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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
This appeal has been filed by the assessee against the order dated 18.06.2019 passed by the ld. Commissioner of Income Tax (Appeals)-1, Jalandhar (hereinafter referred to as ‘the CIT(A)’, in respect of Assessment Year 2011-12.
Amarjit Singh v. ITO 2. The assessee has raised the following grounds of appeal:
“1. That the order in question has been passed in an arbitrary manner and the matter has been disposed off in a mechanical manner without going into merits of the case, hence is not sustainable in law.
The Ld CIT(A) has erred in upholding that Explanation 3 to section 147 authorizes the AO to assess any other income which was prior to issue of notice u/s 148 was in the knowledge of the AO who did not included the same while issuing such notice WHEREAS Expl. 3 to section 147 speaks of any other income which came to knowledge of assessing officer subsequently.
3. That the Ld CIT(A) erred in refusing to appreciate, that a joint reading of (i) Reply letter dated 11/12/2015 along with copies of three bank accounts by state bank of India to information called u/s 133(6) with "Seen" remarks written in own hands by AO on 15/12/2015 AND (ii) Para 5 of the Reasons recorded by AO u/s 147, made it clear that the AO has examined and verified all the relevant records including the said bank accounts.
Therefore, the AO has examined all the three bank accounts supplied by the bank in response to notice u/s 133(6) and only then issued notice u/s 148 and cannot take shelter of Expl. 3 to section 147 to reconsider those bank accounts during the course of assessment resulting from notice u/s 148.
Ld CIT(A) erred in not setting aside the order of the AO on the ground that the AO has considered deposits in current account of M/s Jessica Consultants, a partnership concern having separate PAN and filed its Return of Income for AY 2010-11 AND having separate bank account in the name of the partnership firm on the ground that the said bank account was operated by the assessee as partner of the said firm.
5. The Ld CIT(A) erred in holding that the existence of Partnership firm was doubtful during the FY 2010-11 in the absence of any evidence despite being provided with copies of Partnership deed, PAN card, Registration certificate issued by the Registrar of Firms and Societies, A certificate from Bank confirming the Partnership status of the bank account of the firm during the FY 2010-11 resp.
Amarjit Singh v. ITO Here the presumption of law is in favour of confirming the status of partnership firm unless there is evidence confirming the dissolution of the firm. 6. The said bank account was operated by the both the partners, severally throughout since the formation of the Partnership firm including the previous year 2010-11 and the Ld CIT(A) failed to appreciate that there is no bar on the bank accounts of the firm being operated by its partners severally or jointly.
7. The Ld CIT(A) has erred in upholding 10% as income on the amount of deposits as against the prescribed rate of 8% u/s 44AD of the Income Tax Act 1961 in the absence of any such comparable compilation relied upon by the AO.
The assessee has filed return u/s 44AD and his gross receipts were below Rs. 40 lakhs. The AO made additions to the gross receipts which increased the gross receipts beyond the limit prescribed for section 44AD therefore the penalty u/s 44AA cannot be initiated/levied. The AO has levied such penalty vide order dated
Beside this the appellant also reserve the right to file additional grounds of appear during hearing.”
None appeared for the assesse, however after hearing the Ld. DR and considering the facts on record it is decided to hear and dispose of the appeal.
4. A proposed ground nos. 7 & 8, the assessee has challenged the action of Ld. CIT(A)’s upholding of 10% profit rate on gross receipt on the bank deposits as against the profit rate declared @ of 8% u/s 44AD of the Income Tax Act, 1961.
During the assessment proceeding proceedings, the AO required the assessee to provide documentary evidence in support of gross receipts as Amarjit Singh v. ITO mentioned in show cause notice. However, the AO was not satisfied, with documentary evidence furnished by the assessee. The AO discussed that it is evident that the assessee is engaged in the business of providing educational consultancy during the financial year 2010-11 and have huge financial transactions related to his business. Since, the assessee completely failed to file details regarding gross receipts of Rs.33,90,777/-.
As per his bank account statements mentioned above, total credits in these bank accounts increased to the tune of Rs.1,93,32,782/- and the said credits are treated as his gross receipts/total turnover from his business.
Accordingly, it is fair and reasonable to apply N.P rate @10% on the total credit receipts as per bank accounts mentioned above of Rs.1,93,32,782/- by taking into consideration of the line of business of the assessee. The net profit from the business comes to Rs.19,33,278/-. Since, the assessee failed to file any explanation regarding books of accounts maintained by him, the total of Rs.19,33,278/- is hereby taken undisclosed income of the assessee from business.
In appeal the ld. CIT(A) has confirmed the addition by observing vide para 7.2 as under:
“7.2 During the assessment proceedings, the Ld. Counsel had argued that M/s Jessica Consultant was a separate partnership firm having its PAN and registration deed, therefore the basis of addition on deposits pertaining to M/s
Amarjit Singh v. ITO Jessica Consultants may be excluded from the income of the assessee. It is claimed that copy of partnership deed has been given to the assessing officer. During the appeal proceedings, the assessee has filed only first page of partnership deed that M/s Jessica Consultant is a partnership firm of Sh. Chander Sarup and Sh. Amarjit Singh formed on 01.08.2018 but the subsequent pages of the partnership deed was not provided. A copy of return of income for A.Y. 2010-11 filed by M/s Jessica Consultants with PAN: AAGFJ4718A showing income of Rs. 77,591 which was filed on 14.09.2010 by Sh. Chander Sarup was filed. Information from State Bank of India dated 05.04.2019 was filed to show that the bank account No.—747 of M/s Jessica consultants is partnership account with joint operation of two partners. The evidence provided by the assessee does not prove that during the A.Y. 2011-12 also- the partnership firm existed which was formed as mentioned above. The bank account was being operated by the assessee himself during the relevant F.Y. though initially opened in the name of firm. No return of income has been filed by M/s Jessica Consultants for A.Y.2011-12. There is no conclusive proof of M/s Jessica Consultants being a partnership during F.Y. 2010-11. In view of these facts, amount of deposits in the current account of M/s Jessica Consultant in the hands of assessee is upheld.
Further, the Ld. Counsel has raised the issue regarding rate of 10% applied on the deposits against rate of 8% prescribed u/s 44AD of the Income Tax Act, 1961. It is observed that the assessing officer has issued show cause to the assessee to assess the receipts @10% of the total deposits in the bank accounts. Accordingly, estimation of income @ 10% thereon made by the assessing officer is upheld. Thus ground of appeal is dismissed.”
The appellant in the ground of appeal raised the contention that the order in question has been passed in an arbitrary and mechanical manner without going into merits of the case; that that Ld CIT(A) erred in not setting
Amarjit Singh v. ITO aside the order of the AO on the ground that the AO has considered deposits in current account of M/s Jessica Consultants, a partnership concern having separate PAN and filed its Return of Income for AY 2010- 11 and having separate bank account in the name of the partnership firm on the ground that the said bank account was operated by the assessee as partner of the said firm; that the existence of Partnership firm was doubtful during the FY 2010-11 in the absence of any evidence despite being provided with copies of Partnership deed, PAN card, Registration certificate issued by the Registrar of Firms and Societies, A certificate from Bank confirming the Partnership status of the bank account of the firm during the FY 2010-11 would lead the presumption of law is in favour of confirming the status of partnership firm unless there is evidence confirming the dissolution of the firm; that the said bank account was operated by the both the partners, severally throughout since the formation of the Partnership firm including the previous year 2010-11 and the Ld CIT(A) failed to appreciate that there is no bar on the bank accounts of the firm being operated by its partners severally or jointly; that the Ld CIT(A) has erred in upholding 10% as income on the amount of deposits as against the prescribed rate of 8% u/s 44AD of the Income Tax Act 1961 in the absence
Amarjit Singh v. ITO of any such comparable relied upon by the AO. The Appellant thus contends that impugned order is not sustainable in law.
8. The Ld Addl/Joint CIT DR stands by the impugned order.
9. Having heard the Ld. Addl/Joint CIT (DR), and on perusal of impugned order and material facts on record, we find that the AO has estimated income @ 10% of the gross receipts as per bank accounts including the partnership bank accounts to the extent of Rs.1,93,32,782/- being both engaged in the similar line of business activity. The Ld. CIT(A) while confirming the assessment order u/s 143(3) of the IT act hold that claim of basic exemption is hereby disallowed. The Ld. CIT (A) has observed that the assessee has filed only first page of partnership deed that M/s Jessica Consultant is a partnership firm of Sh. Chander Sarup and Sh. Amarjit Singh formed on 01.08.2018 but the subsequent pages of the partnership deed were not provided. A copy of return of income for A.Y. 2010-11 filed by M/s Jessica Consultants with PAN: AAGFJ4718A showing income of Rs. 77,591 which was filed on 14.09.2010 by Sh. Chander Sarup was filed. Information from State Bank of India dated 05.04.2019 was filed to show that the bank account No.—747 of M/s Jessica consultants is partnership account with joint operation of two partners. The evidence provided by the assessee does not prove that during the A.Y. 2011-12
Amarjit Singh v. ITO also- the partnership firm existed which was formed as mentioned above.
The bank account was being operated by the assessee himself during the relevant F.Y. although initially opened in the name of firm. No return of income has been filed by M/s Jessica Consultants for A.Y.2011-12. There is no conclusive proof of M/s Jessica Consultants being a partnership during F.Y. 2010-11. In view of the matter we find no error in the observation of the Ld. CIT(A) in upholding the amount of deposits in the current account of M/s Jessica Consultant in the hands of assesse.
However, the objection of the assesse to the application of rate of profit @10% as against 8% declared u/s 44AD of the Act can not be rejected merely on the ground that the AO issued show cause to the assessee to assess the receipts @10% of the total deposits in the bank accounts without taking on assesse rebuttal or even corroborative documentary material evidence such as past history or comparable case on parity of facts. In our view, it is just fair and reasonable to apply a profit rate of 8% on the total bank deposits of Rs. 1,93,32,782/- being considered as the Gross receipt/Turnover of the assesse. Thus ground no. 7 & 8 are allowed.
Since, the assessee gets relief on merits and hence, it is not required to adjudicate the legal issue of validity of proceedings u/s 147.
Amarjit Singh v. ITO 12. In the result, the appeal of the assessee is allowed in the terms indicated as above.