Income Tax Appellate Tribunal - Cochin
Sri. K.V. Prakashan, Kannur vs The Dcit, Calicut on 1 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
I.T.A. No.230/Coch/2016
Assessment Year : 2007-08
Shri K.V. Prakashan, Vs. The Deputy Commissioner of
Kappuva Veettil, Income-tax, Central Circle-2,
Prop. Payyavoor Trading Kozhikode.
Company,
Kannur-670 633.
[PAN:ARIPP 6427D]
(Assessee-Appellant) (Revenue-Respondent)
Assessee by Shri T.M. Sreedharan, Sr. Adv.
Revenue by Shri A. Dhanaraj, Sr.DR
Date of hearing 20/10/2016
Date of pronouncement 01st /11/2016
ORDER
Per GEORGE GEORGE K., JUDICIAL MEMBER
This appeal at the instance of the assessee is directed against the order of the CIT(A)-IV, Kochi dated 03/02/2016. The relevant assessment year is 2007-08..
2. The grounds raised by the assessee read as follows:-
1. The order of the learned Commissioner of Income Tax(Appeals)-IV, Cochin dated 03/02/2016 in I.T.A. No. C/230/CIT(A)-IV/13-14 dismissing the appeal filed by the appellant for the assessment year 2007-08 is infirm in law and contrary to facts and circumstances of the case.
2. The learned lower authorities erred in treating the sum of Rs.15,51,400/- as the appellant's unexplained income.2 I.T.A. No.230/Coch/2016
3. The learned Commissioner of Income Tax (Appeals)-IV ought tohave found that the appellant had accounted the sum ofRs.15,51,400/- in the regular books of accounts of the appellant and as the Assessing Officer has accepted the books of accounts of the appellant by completing the assessment u/s.
143(3) of the I.T. Act, 1961 there is no justification to treat the above amount as unexplained investment of the appellant.
4. The learned Commissioner of Income Tax (Appeals)-IV is in error in holding that the ledger accounts produced before the Assessing Officer lack the credibility. The learned Commissioner of Income Tax (Appeals)-IV ought to have found that the accounts of the appellant is accepted by the Assessing Officer goes to prove that the ledger of the appellant is accepted and there is no justification for the learned Commissioner of Income Tax (Appeals)-IV to hold that the ledger account lack credibility.
5. The learned lower authorities ought to have found that the appellant had never denied to have given any amount to Shri Abdul Rasheed and Shri Sojumon. The lower authorities have misconstrued the statement of the appellant with regard to question No. 25 & 28 in his statement u/s. 131 dated 26/04/2007.
6. The grounds of appeal filed by the appellant before the first appellate authority is enclosed separately and the same may be treated as part of this grounds of appeal as well.
7. For the above and other reasons to be urged at the time of hearing it is prayed that the Hon'ble Income Tax Appellate Tribunal, Cochin may be pleased to vacate the additions made and render justice to the appellant.
3. Briefly stated the facts of the case are as follows:
The assessee, an individual, is a rubber dealer. The Mahe Police seized Rs.15,51,400/- on 29/03/2007 from Shri Abdul Rasheed and Shri K.A. Sojumon.
The Police had deposited the cash with Judicial First Class magistrate, Mahe. The cash was requisitioned by the Assistant Director of Income Tax(Investigation), Kozhikode u/s. 132A of the Income Tax Act. Shri Abdul Rasheed and Shri K.A. 3 I.T.A. No.230/Coch/2016 Sojumon deposed before the Mahe Police and the Income Tax authorities that a sum of Rs.16,00,000/- was handed over to them by the assessee, Shri K.V. Prakashan with an instruction to hand over the same to Shri Manoj in Cochin for the purpose of purchasing rubber sheets. Since the market condition was not favorable, purchase of rubber sheets could not be effected by Shri Manoj and hence, he retained a sum of Rs.48,600/- and balance of Rs.15,51,400/- was returned to be handed over to the assessee. While Shri Abdul Rasheed and Shri K.A.Sojumon were returning from Cochin on 29/03/2007 their vehicle was intercepted and cash amounting to Rs.15,51,400/- was seized. The seized cash was initially assessed in the hands of Shri Abdul Rasheed and Shri K.A. Sojumon for the assessment year 2007-08. However, on appeal, the CIT(A) deleted the addition in their hands.
4. The CIT(Central), Kochi passed order u/s. 263 of the Act and set aside the order passed by the Assessing Officer in assessee's case for the assessment year 2007-08 by holding as under:
"I have gone through the facts of the case and the objections raised by the assessee. I am of the considered opinion that the source for the seized amount of Rs.15,51,400/- has not been properly explained by the assessee which has not been brought to tax."
4.1 On further appeal, the Tribunal upheld the revisionary order passed under section 263 of the Act for the reason that the Assessing Officer has not verified 4 I.T.A. No.230/Coch/2016 the source of the amount of Rs.15,51,400/- in the hands of the assessee. With these observations, the Tribunal disposed of the appeal filed by the assessee.
5. Pursuant to CIT's order u/s. 263 of the Act, the assessment was completed by adding a sum of Rs.15,51,400/- u/s. 69A of the Act. The relevant finding of the Assessing Officer in making the addition u/s. 69A of the Act reads as follows:
"9. The submission of the assessee have been carefully considered. It cannot be accepted for the reason that as per the statement recorded on 11-03-2009 Sri. Abdul Rasheed and Sri. K.A. Sojumon deposed that the cash seized by Mahe Police on 29-03-2007 was received from Sri. K.V. Prakashan on 27-03- 2007 and they started their journey in the evening of the same day to Ernakulam by bus and reached Ernakulam on 28-03-2007 morning. However, as per assessee's letter dated 15-10-2010, he submitted that the cash balance available as per his books of account on 27-03-2007 was Rs. 18,43,146/-. A sum of Rs. 16,00,000/- was taken from above balance and sent through Sri. Abdul Rasheed and Sri. K.A. Sojumon for purchase of Rubber. As per cash book of 2006-07 produced by the assessee, payment of Rs. 16,00,0001- for purchasing Rubber was recorded only on 28-03-2007. As deposed by the both persons, they got the money on 27-03-2007 evening and reached Ernakulam on 28-03-2007 morning. The said fact was confirmed by the assessee as per his statement recorded on 11-03-2009, in contrary to the submission of the assessee on 26-04-2007 that he had not given any money to Sri. Abdul Rasheed or Sri. K.A. Sojumon. Therefore, the sum of Rs. 15,51,400/- seized from Sri. Abdul Rasheed and Sri. K.A. Sojumon and sum of rupees 48,600/-- retained by Sri. Manoj, Kochi totaling to Rs. 16,00,000/- cannot be accepted as the same cash given by the assessee for the purchase of Rubber Sheet. Rs.16,00,000/- paid to Sri. Rasheed and Sri. Sojumon by the assessee is not factually correct, it is only a cooked up story. If the assessee's argument that the date of payment of money to Sri. Manoj i.e. 28- 03-2007 is recorded in the books of account, is accepted then the amount of Rs. 48,600/- retained by Sri. Manoj is to be entered in the books of account on 28-03-2007 as the balance is returned on the same day. Therefore, the transaction entered by the assessee in his books of account in the name of Sri. Manoj on 28-03-2007 is proved beyond doubt that it is only an accommodative entry. It is pertinent to note that the assessee has 21/2 years to prepare the books of accounts according to the evidence made available 5 I.T.A. No.230/Coch/2016 after the seizure of cash and taking over of the seized cash by the department. Moreover the assessee has not given any satisfactory explanation for retention of Rs. 48,6001- by Sri. Manoj.
10. Also the story of Sri. K.V. Prakashan that he sent Rs. 16,00,000/-- for purchase of Rubber cannot be accepted for following reasons.
i. Answer to the Queslion No. 9 and 10 in statement recorded on 06- 05-2013, the assessee clearly admitted that while purchasing rubber sheets, usually payments were given through cheque or DO to the institutions, but cash purchase were made from farmers. Sometimes cash payments were given to traders also but never exceeds Rs. 20,000/-. Therefore, Rs. 16,00,000/- said to be given to Sri. Manoj is factually incorrect according to the business procedure followed by the assessee.
ii. Answer to Question No.8 in statement recorded on 06-05-2013, assessee admitted that maximum purchase from a person or institution per day was about Rs.2 lakhs only. Therefore, it is unbelievable that assessee sent Rs.16,00,000/- for one day's cash purchase. The assessee also stated that he has not made any business with Sri. Manoj before or after 28-03- 2007. But, the amount of Rs. 48,600/- retained by Sri. Manoj is stated to be as the security for the business transaction. From the statement of the assessee it is clear that no business transaction was made between Sri. Manoj and Sri. K.V. Prakashan on 28.3.2007. Therefore, it is clearly establish that Sri. Manoj has received Rs. 16,00,000/- on behalf of Sri. K.V. Prakashan and his commission was retained and the balance is handed over to Sri. Sojumon and Sri. Rasheed to give the same to Sri.K.V.Prakashan which was seized by the police.
iii. Assessee in his statement dated 26-04-2007 stated that he has not given any money to Sri. Sojumon and Sri. Abdul Rasheed but an amount of Rs.48,000/- is due from Sri. Manoj being the advance given for purchase of rubber. Subsequently he has changed his first stand and own up the money as discussed in Para 3.
iv. A statement was recorded from Sri. Manoj Kumar on 13-03-2009.
He stated that Sri. Prakashan is having Rubber trade with them since 2005. But as per Sri. Prakashan's statement, he started his business since April 2006 and the first trade was recorded in his books of account in October 2006.6 I.T.A. No.230/Coch/2016
v. Sri. Manoj stated that Sri. Prakashan purchases an average 3 - 4 load of rubber sheets per week (one load is about 16 tones). But none of these purchases are reflected in Prakashan's books of account.
vi. It was explained that. Sri. Manoj act as a Broker, and the payments were made directly to the seller by the purchaser. But on verification of the , books of accounts of Sri. Prakashan, it was seen that he never purchased any rubber from any traders other than that located in Payyavoor and nearby areas in Kannur district.
vii. On perusal of the ledger and cash book of Sri. Prakashan (Payyavoor Trading Company), no brokerage were seen paid to Sri. Manoj or his concern during the Financial Year 2006-07.
viii. Sri. Manoj Kumar has stated that he is working with his father Sri. C.P. Rajagopal, who is a rubber broker at Mattanchery since 1993 as all the transactions should be in the name of his concern or Sri. C.P. Rajagopal, But in the books of account produced by Sri. K.v. Prakashan a sum of Rs. 16,00,000/- shown to be paid to Sri. Manoj and the ledger is also maintained in his name. Had it been a genuine transaction Sri. Manoj's name should not have been entered in the books of account. This mistake was committed when an artificial entry was tried out.
9. From the above I am of the firm belief that Rs. 16,00,000/- is the proceeds of the unaccounted transaction had with Sri. Manoj by the assessee for the previous year relevant to the assessment year 2007-08 and not the money said to be sent for purchase of rubber. The assessee has failed to produce any evidence other than a mere entry in his books of account to prove that the seized cash is the money returned by Sri. Manoj. The assessee has no satisfactory explanation for the source of fund seized by Mahe Police from Sri. Abdul Rasheed and Sri. K.A. Sojumon which was own up by the assessee.
Therefore, considering all the facts and circumstances, the details, explanations and statements available on records and furnished at the time of hearing by the assessee the amount of Rs 15,51,400/- is treated as assessee's unexplained income and charged to tax."7 I.T.A. No.230/Coch/2016
6. Aggrieved by the addition made u/s. 69A of the Act, the assessee preferred appeal to the first appellate authority. The CIT(A) after extracting the finding of the Assessing Officer and the assessee's submission decided the issue against the assessee and dismissed the appeal.
7. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. The Ld. Counsel for the assessee reiterated the submissions made before the Income Tax authorities. The Ld. DR present was duly heard.
8. I have heard the rival submissions and perused material on record. Originally, the assessment was completed against Shri Abdul Rasheed, Shri K.A. Sojumon and the assessee by Deputy Commissioner of Income-tax, Central Circle-2, Kozhikode in the year 2010. The cash seized from Shri Abdul Rasheed and Shri K.A. Sojumon was assessed in their hands. There was no addition in the hands of the assessee on account of the cash that was seized. On appeals filed by Shri Abdul Rasheed and Shri K.A. Sojumon, the addition made was deleted by the CIT(A) on the finding that Sri K.V. Prakashan, (the assessee in this case) had shown Rs.15,51,400/- under the head "Mahe Police" under Schedule - C deposits & advance, in the "properties and asset side" of the balance sheet as on 31/03/2007. He has also shown Rs. 48,600/- under the title "Manoj Kochin" under schedule advance paid to suppliers in the properties and asset side, as deposed by him before the ADIT on 26/04/2007 itself. 8 I.T.A. No.230/Coch/2016 8.1 Subsequently, the CIT(Central), Kochi passed order under section 263 of the I.T. Act (order dated 22/03/2013). The CIT set aside the order passed against the assessee u/s. 153A of the Act and directed the Assessing Officer to assess Rs.15,51,400/- seized from Shri Abdul Rasheed and Shri K.A. Sojumon in the hands of the assessee. The relevant finding of the CIT (Central) while passing the order u/s. 263 reads as under:-
"I have gone through the facts of the case and the objections raised by the assessee. I am of the considered opinion that the source for the seized amount of Rs.15,51,400/- has not been properly explained by the assessee which has not been brought to tax."
8.2 On further appeal, the Tribunal upheld the order of the Commissioner passed u/s. 263 of the Act. However, the Tribunal was of the view that the Assessing Officer while completing the original assessment against the assessee did not verify the source of the amounts seized and therefore, the Commissioner has rightly exercised his jurisdiction u/s. 263 of the Act. The Tribunal in para 4 of its order dated 04/10/2013 held as follows:
"4.........In the present assessee's case even though, the assessee claims that the money belonged to him and it was reflected in the books of account, the assessment order does not reflect the application of mind. There is no reasoning appended in the asst. order. In fact, there is not even any discussion in the asst. order..........".9 I.T.A. No.230/Coch/2016
8.3 Finally it was concluded by the Tribunal as follows:-
"8. In view of the above discussion, the non application of mind by the assessing officer to the material available on record with regard to the amount recovered by the police amounts to an error which is prejudicial to the interest of the revenue. No doubt, the addition made in the hands of Shri Abdul Rasheed was deleted by the CIT(A). But this fact has to be examined by the assessing officer and whether the assessee has explained the source for the above said money or not has to be verified and reasons recorded in the assessment order itself. Since the assessing officer has not verified the source for the above amount, this Tribunal is of the considered opinion that the Administrative Commissioner has rightly exercised his jurisdiction u/s. 263 of the Act. Therefore, the impugned order of the Administrative Commissioner is confirmed."
8.4 From the above direction of the Tribunal, it is very clear that the issue that has to be examined is whether the assessee has sufficient source/cash balance to explain the availability of cash in its regular books of accounts as on 27/03/2007 to hand over Rs.16,00,000/- to Shri Abdul Rasheed and Shri K.A. Sojumon. The assessee has maintained regular books of accounts. The return for the assessment year 2007-08 based on the regular books of accounts was filed in response to notice u/s. 153A(a) r.w.s. 153C, declaring, total income of Rs.1,28,850/-. The only addition made in the original assessment order completed vide order dated 31/12/2010 was u/s. section 40A(3) of the Act. In the course of original assessment proceedings, the assessee had filed a letter dated 30/09/2010. In para 5 of the said letter, the seized amount of Rs.15,51,400/- from Shri Abdul Rasheed and Shri K.A. Sojumon was mentioned 10 I.T.A. No.230/Coch/2016 as being recorded in the regular books of account. The Assessing Officer, after examining the books of account and verifying the ledger, completed the assessment wherein no addition was made on account of cash seized from Shri Abdul Rasheed and Shri K.A. Sojumon. It was only after the addition of Rs.15,51,400/- was deleted in the hands of Shri Abdul Rasheed and Shri K.A. Sojumon, the CIT had passed order u/s. 263 of the Act dated 22/03/2013, directing the Assessing Officer to bring to tax the seized amount of Rs.15,51,400/- in the hands of the assessee.
8.5 The account copies as per the books of the assessee are placed on record from pgs. 29 to 40 of the paper book filed by the assessee. The cash balance as per the assessee's books of account as on 27/03/2007 was Rs.18,43,143/-The main source from which this cash balance arose is as under:-
Withdrawal from bank account from Axis Bank Ltd. Kannur on 27/03/2007 Rs.800,000 Withdrawal from Axis Bank Ltd.
on 19/03/2007 Rs.450,000
Approximate cash balance in books of accounts
on 17/03/2007 Rs.500,000
Total Rs.17,50,000
11 I.T.A. No.230/Coch/2016
8.6 From the books of account furnished before the authorities below and
which is place on record, it is clear that the assessee had sufficient funds to prove the cash seizure on 29/03/2007 and the same is clearly recorded in the books of account maintained by the assessee. It is for the said reason that the addition made in the hands of Shri Abdul Rasheed and Shri K.A. Sojumon was deleted by the CIT(A). As mentioned earlier, in the original assessment, no addition was made by the Assessing Officer. The original assessment was completed after examining the books of account, the ledge copies etc. From the books of account maintained by the assessee, it is clear that the assessee has sufficient cash availability as on 27/03/2007. The Assessing Officer had made the addition of Rs.15,51,400/- taking into account the fact that normally assessee does not make cash purchase of more than Rs.2 lakhs etc., which according to me, is besides the point, when the Tribunal in its order dated 04/10/2013 (I.T.A. No. 178/Coch/2013) had clearly directed that the issue to be examined is regarding source of fund available with the assessee. In other words, the only issue for my consideration is with regard to the availability of funds as on 27/03/2007, and whether the assessee had sufficient cash balance for handing over Rs.16 lakhs to Shri Abdul Rasheed and Shri K.A. Sojumon on 27-03-2007. On examination of the copies of books of account produced, the assessee has sufficient cash balances and limiting the examination to the source of funds, I have no hesitation to hold that the addition of Rs.15,51,400/- is not warranted in the facts of the instant case. It is ordered accordingly.12 I.T.A. No.230/Coch/2016
9. In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on 01st -11-2016 sd/-
(GEORGE GEORGE K.) JUDICIAL MEMBER Place: Kochi Dated: 01st November,s 2016 GJ Copy to:
1. Shri K.V. Prakashan, Kappuva Veettil, Prop. Payyavoor Trading Company, Kannur-670 633.
s2. The Deputy Commissioner of Income-tax, Central Circle-2,Kozhikode.
3. The Commissioner of Income-tax(Appeals)-IV, Kochi.
4. The Principal Commissioner of Income-tax, Central, Kochi.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin