Income Tax Appellate Tribunal - Amritsar
Sunder Mal Sat Pal vs Income Tax Officer on 31 January, 2005
Equivalent citations: (2005)94TTJ(ASR)423
ORDER
1. This order shall dispose of the cross-appeals filed by the two different assessees and two appeals by the Revenue against the order of the CIT(A), Bhatinda, dt. 7th March, 2001, for the asst. yr. 1998-99 mentioned above, as the issues are common in all the cases of both the assessees.
2. We have heard the learned representatives of both the parties and gone through the observations of the authorities below and details submitted in the paper book.
3. For the sake of convenience, we take up. ITA Nos. 310/Asr/2001 and 372/Asr/2001 for the purpose of disposal of all the appeals.
4. ITA Nos. 310/Asr/2001 (assessee's appeal) and 372/Asr/2001 (Departmental appeal):
The first ground in assessee's appeal reads as under :
"That the learned CIT(A) has wrongly confirmed an addition of Rs. 3,00,000 under Section 69 as unexplained investment peak amount in spite of the fact that during the survey under Section 133A the assessee offered an addition at Rs. 4,00,000 for the asst. yr. 1998-99 and the offer was on clear understanding that no further adverse inference will be drawn at the time of assessment in respect of the documents inspected and prepared at the time of survey.
So there is a breach of trust. So no cognisance of these papers be taken and addition out of peak amount unexplained investment amount Rs. 3,00,000 be deleted."
4.1 The Revenue has also taken only ground, which reads as under :
"On the facts and in the circumstances, in the case, the learned CIT(A) has erred in deleting the addition of Rs. 4,00,000 on account of unexplained peak investment made under Section 69 of the IT Act, 1961, made by the AO."
5. Briefly stated, the facts are that the AO made addition of Rs. 4,00,000 being unexplained peak investment made under Section 69 of the IT Act, 1961. The Authorised Representative of the assessee submitted that the assessee is engaged in the business of Kachi Arhat under the name and style of M/s Sunder Mal Sat Pal, Muktsar. The assessee filed his return of income declaring an income of Rs. 1,56,687. The case, was selected for scrutiny, In this case, survey under Section 133A was conducted on 21st Aug., 1997 in the case of the assessee as also in the case of M/s Chet Ram Ravi Kumar. At the business premises of the assessee and during the survey operation a sum of Rs. 4,00,000 was surrendered and offer was made vide letter dt. 21st Aug., 1997, copy of which is filed at p. 12 of the paper book, with the clear understanding that no further adverse inference would be drawn at the time of assessment in respect of document inspected and prepared at the time of survey. It was stated in the letter that during the course of survey certain discrepancies have been found in the books of account for which on behalf of my firm offer an additional income of Rs. 4,00,000 for the period 1st April, 1997 to 31st March, 1998 i.e., asst. yr. 1998-99 over and above the normal profit which occurs to the firm. It was accordingly submitted that the assessee had offered additional income subject to no penal action or prosecution with clear intention to buy peace of mind and with clear understanding that no adverse inference will be drawn on the basis of papers found from the business premises of the assessee for which the photocopies taken by the Department is illegal, unjust and uncalled for. The AO, however, was of the view that at the time of survey on 21st Aug., 1997, it was noticed by the survey party that there was huge cash inflow and outflow as per books of account of the assessee. The assessee could not produce the creditors and debtors when asked for at the time of assessment proceedings. It was further found that the assessee has made investment of Rs. 48,28,603 and the assessee was asked to explain the said investment in the shop of outflow of the cash and why the same could not be treated as unexplained investment under Section 69 of the IT Act, 1961. The assessee failed to substantiate the huge investment and, therefore, to be fair and reasonable, the AO worked out the investment on a single day i.e., 29th May, 1997 at Rs. 7,10,364 as per p. 5 of the assessment order and added Rs. 4,00,000 in the hands of the assessee as unexplained peak investment under Section 69 and the balance of Rs. 3,10,364 added in the hands of its sister-concern namely, M/s Chet Ram Ravi Kumar. This unexplained peak investment for the transaction to the tune of Rs. 48,28,603 according to him is in addition to the surrender income of Rs. 4,00,000 made by the assessee in the hands of the assessee at the time of survey under Section 133A. The addition was challenged before the CIT(A). The same submissions were reiterated and it was submitted that the assessee made surrender of the amount of Rs. 4,00,000 over and above the normal profit which accrued to the assessee and the said amount has already been included in the return of income and as such addition was unwarranted. The CIT(A) considering the submissions of the assessee allowed the appeal of the assessee partly and restricted the addition to Rs. 3 lakhs instead of Rs. 4 lakhs. The operative order of the CIT{A) in para 2.2 in the impugned order reads as under :
"2.2. I have given careful consideration to the views expressed by both the sides. It is a fact that the business premises of the assessee and its sister-concern namely, M/s Chet Ram Ravi Kumar, Muktsar, were surveyed under Section 133A of the IT Act, 1961, on 21st Aug., 1997. It is also a fact that the appellant and their sister-concern are engaged in the business of Kachi Ahrat i.e., they are making payments on the sale proceeds of agricultural produce after realising the same from the purchasers of agricultural produce of the farmers and in between earning commission known as Dammi. The inflow and the outflow in the books of account as narrated by the AO in his assessment order are mainly earning commission from the purchase and sale of agricultural produce of the agriculturists. On one side the appellant is making the payments and on the other hand, he is receiving the sale proceeds of agricultural produce. It is, therefore, but natural in the business like that of the assessee that the proper names and address of the purchasers and sellers are not mentioned in the books of account. The appellant has surrendered a sum of Rs. 4 lakhs as its income over and above the normal income as per letter dt. 21st Aug., 1997 reproduced supra. The surrender of income is to cover all the discrepancies found in the books of account at the time of survey in addition to the leakage of income, if any, subject to no penalty. Thus, the discrepancies found, as narrated by the AO, at the time of survey operation recording the outflow of funds amounting to Rs. 48,28,603 was also a part and parcel of surrender agreement and, therefore, as per normal course no further addition is necessary. But at the same time it is noticed that the appellant has returned the income for the year under appeal at Rs. 15,66,878 (sic) which includes also the surrendered amount of Rs. 4 lakhs at the time of survey. The income returned even below the surrendered amount, according to me, is not in the spirit of surrender made at the time of survey as the appellant was to return income in excess of Rs. 4 lakhs over and above the normal income of the assessee which could be based on the returned income of earlier years. Since the surrendered income is to be considered as business income only, the appellant is eligible for enhanced deduction on account of salary allowable under Section 40(b) of the IT Act, 1961. For these reasons, I hold that if the addition on account of unexplained peak investment is restricted to Rs. 3 lakhs instead of Rs. 4 lakhs it will meet the ends of justice. Accordingly, the appellant will get a relief of Rs. 1,00,000."
6. The assessee is in appeal for deletion of the entire addition of Rs. 3 lakhs and the Revenue is in appeal for restoring the addition made by the AO.
7. The learned counsel for the assessee argued that the surrender of Rs. 4 lakhs was made over and above the normal profit which accrued to the assessee. He has taken us to pp. 4 and 5 of the paper book which is computation of the income as per P&L a/c in which the surrender of Rs. 4 lakhs has been added in the normal profit of the business. He has argued that since the amount of Rs. 4 lakhs is also added, there was no question of further making the addition of Rs. 4 lakhs. The learned counsel for the assessee invited our attention to pp. 10 and 11 of the paper book which is reply before the AO in which also apart from normal profit of the business, surrender income of Rs. 4 lakhs has been shown and it is also explained that the net Dammi income reduced from Rs. 4,01,354 to Rs. 2,00,703 as compared to the previous year. The main source of the income of the assessee is Dammi and interest. Due to change in crop cycle and decrease in main crops, the Dammi was badly affected. It was also explained that the second main source of income in Kachi Arhat is interest from the farmers. In the period under question, the position of the farmers was very bad and the recovery was very low. Even the principal amount becoming doubtful. So there is no question of charging interest from the farmers. However, the firm has to pay interest to lenders. The net effect that interest has changed from credit balance to expenses in the year. It was, therefore, explained that due to these factors the net income has reduced sharply. It was also explained that normal expenses were claimed and by including the surrendered amount of Rs. 4 lakhs the assessee filed return of income at Rs. 1,56,687. The learned counsel for the assessee accordingly argued that ad hoc addition is unjustified. He has further argued that loss in Dammi income cannot be ignored, which was apart from the surrendered income shown by the assessee.
8. On the other hand, the learned Departmental Representative relied upon the orders of the authorities below and argued that the AO has given sound reasons for making the addition. He has further submitted that Rs. 4 lakhs was surrendered because of the discrepancies found during the survey. He has prayed that the order of the AO may be restored.
9. On consideration of the rival submissions and material available on record, we do not find any justification to sustain the orders of the authorities below. There is no dispute that certain discrepancies were noted by the survey party. The assessee vide his letter dt. 21st Aug., 1997 surrendered Rs. 4 lakhs in respect of the period relevant to the assessment year in question over and above normal profit which accrued to the firm. The AO has not considered the normal income accrued to the assessee. According to the assessee, it has Dammi income of Rs. 2,00,703. The assessee was having minus income of interest. Apart from it, the assessee has incurred the expenses like interest, salary paid to the partners, salary and labour expenses, car depreciation and petrol expenses, the details are filed at pp. 4 and 5 of the paper book as well as pp. 10 and 11 of the paper book in which the surrendered income is also added and in the return of income surrendered amount of Rs. 4 lakhs was shown. Due to decline in the Dammi and interest income, the regular income of the assessee decreased and reduced to losses. The authorities below have not considered this aspect of the matter while completing the assessment in the case of the assessee. The reason given by the assessee as mentioned above appears to be plausible and have not been considered in proper perspective by the authorities below. If the income from Dammi and interest is taken separately upon which the statutory deduction and normal expenses are reduced, the assessee would be having loss income. In normal course, if the surrendered income is added, it will work out the returned income in a sum of Rs. 1,56,690 upon which the assessee has filed return of income. We accordingly do not find any justification to sustain the addition of Rs. 3 lakhs in the matter. The entire addition is, therefore, deleted. The orders of the authorities below are set aside. As a result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.
10. No other issue arises in the Departmental appeal.
11. Now we take up the second issue in the assessee's appeal in which the AO has made the addition of Rs. 37,100 on account of Dammi income. It was submitted that the addition on account of Dammi on estimate basis in a sum of Rs. 37,100 is arbitrary and without any basis because the assessee has fully explained the reasons for fall in Dammi account which is due to change in crop cycle and decrease in main crop. The AO, on the other hand, was of the view that the assessee has shown Dammi income of Rs. 87,801 upto the date of survey and, therefore, Dammi income shown for the balance period in spite of Narma and paddy season at Rs. 1,12,901 is much less as compared to the previous period as well as previous year. He has, therefore, estimated the income of the balance period and made the addition.
12. The CIT(A) while considering the issue was of the view that the AO has not adduced any evidence as to how he has estimated the Dammi income at Rs. 1,50,000 when the purchase of Narma for Malwa region has shown decline in its production in comparison to earlier years. The CIT(A) was also of the view that the farmers in Malwa region in fact have changed pattern of crop mainly from Narma to paddy and, therefore, the main income of the assessee from commission is higher only at the time of harvesting season of Rabi and Khariff. The CIT(A), therefore, reduced the addition from Rs. 37,100 to Rs. 10,000.
13. The learned counsel for the assessee submitted that the addition of Rs. 10,000 is based upon no evidence and is ad hoc in nature. The learned Departmental Representative, however, relied upon the order of the CIT(A).
14. On consideration of the observations of the learned CIT(A), we are of the view that the addition of Rs. 10,000 is ad hoc in nature and without pointing any specific material against the assessee. We accordingly delete the addition of Rs. 10,000. This ground of appeal of the assessee is accordingly allowed.
15. On the next issue, the assessee has challenged the addition of Rs. 10,000 out of expenses debited to P&L a/c like partners' salary, employees' salary, labour and telephone expenses, etc, The AO was of the view that the expenses claimed by the assessee are on higher side as compared to the last year. The AO has not pointed out any specific defect in maintenance of any vouchers of expenses. The AO, therefore, made the addition of Rs. 50,000 which was reduced to Rs. 10,000 by the CIT(A).
16. The learned counsel for the assessee has taken us to p. 11 of the paper book in which details of expenses have been given. Certain expenses are statutory like salary and interest paid to the partners and rest of the expenses are not higher as compared to the last year. Therefore, the addition of Rs. 10,000 appears to be an ad hoc. We accordingly delete the same and allow this ground of appeal of the assessee.
17. No other point is argued or pressed.
18. As a result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.
19. ITA No. 311/Asr/2001 (by assessee) and ITA No. 371/Asr/2001 (by Revenue) On the first ground in the case of the assessee's appeal, the assessee offered addition of Rs. 5 lakhs. However, the AO has made the addition of Rs. 3,10,364 upon which the CIT(A) restricted the addition to Rs. 2,00,000. The Revenue is in appeal against the deletion of addition of Rs. 1,10,364 and the assessee is in appeal for deletion of the addition of Rs. 2 lakhs. This ground is similar to that of in the case of M/s Sunder Mal Sat Pal, Muktsar, in ITA Nos. 310/Asr/2001 and 372/Asr/2001 above. The facts and the circumstances are identical. We accordingly, by following our earlier order in the case of M/s Sunder Mal Sat Pal, delete the entire addition. As a result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.
20. Second issue in assessee's appeal is as regards assessment of Dammi income upon which the AO made the addition of Rs. 31,661 and the same was restricted to Rs. 10,000 by the CIT(A). This issue is also similar to that raised in ITA No. 310/Asr/2001. By following the same order, we delete the addition of Rs. 10,000. As a result, the appeal of the assessee is allowed on ground No. 2.
21. In ground No. 3 in assessee's appeal, the addition of Rs. 10,000 on account of car expenses, depreciation and other expenses is challenged. The Revenue is in appeal on ground No. 3 for restoring the order of the AO as regards the disallowance of the expenditure. The AO observed that the assessee claimed Rs. 68,000 as depreciation on new car purchased and when confronted, the assessee stated to cover the debt (sic) it had purchased the car though the assessee had no car in the immediately preceding year. When expenses of petrol were verified it was seen that the assessee has claimed only Rs. 2,306 for petrol expenses which is unbelievable, which was for more than 6 months. The petrol expenses were estimated from Rs. 25,000 to Rs. 30,000. The AO accordingly made the addition of Rs. 50,000 due to heavy expenses claimed including car expenses and depreciation. The CIT(A), however, restricted the addition to Rs. 10,000 on considering the expenses claimed in the earlier year. The learned Departmental Representative, stated that huge depreciation was claimed. On the other hand, the learned counsel for the assessee submitted that depreciation is statutory deduction and for car expenses, the learned counsel for the assessee did not press the ground of appeal of the assessee. On consideration of the above facts, we are of the view that the learned counsel for the assessee has rightly contended that depreciation is statutory deduction upon which no adverse inference can be drawn. However, it is a fact that the assessee claimed only small expenses out of car petrol expenses. No reasonable explanation has been given and even this ground is not pressed before us. However, the additions are ad hoc in nature. Considering the above facts and that the car expenses have not been pressed on this ground of appeal by the assessee, it would meet the ends of justice if the addition on account of petrol expenses is restricted to Rs. 5,000 as a whole. As a result, the disallowance out of car expenses is restricted to Rs. 5,000 separately. The remaining additions are deleted. As a result, the appeal of the assessee on ground No. 3 is partly allowed and the appeal of the Revenue is dismissed on ground No. 3.
22. No other ground is raised in the assessee's appeal.
23. Now we take up ground No. 2 in Departmental appeal, in which the Revenue felt aggrieved on account of deletion of addition of Rs. 75,000 on account, of disallowance of salary made by the AO. The AO disallowed Rs. 75,000 out of salary. The assessee contended that (sic-disallowance of) Rs. 75,000 paid on account of salary to the working partners and employees is not justified. It was also explained (that) variation in the salary is due to the increase in debts (sic). The CIT(A) was of the view that the AO has not doubted the payment of salary made to the partners and the employees of the assessee. The salary paid to the partners is paid as per provisions under Section 40(b) of the IT Act. Therefore, the CIT(A) was of the view that there is no justification to make the addition of Rs. 75,000. It is not in dispute before us that salary is paid to the working partners, which is an allowable deduction under Section 40(b) of the IT Act. In this view of the matter, we do not find any justification to interfere in the order of the CIT(A). As a result, this ground of appeal of the Revenue is dismissed.
24. No other ground is argued or raised in the appeal of the Revenue.
25. As a result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed as indicated above.