Income Tax Appellate Tribunal - Lucknow
Satish Chandra Pandey, Kanpur vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH "B "B", LUCKNOW
BEFORE HON'BLE SHRI H.L. KARWA AND HON'BLE SHRI N.K. SAINI
ITA No.525/LKW/2010
Assessment Year:2001-02
Dy. CIT v. Shri Satish Chandra Pandey
Central Circle 1, Kanpur 133/88-M Block, Kidwai Nagar
Kanpur
PAN:ACJPP7982K
(Appellant) (Respondent)
Appellant by: Shri Vivek Mishra, D.R.
Respondent by: Shri Amit Shukla, Advocate
ORDER
PER N.K. SAINI:
This is an appeal filed by the Department against the order of the CIT(A)-I, Kanpur dated 25.5.2010 for assessment year 2001-02. The following grounds have been raised in this appeal:-
1. The CIT(A) erred in law in deleting the addition of $16,42,480 made by the Assessing Officer as unexplained cash credit u/s. 68 of the Act on a wrong appreciation of law and without any basis despite the clear finding to this effect by the Assessing Officer that the assessee has not discharged its onus as provided u/s. 68 of the Act.
2. The CIT(A) erred in deleting the addition by holding that Assessing Officer has not questioned the brought forward cash balance. The CIT(A) has thus ignored the basic provisions of section 68 of the Act, which casts the onus on the assessee to produce evidence to the satisfaction of the Assessing Officer and which was not done by the assessee.
3. The CIT(A) has erred in law in allowing loss of $1,26,820 despite the fact that no documentary evidences regarding the loss from M/s Arohi International were produced before the Assessing Officer during the course of assessment proceedings.
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4. That the order of the ld. CIT(A) being erroneous and on facts be vacated and the order of the Assessing Officer be restored.
5. That the appellant craves leave to amend anyone or more of the grounds of the appeal as stated above as and when need for doing so may arise.
6. The first issue vide grounds No.1 and 2 relates to the deletion of addition of $16,42,480 made by the Assessing Officer on account of unexplained cash credit.
7. The facts of the case in brief are that a search and seizure operation u/s. 132 of the Income-tax Act, 1961 was carried out in Pandey Group of cases on 19.4.2006. In the said operation, residential premises of the assessee at 133/88-M Block, Kidwai Nagar, Kanpur was covered. During the course of search and seizure operation, cash, jewellery, valuables, various books of account, documents and loose papers related to the assessee were found and seized. Consequent upon search, notice u/s. 153A of the Act was issued requiring the assessee to file his return of income. The assessee stated that the return filed on 21.1.2002 declaring total income at $3,52,701 may be treated as return in response to the said notice. In the original return, the assessee declared income as under:-
"Income from business : (-) $1,26,820
Income from other sources : $4,91,521
$3,64,701
Less: Exempt u/s. 80L : $12,000
Total income $3,52,701"
8. During the course of assessment proceedings, the Assessing Officer pointed out that the assessee had filed balance sheet and profit and loss account for the year ending on 31.3.2001. However, the assessee has not filed the capital account, profit and loss account as well as the balance sheet of the business concern, M/s Arohi International and it is not know what are the assets and liabilities of the above concern. The Assessing Officer pointed out that the cash flow statement was filed by the assessee wherein opening cash balance had been shown at $16,42,486. According to the Assessing Officer, there was no basis and evidence for the above cash balance. He :-3-:
pointed out that every penny with the assessee is found deposited in the FDRs and/or are in the bank accounts and the assessee had claimed that the drawings for household expenses, PPF, purchase of arms and cash deposited in Punjab National Bank account totaling to $2,46,605 had been spent from opening balance only. The Assessing Officer also pointed out that the assessee had shown liability of $1,89,514 towards bank O.D. account and had the assessee $16.42 lakhs in cash with him, he would not have kept the O.D. balance pending. The Assessing Officer also pointed out that the assessee had shown to have taken loans from different persons in different years as under:-
A.Y. Loan taken from Amount
2002-03 Babu Lal Rs.35,000/-
2003-04 Akash Deep Associates Rs.40,000/-
-do- Dinesh Shukla Rs.1,00,000/-
-do- Gauri Pandey Rs.11,000/-
-do- Hari Shanker Pandey Rs.40,000/-
2004-05 Akashdeep Associates Rs.25,000/-
-do- Dinesh Chandra Rs.66,000/-
-do- Dinesh Shukla Rs.20,000/-
-do- Gauri Pandey Rs.17,000/-
-do- Hari Shanker Pandey Rs.20,000/-
-do- Kishan Chand Gupta Rs.45,000/-
-do- Mahesh Prasad Rs.45,000/-
-do- P.N. Baipai Rs.20,000/-
-do- Pankai Gupta Rs.45,000/-
-do- R.S. Tiwari Rs.20,000/-
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-do- Ramesh Arora Rs.45,000/-
-do- Usha Rs.45,000/-
-do- Vishwa Nath Gupta Rs.45,000/-
2005-06 Santosh Tripathi Rs.27,000/-
2006-07 Anil Chand Tripathi Rs.25,000/-
-do- Wmesh Chand Saxena Rs.38,000/-
2007 -08 Ram Gopal Tiwari Rs.70,000/-
9. On the basis of the above facts, the Assessing Officer was of the view that the assessee did not have the cash balance of $16,42,480 as on 1.4.2001, as claimed. He, therefore, held that the cash has been introduced by the assessee only to explain the investment of expenses in the subsequent years. He accordingly added a sum of $16,42,480 to the income of the assessee.
10. The assessee carried the matter to the ld. CIT(A) and the submissions made by the assessee as mentioned in para 11 of the order of the ld. CIT(A) read as under:-
"The Ld. A.O. arbitrarily and without assigning any cogent reason and without bringing any evidence on record treated the opening balance of Rs.16,42,480/- as on 01.04.2000 of cash in hand to be that of unexplained nature and added it back to the income of the appellant. But naturally the opening balance would have been the closing balance as on 31.03.2000 relating to the previous year relevant to the A.Y 2000-01 and accordingly there was no reason to treat the same as unexplained whereas it was brought forward balance of the period beyond the scope of assessment vide provision of Section 153A of the Act.
During the course of assessment proceedings the Ld. A.O did not confront the appellant on this issue. He has alleged that there is no basis and evidence for opening cash balance shown in the cash flow statement, which is submitted in paper book. The said fact is vehemently objected for :-5-:
the reason that the appellant was never asked for any further evidence to substantiate the opening balance of cash in hand as can be seen from his assessment records. The assessee had been filing the fund flow statement all along with his return of income. The return for the year under consideration came into the possession of the Ld. AO by transfer of the return from JCIT, Range-3, Kanpur after almost 7 years as admitted by the Ld AO. It is quite possible that the cash flow/fund/flow statement could have got detached due to handling and filing or weeding out in the erstwhile ward as was the fate of balance sheet and profit & loss account of M/s Arohi International. It would not be out of place to refer to the submissions made herein above that the Ld. AO could not produce the financial statements of the firm M/s Arohi International, which were deemed to be on his record for the year under consideration. The appellant has been assessed to tax for past more than 20 years is substantiated from the acknowledgments and notice of demands of A. Y 1983-84, 1984-85, 1985-86 submitted in the paper book.
It is submitted before your Honour that the major part of the cash bought forward pertains to cash withdrawal made by the appellant from Punjab National Bank, M-Block. Kidwai Nagar. Kanpur, which is a disclosed account out of the proceeds of sale of jewellery, silver coins & utensils and gold ginnies etc. That the appellant had availed the VDIS' 97 Scheme in which the aforesaid items amounting to Rs.1.98,390/- were declared as per the VDIS Certificate dated 12-2-1998 enclosed in the paper book as were submitted before the Ld. AO. Entire jewellery, silver coins & utensils and gold ginnies etc. so disclosed were later sold off for Rs.24,55,010/- to M/s Panna Lal Mahesh Chand Jewellers. M/s N.B. Impex and M/s P.B. Society Jewelers as per their purchase memos enclosed in the paper book as were submitted before the Ld. AO. The appellant had partly utilized the money by investing in FDR's and balance amount it held as cash in hand which has continued since then.
The Ld. AO has formed his belief about non availability of cash in hand :-6-:
with the appellant, mainly due to the reason that the appellant has taken loans/overdrafts facilities from various persons and institutions during various assessment years and no wealth tax returns have been filed. These observations made by the Ld. AO are of little consequence because business dealings can not be merged with personal assets. The Ld. AO has simply presumed and doubted about the existence of the opening cash balance. It is settled principle that presumption howsoever strong can not take place of a legal proof. The Ld. AO could have examined the availability of cash balance as on 01.04.2000 from the return for A.Y 2000-01 instead of adding the opening balance of cash as unexplained. The Ld AO had failed to take cognizance of the return for A.Y 2000-01, which was on his records while deciding the issue of A.Y 2001-02. Even otherwise opening balance can not be a subject matter of addition u/s 68 (sic 69) of the Act as section 68 (sic 69) would assume application viz-a-viz a fresh credit entry of the previous year under consideration and thus, the appellant escaped addition u/s. 68 (sic 69) of the Act. If the Ld. AO doubted the availability of physical cash balance it could go to concerned assessment year i.e. 2000-01 and treat it as unexplained income but in no case he could treat the opening balance in A.Y 2001-02 as unexplained vide ACIT v. N. Sasikala (2006) 151 TAXMAN-ITAT 42 & 43 (ITAT Chennai Bench 'A'). It was not controverted that very amount was reflected in his return of preceding year. Asstt. CIT v. Shivalik Loha Mills (P.) Ltd. (Chd -Trib.) (2003) 126 TAXMAN 101 (Mag.]. The Delhi High Court in CIT vs. Usha Stud Agricultural Farms Ltd. (2009) 183 Taxman 277 held that the credit balance appearing in the accounts of the assessee which does not pertain to the year under consideration, cannot be a subject matter of addition under section 68. In any case in an assessment u/s. 153A of the Act addition can be made only on the basis of material found as a result of search vide Anil Khimani Vs DCIT 2010 TIOL 177 (Mumbai-Trib) source (2010) 42A BCAJ page 20 and Anil Kumar Bhatia Vs ACIT (Delhi-Trib).
The addition made is arbitrary, baseless and unwarranted and needs to be deleted by our honour."
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11. The ld. CIT(A) after considering the submissions of the assessee observed that the Assessing Officer admitted that $16,42,480 was brought forward cash balance, in that case, the natural course was to look into the closing balance as on 31.3.2000 relating to the previous year, particularly so when the assessee was an existing old assessee. He, however, observed that the assessee had filed copy of the Income-tax returns' acknowledgements and notices of demand for assessment years 1983-84 to 1985-86 and 2000-01 which revealed that the assessee had been filing return as per the acknowledgement dated 16.1.2001 in the office of the ACIT, Circle 1(3), Kanpur bearing Sl.No.9116. According to the ld. CIT(A), the Assessing Officer had not questioned the brought forward cash balance, so it was not justified to treat the opening balance as unexplained. He also pointed out that it was on record that the business of the assessee was existing and continuing even before the assessment year under consideration, therefore, the brought forward balance was sub-matter of verification in the preceding year. According to the ld. CIT(A), the Assessing Officer ignored the record and documents of the assessee available with the Department and the capital of $16,42,480 of the assessee was proved as per documents filed with the Department, namely return of income, VDIS certificate and balance sheets of the earlier years. He, therefore, deleted the addition of $16,42,480 made by the Assessing Officer.
12. Now the Department is in appeal.
13. The ld. D.R. strongly supported the order of the Assessing Officer and reiterated the observations made by the Assessing Officer in paras 7 to 7.4 of the assessment order dated 31.12.2008,
14. In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and strongly supported the order of the ld. CIT(A) on this issue.
15. We have considered the submissions of both the parties and carefully gone through the materials available on record. In the instant case, it is not in dispute that a search and seizure operation was carried out u/s. 132 of the Act at the residential premises of the assessee. The Assessing Officer has not pointed out that any incriminating document was found to substantiate that the assessee invested a sum of :-8-:
$16,42,480. The Assessing Officer also not pointed out that the cash to the above extent was found available with the assessee or any asset was purchased by the assessee during the year relevant to the assessment year under consideration. It is also an admitted fact that the assessee is regularly filing his returns of income for the preceding assessment years and furnished documents in support of his claim that his income was assessed regularly in the earlier years. The ld. CIT(A) has categorically stated that the documents relating to the returns of income, VDIS Certificate and balance sheets of earlier years had been filed by the assessee. It is well settled that in an assessment u/s. 153A of the Act, additions can be made only on the basis of material found as a result of search, but in the instant case nothing is brought on record to substantiate that any material was found during the course of search that the assessee either purchased assets or incurred expenses to the extent of $16,42,480 for the year under consideration. Even the Assessing Officer himself admitted that the said amount was shown in the cash flow statement as opening balance, so it cannot be said that the assessee earned income to the above extent during the year under consideration, as the amount in question does not pertain to the year under consideration, therefore, it cannot be a subject matter of addition u/s. 68 of the Act. The above view is fortified as per the ratio laid down by the Hon'ble Delhi High Court in the case of CIT v. Usha Stud Agricultural Farms Ltd. [2009] 183 Taxman 277. Considering the totality of the facts as discussed hereinabove, we do not see any valid ground to interfere with the findings of the ld. CIT(A). Accordingly, grounds No.1 and 2 are dismissed.
16. Another issue as agitated by the Department vide ground No. 3 relates to the direction of the ld. CIT(A) in allowing loss of $1,26,820 relating to M/s Arohi International.
17. The facts related to the issue in brief are that the Assessing Officer while disallowing the loss of $1,26,820 observed as under:-
"The assessee vide notice u/s. 153A was required to file his return of income but he filed the photocopy of acknowledgment of return of income without any computation and annexure but it is stated that return filed on 21.01.02 may be treated as return filed in compliance of notice u/s. 153A. From the perusal of the copy of the acknowledgment of the return, it is :-9-:
noticed that the assessee has claimed the loss of Rs.1,26,820/- from M/s Arohi International. The details of business, final account have not been filed. The assessee has thus not been able to prove loss. In view of the above facts, the loss will not be allowed to reduce from Income from Other Sources and business loss is being treated as Nil."
18. The assessee carried the matter to the ld. CIT(A) and the submissions made before him as mentioned in para 7 of the impugned order are reproduced verbatim as under:-
"The assessee was proprietor of the firm M/s Arohi International engaged in the business of trading in Kirana Goods, which was started in the year under consideration. It is submitted before your Honour, that in February, 2005, the bag containing the whole set of books of accounts, vouchers, files etc. of M/s Arohi International was lost in transit and constraining the assessee to produce the records during the assessment proceedings, fact which was apprised to the Ld. AO during the course of assessment proceedings. Copy of intimating the PS Babu Purwa about the incidence is submitted in paper book. But to facilitate the assessment proceedings the appellant submitted copies of assessment orders of the sales tax department in order to substantiate the existence of books of accounts and relevant details with regard to opening stock, purchases, sales and closing stock of goods traded. The Ld. AO has disallowed the business loss of Rs.1,26,820/- from a proprietorship firm of the assessee, M/s Arohi International on the ground that the final accounts of the business having not been filed. The assessee had filed complete set of final accounts along with the original return filed on 21.01.2002 and the same were already on record with the department. The Ld. AO has acknowledged in its order that the assessee has attached Profit & Loss and Balance Sheet with the regular return of income filed on 21.01.2002. However, under the circumstances if the assessee was unable to produce the records and financial statements then the department could have utilized the set of balance sheet and profit :-10-:
& loss account, which was on its record to arrive at any conclusion. The assessee had submitted the sales tax assessment order, submitted in paper book, before the Ld. AO. In any case in an assessment u/s. 153A of the Act addition can be made only on the basis of material found as a result of search vide Anil Khimani Vs DCIT 2010 TIOL 177 (Mumbai-Trib) source (2010) 42A BCAJ page 20 and Anil Kumar Bhatia Vs ACIT (Delhi-Trib).
The Ld. AO has not appreciated the facts of the case but has disallowed the net loss from business claimed by the appellant and also initiated penalty proceedings u/s. 271(1)(c) of the Act. The addition made is arbitrary and unwarranted and needs to be deleted by your Honour."
19. The ld. CIT(A) after considering the submissions of the assessee observed that the final accounts being the balance sheet and profit and loss account had been filed with the original return and were deemed to be on record of the Assessing Officer from which he could have examined the details of the business. He further observed that the powers given to the Assessing Officer were confined to assess the undisclosed income unearthed during the course of search and the Assessing Officer could not have included items which were disclosed in the original assessment proceedings. Reliance was placed on the decision of the ITAT Mumbai bench in the case of Anil Khimani v. DCIT 2010 TIOL 177.
20. Now the Department is in appeal.
21. After considering the submissions of both the parties and the materials available on record, it appears that the Assessing Officer disallowed the business loss of $1,26,820 while framing the assessment u/s. 153A of the Act on the ground that the final accounts of the business relating to M/s Arohi International have not been filed by the assessee. The claim of the assessee was that he had filed complete set of final accounts along with the original return filed on 21.1.2002 and the same were already on record with the Department. In the instant case, the Assessing Officer acknowledge in his assessment order that the assessee attached profit and loss account and balance sheet with the regular return of income filed on 21.1.2002, therefore, the Assessing Officer was not justified in making the disallowance when the assessee had already disclosed the :-11-:
relevant documents in the original return of income, therefore, the Assessing Officer could not have considered the impugned loss in the proceedings u/s. 153A of the Act, particularly when nothing contrary was unearthed during the course of search. We, therefore, considering the totality of the facts do not seen any merit in this ground of the Departmental appeal. Hence, ground No.3 of the appeal is dismissed.
22. Grounds No.4 and 5 are general in nature, so do not require any specific comments on our part.
23. In the result, appeal is dismissed.
(Order pronounced in the open court on 30.3.2011)
Sd/- Sd/-
[H. L. KARWA] [ N. K. SAINI]
VICE PRESIDENT ACCOUNTANT MEMBER
DATED:30.3.2011
JJ:2903
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
Assistant Registrar