any practice to draw the money at Surat and bring it to Salem. In fact nothing can be strange than such an event happening. This being so, the addition on account of negative cash balance is sustained and the Commissioner of Income Tax (Appeals) given relief I.T.A.No.986/2014. :- 12 -: on account of the addition on account of Gross Profit.

Against this, the assessee is in appeal before us.

cash balance in the books of accounts of the assessee. The Assessing Officer brought the same to tax at �31,36,168/-. In addition to this, the Assessing Officer made addition to gross profit earned from unaccounted purchases made in Surat at �3,35,323/-. Hence, the Commissioner of Income Tax

(Appeals) deleted the addition on account of gross profit of �3,35,323/-.

relating to the cash withdrawal from Surat, there was admittedly negative balance worked out at �31,36,178/-. The contention of the assessee before us is that there is also I.T.A.No.986/2014. :- 13 -: unaccounted sales from Surat and if it is considered as source available to assessee, then there cannot be any negative balance in the books of accounts of the assessee. He submitted that the Assessing Officer has to consider the cash sales at Surat towards cash deficiency in the books of account of the assessee. In our opinion, the argument of the Assessing

Officer is totally misconceived. A mere argument of the assessee’s counsel that there was unaccounted sales at Surat does not support the case of the assessee for the source from unaccounted sales. Neither law nor human experience guarantee that an assessee who has been dishonest on one occasion bound to be honest subsequently. It is a matter of fact that the assessee is bound to explain with materials evidences suggesting availability of cash and there is no unaccounted or concealed income. In the present case, the assessee has not able to explain with reference to the negative cash balance in the books of accounts by placing on record details of unaccounted sales effected at Surat. The assessee has not able to explain true nature of cash receipt which is unaccounted and thus it is to be considered that the assessee has not explained the negative balance in the cash book and I.T.A.No.986/2014. :- 14 -: assessee cannot run the business with negative cash balance.

In such circumstances, the only conclusion that the negative cash balance to be considered as income of the assessee from unknown source and the same was to be treated as income of the assessee by the lower authorities which is to be confirmed in the absence of any material evidence in support of the claim of the assessee.

Order pronounced on Friday, the 15th day of May, 2015, at Chennai.