Income Tax Appellate Tribunal - Delhi
Satya Wanti Bareja, Faridabad vs Department Of Income Tax on 22 April, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : 'G' NEW DELHI
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI K.D. RANJAN, ACCOUNTANT MEMBER
I.T.A No. 3011/Del/09
Asstt. year - 2005-06
I.T.O., Vs. Shri Satya Wanti Bareja,
Ward II (2) Prop. M/s. Sunrise Steel Agency,
1C/5, B.P.
Faridabad
Faridabad.
(Appellant) (Respondent)
Appellant by: Ms. Anusha Khurana, Sr. DR
Respondent by: Shri Ashwani Taneja, Advocate
ORDER
PER RAJPAL YADAV, JM:
The revenue is in appeal before us against the order of Ld. CIT(A)dated 22nd April, 2009 passed for asstt. Year 2005-06. The solitary grievance of the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 11,48,295 made by the AO on account of unexplained business transaction with M/s. Kaushal Ispat. 2 ITA No. 3011/Del/2009
Asstt. year 2005-06
2. The brief facts of the case are that assessee has filed her return of income on 31st October, 2005 declaring an income of Rs. 1,66,820/-. The case was selected for scrutiny assessment and a notice u/s 143(2) and 142(1) was issued and served upon the assessee. In response to the above notices, Shri Rakesh Ahuja, Advocate appeared before the AO and submitted informations as called for by the AO. On scrutiny of the books of accounts it revealed to the AO that assessee was having credit balance of Rs. 11,48,295/- as on 1.4.2004 against M/s. Kaushal Ispat, Nehru Ground, Faridabad. This credit balance has been shown as squared up at the end of the accounting year by making cash payments on various dates. The assessee has appended account of M/s Kaushal Ispat appearing in her books of accounts. The Ld. AO had written a letter to M/s. Kaushal Ispat and asked to confirm having received cash payment of Rs. 11,48,295/- from M/s Sunrise Steel Agency i.e proprietorship concern of the assessee Smt. Satya Wanti Bareja. In response to the letter of AO it was submitted by M/s Kaushal Ispat that there was no balance as receivable is outstanding from M/s. Sunrise Steel Agency as per books of 3 ITA No. 3011/Del/2009 Asstt. year 2005-06 accounts as on 1.4.2004. One sale transaction during the F.Y. 2004- 05 was conducted on 17.11.2004 vide its bill No. 77 for Rs. 18,611/-. This has duly been shown in its account. M/s. Kaushal Ispat had denied receipt of any payment in cash during this year from the assessee. The AO has confronted the assessee with the reply of M/s. Kaushal Ispat. The assessee has contended that she had made cash payment as reflected in the books and entries are genuine. She is unable to understand as to why M/s. Kaushal Ispat has not shown the amounts of receipts in books of accounts. According to the assessee the simple reason for not showing the cash payment by assessee in the books of M/s Kaushal Ispat is that as on 1.4.2004 this concern has shown the amount receivable from the assessee as NIL whereas assessee has shown Rs. 11,84,295/- as payable. The assessee further contended that a sum of Rs. 14,86,886/- was shown as payable by the assessee as on 1st April, 2003. A part payment was made before 31st March, 2004. During the period 1st April, 2004 upto 31st March 2005 assessee had made the balance payment of Rs. 11,48,295/- M/s Kaushal Ispat has not recorded in its books of accounts these payments . The 4 ITA No. 3011/Del/2009 Asstt. year 2005-06 assessee further contended that looking into this discrepancy she does not want to litigate with the department and in order to remain in piece she is willing to surrender above amount subject to the condition that no penalty proceedings would be initiated.
3. The AO after reproducing the letter of assessee did not make a mention about any other details or the proviso. He simply made the addition of Rs. 11,48,295/-. He also initiated the penalty proceeding u/s 271(1)(c) of the Act.
4. Dissatisfied with the action of AO, assessee carried the matter in appeal before Ld. CIT(A). She pointed out that her offer for taxing the amount of Rs. 11,48,295/- was conditional one. According to the condition AO was not supposed to initiate the penalty proceeding. It has specifically been mentioned by the assessee in her letter dated 27.9.2007. The AO appears to have not accepted the letter of the assessee in full spirit rather he proceeded to make the addition on merit without getting influenced from her concession. That is why he initiated the penalty proceedings. Thus assessee has every right to challenge this addition in appeal before Ld. CIT(A). With regard to the merits 5 ITA No. 3011/Del/2009 Asstt. year 2005-06 it was contended by the assessee that her books of accounts are genuine. She has shown the payment, if the other concern has not shown the receipt then she cannot be fastened with the liability. Without prejudice to the claim made by the assessee in the return it was contended that even otherwise this addition could not be made under any provision of law on the ground that assessee has made the payment whereas M/s Kaushal Ispat has not shown the said payment as receipt. Such payments made by the assessee out of her books of accounts cannot give any authority to the Ld. AO to make any addition, much less u/s 68, 69, 69A, 69B, 69C and 69D. The AO has not made any mention of any section in the asstt. Order. It was also contended that it is not the case of Ld. AO that any expenditure in respect of this amount was claimed in the year under appeal which could be held bogus and could be disallowed. Thus addition cannot be made. The assessee alternatively contended that at the most AO could explore the possibility of applicability of section 41 (1) of the Act i.e cessation of liability . With regard to this possibility it was contended by the assessee hat there is no evidence on record 6 ITA No. 3011/Del/2009 Asstt. year 2005-06 which can indicate that impugned credits were in respect of trading liability for which any deduction was ever claimed and allowed and if allowed in which year it was allowed. It was also contended that M/s. Kaushal Ispat has specifically informed to the AO that as on 1.4.2004 there was no amount receivable from the assessee it makes it clear that no addition can be made in assessment year 2005-06 under 41(!) of the Act because even if for the sake of argument it is construed that liability has ceased then it was ceased in earlier year and not in this year.
5. Ld. CIT (A) has considered both these aspects elaborately and deleted the addition. Finding of the Ld. CIT(A)read as under :-
"6. I have carefully considered the submissions of the Ld. AR. and perused the order of assessment and the assessment records .It is found that the admitted position is that the assessee was having credit balance of RS. 11,48,295/- as opening balance as on 01.04 .2004 to the credit of M/s Kaushal Ispat which was squared up by the assessee during the impugned year by making cash payments to M/s Kaushal Ispat which informed that in its books of account there was no balance receivable as outstanding from the assessee as on 01.04.2004. and therefore, there was no question of receiving any payment from the appellant and that they had not received any payment during the year under appeal .Thus the A.O. made the addition of the cash payments made by assessee in her books of account but has not mentioned any section of the Income Tax AcT,1961 7 ITA No. 3011/Del/2009 Asstt. year 2005-06 under which the impugned addition of Rs. 11,48,295/- was made. As per the little investigation made by the A.O and as per Para 2.2 of his order, the assessee finally was willing to surrender above amount subject to no initiation of penalty proceedings to buy peace and to avoid litigation. However, it is seen that the AO initiated penalty proceedings u/s 271(1)(c) separately, which reflects that he did not accept the surrender of Rs. 11,48,295/-. It is also found that in doing so the A.O did not afford any opportunity to the assessee. Had he given the opportunity to the appellant in rejecting the surrendered amount of Rs. 11,48,295/- ,the assessee might have been able to explain and examine the issue by pleading it through her own contentions. However , the principles of natural justice being vitiated and the spirit of the surrender subject to no penalty to avoid litigation and by peace having been defeated , it can no way be concluded that the said surrender of Rs. 11,48,295/- was not actually accepted by the A.O. However , since the sanctity of the above agreement has been breached, the assessee has been compelled to go in appeal against this addition which he tried to avoid. As the effort to avoid litigation has been thwarted by the A.O, therefore , the appellant has every right to contest this addition in appeal as genuine grievance against this addition.
7. Coming to the merits of the addition, in the face of no section of the Income Tax Act, having been mentioned by the A.O., it is observed that the discrepancy of Rs. 11,48,295/- evident from the books of assessee and the books of M/s Kaushal Ispat can be on account of many factors which have not be made available both by the assessee and the party M/s Kaushal Ispat except the replies by both as mentioned in the assessment order. Having said that, the cash payments of Rs. 11,48,295/- on various dates were ,first of all ,expenditure of the assessee and not an income, and this expenditure has not be claimed as deduction in the books of account . They were admittedly squared up to 8 ITA No. 3011/Del/2009 Asstt. year 2005-06 liquidate the credit balance of Rs. 11,48,295/- and this fact is recorded in the books of account. The question then remains what kind of addition out of this credit balance being met by cash payments on various dates can be made, and under what previsions of Income Tax Act ,1961.? The Ld. A.R. has in her written submissions above contended that the addition cannot be effected under the provisions of section 69, 69A , 69B , 69C & 69D for unexplained expenditure as these cash payments were duly recorded in the books of account of the assessee I tend to concur with the pleas of the Ld. A.R. that the said addition of RS.11,48,295/- cannot be covered under the provisions of section 69 , 69A , 69B , 69C & 69D , as the assessee has explained the source of such expenditure which is found from the books of accounts maintained by the assessee .
6. Ld. DR while impugning the order of Ld. CIT(A) took us through interim order dated 11.10.2007 and 12.10.2007 passed by the AO wherein surrender of these amounts has been noticed. She also took us through the letter of assessee dated 27.9.2007 reproduced on page 2 and 3 of the asstt. order. She contended that once an item is surrendered before the AO then assessee is precluded to challenge that addition in appeal. Her appeal is not maintainable on this issue. However with regard to the merit she was unable to controvert the finding of Ld. CIT(A). She placed her 9 ITA No. 3011/Del/2009 Asstt. year 2005-06 reliance upon the order of AO. In support of her contention she relied upon 168 ITR 375, 108 ITR 73 and 238 ITR 130.
7. The Ld. Counsel for the assessee relied upon the order of Ld. CIT(A). He emphasised that it is not the case that books of accounts of the assessee are not reliable. It is not the case that assessee was unable to explain her position with regard to the payment of Rs. 11,48,295/-. The assessee was well aware about her rights. This addition will not be there but in order to avoid long drawn litigation with the department she offer this amount for taxation if the AO will not initiate penalty proceedings. Her offer was conditional. The AO has breached that condition. He initiated the penalty proceedings and dragged the assessee in the litigation. The AO has not made the addition on the basis of concession given by the assessee rather belied the concession. He proceed to make the addition on the basis of his investigation. In such situation it can not be said that assessee has been precluded to agitate this addition in further appeal. He further contended that similar situation has arisen before the Hon'ble Delhi High Court in the case of Sonia Magu vs. CIT rendered in ITA 10 ITA No. 3011/Del/2009 Asstt. year 2005-06 No. 721/2008 and others. In this case a search was conducted on 17.1.2002. From the residence and locker, certain jewellery having value Rs. 22,96,000/- was recovered whose source was to be explained by the assessee. The assessee had the explanation of the source of total jewellery but in order to avoid litigation and buy piece of mind, she offered 20% of such jewellery for taxation. In other words a sum of Rs. 4,59,200/- was offered for payment of tax which is 20% of total jewellery of Rs. 22,96,000/-. This offer was not accepted by the AO. He made the addition. Apart from the dispute relating to the merits of the addition a dispute travelled up to the Hon'ble High Court whether an addition of Rs. 4,59,200/- can be retained solely on the ground that assessee has offered this amount herself before the AO, despite the fact that source of entire jewellery has been satisfactorily explained. The Hon'ble Court after taking into cognigence the exact wording vide which assessee had offered 20%, in respect to such excess jewellery, has held that addition of Rs. 4,59,200/- cannot be made. According to the Hon'ble High Court assessee had contended before the AO that she had proper explanation for the purchase of aforesaid 11 ITA No. 3011/Del/2009 Asstt. year 2005-06 jewellery. She is offering the jewellery only to buy piece of mind. Such offer was conditional. The AO ignored this offer and proceed to deal with the matter on merits and fastened the liability of much higher amount upon the assessee. In these circumstances, the assessee was constrained to take up the matter in detail and therefore she was justified in challenging the entire addition before the appellate authority. The relevant observation of Hon'ble Court in this regard are worth to note.
"Her stand was vindicated in as much as CIT (A) accepted her explanation in respect of the entire jewellery valued at Rs. 22,96,000/-. Once the assessee was able to duly explain the source of purchase of the entire disputed jewellery, we are of the opinion that the CIT(A) committed an error in falling back on the conditional offer given by the assessee before the AO along with the return in Form 2B. From the language of the offer given, it is clear that it was a without prejudice offer and was not in the nature of "admission on the basis of which she could be fastened with the liability which otherwise did not exceed". Provision of Section 23 of the Indian Evidence Act would clearly be applicable in such a case. This section reads as under :-
"23. Admission in civil cases, when relevant - In civil cases no admission is relevant, if it is made either upon an express condition that evidence of it is not to be given, or under circumstances from which the Court can infer that the parties agreed together that evidence of it should not be given."
13. That apart, it is trite law that the principle of estoppels has no application in the Income Tax Act. Exactly, this very 12 ITA No. 3011/Del/2009 Asstt. year 2005-06 issue came up for consideration before the court in Commissioner of Income Tax Vs. Bharat General Reinsurance Co. Ltd. 80 ITR 303 and the position was explained in the following manner.
"It is true that the assessee itself had included that dividend income in its return for the year in question but there is no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it is incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. We are therefore of the view that the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It cannot, therefore, be taxed in the assessment year 1958-59."
To the same effect are the following judgments. 91 (1973) ITR 18-Pullangode Rubber Produce Vs. St. of Kerala., 66 (1976) ITR 647 & 251 (2001) ITR 873
14. Matter can be looked into from another angle as well. Once the assessee has given satisfactory explanation regarding the purchase/acquisition of the disputed jewellery, the necessary consequence is that there was no unexplained asset in the hands of the assessee. In such a situation, it is neither proper nor legally permissible for the revenue to still fasten the assessee with the liability of tax. It would be clear ground of illegal extraction of tax from the assessee. We are, therefore, answer the aforesaid question in 13 ITA No. 3011/Del/2009 Asstt. year 2005-06 favour of the assessee and allow these appeals. Consequently, the order of the Income Tax Tribunal and the CIT (A) to the extent it maintains the addition of Rs. 4,59,200/- is set aside and that amount is also deleted from the return filed by the assessee."
8. On the strength of this order Ld. Counsel for the assessee submitted that appeal of the assessee was duly maintainable before the appellate authority and Ld. CIT(A) has rightly deleted the addition.
9. We have duly considered the rival contention and gone through the record carefully. As far as the first objection raised by the Ld., DR that appeal of the assessee was not maintainable before the Ld. CIT(A) because she herself has offered the amount for taxation. We have gone through the letter of assessee dated 27.9.2007 reproduced by the AO on pages 2 and 3 of the asstt. Order. We find that assessee has specifically offered this amount for taxation only on the condition that no penalty proceeding would be initiated against her. The AO did not rely upon this offer and proceed to make the addition as well as initiate the penalty proceedings. The Ld. Counsel for the assessee at the time of hearing drew our attention towards the judgment of Hon'ble 14 ITA No. 3011/Del/2009 Asstt. year 2005-06 Jurisdictional High Court rendered in ITA No. 721/2008 and other appeals which we have taken note while taking cognigance of his arguments . In view of the judgment of Hon'ble Delhi High Court whereas AO failed to honour the concession given by the assessee and proceed to make the addition on merit and also initiate the penalty proceeding then assessee has every right to challenge the order of the AO. Therefore we do not see any merit in the first fold of contention raised by Ld. DR. As far as the additions on merit are concerned the only evidence possessed by the AO is the information given by M/s. Kaushal Ispat. According to M/s. Kaushal Ispat there was no amount receivable from the assessee in the accounting year relevant to this asstt. Year. M/s. Kaushal Ispat has shown the amount receivable from assessee as on 1st April, 2004 as NIL. The assessee has not claimed the deduction of this amount in this year. She has only squared up the account. Therefore it is neither the cessation of liability in this year nor these were claimed as expenses which can be disallowed as bogus claim of expenses. The assessee has squared up the account. Therefore it cannot be an unexplained credit balance in 15 ITA No. 3011/Del/2009 Asstt. year 2005-06 the accounts of assessee. Ld. First Appellate Authority has considered this controversy from all possible angles in the finding extracted supra. The Ld. CIT(A) further considered applicability of section 41(1) in paragraph 9 and held that it is not proved by the AO that it was a trading liability. Its deduction was allowed in any year or it has been ceased in this accounting year. Taking into consideration all these aspects we do not find any reason to interfere in the order of Ld. CIT(A). The appeal of the revenue is dismissed.
Order pronounced in the open court on 21.5.2010 [K.D. RANJAN] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER Veena Dated: 21.5.2010 Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order, Deputy Registrar, ITAT