GIRIDHARIMAL BHANWARLAL,COOCHBIHAR vs. ITO, WARD - 1, COOCHBEHAR, COOCHBIHAR

The facts and circumstances under which these appeals arise for consideration are identical in all the Assessment years 2002-03 to 2006-07. For the sake of ready to 933/Kol/11--B-JM 1 Giridharimal Bhanwarlal reference, we will refer to facts as recorded in the Assessment order in AY 2002-03.

2.1 The Assessee is a partnership firm. They carry on trading in cloth on retail basis. There was a search and seizure operation carried out by the revenue u/s.132 of the Income Tax Act, 1961 (Act) in the business premises of S.Sajjan Kumar Suman Kumar Textile Company Pvt.Ltd. ( in short ‘SSK Textile’), of Varanashi, U.P.

The Assessee has also challenged the validity of initiation of reassessment proceedings against the Assessee u/s.147 of the Act in these appeals, besides challenging the additions made in the reassessment proceedings. We will deal with the to 933/Kol/11--B-JM 2 Giridharimal Bhanwarlal merits of the addition made first and if necessary, we will deal with the validity of initiation of reassessment proceedings.

In the reassessment proceedings, the AO referred to the receipt of the information from the DDIT(Inv.), Varnashi about cash purchases and called upon the Assessee to furnish copies of purchase bills, purchase account of SSK Textiles as appearing in the books of the Assessee. The Assessee submitted a copy of the purchase ledger account of SSK Textiles duly confirmed by them to the effect that purchases by the Assessee from SSK Textiles during the previous year relevant to AY 2002-03 was a sum of Rs.45,832/-. The purchases were on different dates and the payments for such purchases had been made by Demand Drafts.

Thereupon the AO issued a notice u/s.133(6) of the Act dated 17.8.2009 to SSK Textiles to send confirmation with ledger account of sales of goods by them to the Assessee. In compliance to the said notice SSK Textiles sent confirmation letter dated 2.9.2009 with sales ledger account of goods sold to the Assessee with mode of payment. The said confirmation also reflected the same figures as given by the Assessee viz., Rs.45,832/- and the mode of payment by Demand Drafts.

The AO in page-3 of para 2 of the order of assessment for AY 2002-03 after receipt of such reply from SSK Textiles comes to the conclusion that both the Assessee and SSK Textiles were suppressing the transactions as evidenced by the seized documents in the course of search of SSK Textiles. The details of the cash purchases to 933/Kol/11--B-JM 3 Giridharimal Bhanwarlal stated to have been effected by the Assessee from SSK Textiles for AY 2002-03 were as follows:

The AO again called upon the Assessee to show cause as to why the aforesaid additions be not made. The Assessee in reply reiterated its stand that there was no unrecorded purchases and therefore there was no question of making any addition.

Based on the aforesaid development, the AO again sent a notice u/s.133(6) of the Act to SSK Textiles dated 19.11.2009 to send correct information regarding unrecorded sales. SSK Textiles sent a reply dated 16.12.2009 wherein they mentioned that the matter was old and the documents were seized by the department and not in their custody and in the absence of necessary records it was unable to provide any details as was desired in the notice u/s.133(6) of the Act. The AO again sent a remainder letter dated 18.12.2009 to SSK textiles. The SSK Textiles sent another reply dated 24.12.2009 reiterating their inability to provide any information.

In the light of the above evidence before the AO, the AO came to the conclusion that in the latter correspondence SSK Textiles did not confirm the purchases by the Assessee to them as correct as per the books of Assessee and in the circumstances the to 933/Kol/11--B-JM 6 Giridharimal Bhanwarlal recording in the seized document have to be construed as unexplained purchases by the Assessee. The AO accordingly drew the following conclusions. The Assessee has effected purchases worth Rs.10,20,000 from SSK Textiles and such expenditure has not been recorded in the books of accounts of the Assessee and was therefore liable to be added as “unexplained expenditure” incurred by the Assessee not recorded in the books of accounts. Since the purchases were effected by making payments for the same by cash in excess of Rs.20,000 per day, 20% of such expenses, according to the provisions of Sec.40A(3) of the Act as it prevailed at the relevant AY, had to be disallowed and added to the total income of the Assessee. The further conclusion of the AO was that the goods purchased not recorded in the books of account had been sold by the Assessee outside the books of accounts and the Assessee had earned a 13.49% which is the gross profit margin of the Assessee as per books of accounts and declared in the regular returns filed by the Assessee for the relevant AY. The AO accordingly added the following sums to the total income of the Assessee:

The quantum of addition made in AYs 2002-03 to 2006-07 were as follows:

On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Before CIT(A) the Assessee submitted that the seized documents by mistake contains a reference to the name of the Assessee’s firm and that the real person to whom reference was made in the seized document was a proprietorship concern of one individual at Dinhata carrying on business under the name and style of Girdhari Lal & Co. The said business entity also confirmed the stand of the Assessee but the CIT(A) refused to believe the stand of the Assessee in this regard on the basis that such a stand was not taken before the AO and it was an afterthought.

Aggrieved by the order of the CIT(A) the Assessee is in appeal before the Tribunal. We have heard the submission of the learned counsel for the Assessee who submitted that it is a settled principle of law that surmises, conjectures or suspicion cannot replace hard evidence. There was no evidence before the Assessing Officer or ld.CIT(A) that the Assessee had actually made cash purchase from S.S. K Textiles at to 933/Kol/11--B-JM 8 Giridharimal Bhanwarlal any point of time and even if there is evidence to that effect, neither the Assessing Officer nor the CIT(A) has brought such evidence on record except mentioning enormous entry in a cash collection book written by a third party which cannot be said to constitute regular Books of Accounts maintained by the assessee as per the laws of accounting. Even otherwise, entry in a third party’s account wrongly or otherwise registered, unless corroborated by circumstantial evidence cannot bind the present Assessee to the consequences of such entries. The Assessing Officer has in a state of fiction made various presumption and the learned CIT(A) also without judicious application of mind acted on those presumption in total defiance of facts on record.

We have given a very careful consideration to the rival submissions. The sequence of events and the evidence on record shows that in the reassessment proceedings, the AO referred to the receipt of the information from the DDIT(Inv.), Varnasi about cash purchases and called upon the Assessee to furnish copies of purchase bills, purchase account of SSK Textiles as appearing in the books of the Assessee. The Assessee submitted a copy of the purchase ledger account of SSK Textiles duly confirmed by them to the effect that purchases by the Assessee from SSK Textiles during the previous year relevant to AY 2002-03 was a sum of Rs.45,832/-.

Based on the aforesaid development, the AO again sent a notice u/s.133(6) of the Act to SSK Textiles dated 19.11.2009 to send correct information regarding unrecorded sales. SSK Textiles sent a reply dated 16.12.2009 wherein they mentioned that the matter was old and the documents were seized by the department and not in their custody and in the absence of necessary records it was unable to provide any details as was desired in the notice u/s.133(6) of the Act. The AO again sent a remainder letter dated 18.12.2009 to SSK textiles. The SSK Textiles sent another reply dated 24.12.2009 reiterating their inability to provide any information.

In the light of the above evidence before the AO is it possible to come to a conclusion that the seized document (seized from a third party) records purchases effected by the Assessee ?. In our opinion such a conclusion cannot be reached. There is absolutely no material to link the Assessee and the seized document. SSK Textiles to 933/Kol/11--B-JM 11 Giridharimal Bhanwarlal confirmed the balance as recorded in the books of accounts of the Assessee. They have at no point of time admitted that the document seized from them records purchases by the Assessee for which the Assessee made cash payments. As rightly contended by the learned counsel for the Assessee, the conclusion drawn by the AO are purely based on surmises and conjectures and not based on legally acceptable evidence.

We therefore hold that there is no material on record to the come to the conclusion that the Assessee made purchases from SSK Textiles as recorded in the seized document and that the Assessee had made payments therefor in cash violating the provisions of sec.40A(3) of the Act. The consequent presumption of sale of goods so purchased and addition of gross profit on such sales is also not sustainable. We therefore direct that the additions made in all the AYs be deleted. In view of the above conclusion, we do not deem it necessary to deal with the other contentions put forth by the learned counsel for the Assessee before us.

In the result, all the appeals of the Assessee are allowed.