Income Tax Appellate Tribunal - Kolkata
Madhusudan Das, Kolkata vs Department Of Income Tax
आयकर अपीलीय अधीकरण, Ûयायपीठ - " सी " कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH : KOLKATA
(सम¢)Before ौी डȣ. के. ×यागी, Ûयायीक सदःय, एवं/and
Shri D.K.Tyagi, Judicial Member. .
ौी बी.के.हालदार, लेखा सदःय,
Shri B.K.Haldar, Accountant Member
आयकर अपील संÉया / I.T.A.No. 497/KOL/2009
िनधॉरण वषॅ/Assessment Year : 2005-06
Dy. Commissioner of Income- -वनाम- Madhusudan Das
tax,Circle-XXXVIII, Kolkata -Versus-. PAN: AGRPD 2850 J
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
अपीलाथȸ कȧ ओर से/ For the Appellant: ौी/Shri B.R. Purokayastha
ू×यथȸ कȧ ओर से/For the Respondent: ौी/Shri Sujit Roy
आदे श/ORDER
ौी बी.के.हालदार, लेखा सदःय, Shri B.K.Haldar, Accountant Member.
This is an appeal filed by the revenue against the order of the learned Commissioner of Income- tax (Appeals)-XXIV, Kolkata dated 12.01.2009 for the assessment year 2005-06.
2. The revenue has taken following ground of appeal:-
"That, on the facts and circumstances of the case, the CIT(A) erred in deleting the addition of Rs.84,09,656/- being the difference in closing stock and sales values between the two sets of accounts of the assessee."
3. The return of income for the relevant assessment year was filed by the assessee on 19-08-2005 declaring total income of Rs.1,17,270/-. The same was processed u/s.143(1) and was not further scrutinized. Subsequently, the case was reopened u/s.147 of the Act vide issuance of notice u/s.148 dated 27-12-2006, which was served on the assessee on 28-12-06. Thereafter, various notices fixing hearing were issued by the Assessing Officer and served on the assessee. However, the assessee did not comply with the same. The Assessing Officer, therefore, completed the assessment u/s.147/144 of the Act.
3.1 The Assessing Officer received a letter from AGM, Small Enterprises Credit Cell, SBI, Esplanade Branch dated 26-12-06, which contained P & L account and balance sheet as on 31-03-05 furnished by Sh. Madhusudan Das, the assessee, in which M/s. Mangal Deep was claimed by the assessee as his proprietary concern. In the above P & L account and balance sheet of M/s. Mangal Deep for the year ending on 31-03-05, the sales and closing stock of M/s. Mangal Deep was shown at ITA No.497/Kol/2009 2 Rs.80,67,524/- and Rs.13,31,486/- respectively. In the P & L account a sum of Rs.93,99,010/- was credited. These figures were completely different from the P & L account and balance sheet filed by the assessee before the Assessing Officer. As the assessee did not appear before the Assessing Officer, the difference between sales shown before the bank and that shown in the annexure accompanied with the return of income before the Assessing Officer i.e. Rs.93,99,010/- - Rs.9,89,353.70= Rs.84,09,656/- was added by the Assessing Officer as undisclosed income of the assessee.
4. Aggrieved the assessee filed appeal before the ld.Commissioner of Income-tax (Appeals).
5. Written submission of the assessee before the ld. Commissioner of Income-tax (Appeals) was as under:
"The appellant a small businessman was always in shortage of fund. In the meantime, he came across with some unscrupulous persons who introduced themselves to be the mediators for bank finance. The mediators in connivance with some Chartered Accountants prepared fabricated Balance Sheet and P/L A/c of M/s. Mangaldeep showing the appellant as Proprietor of M/s. Mangaldeep and files the same with State Bank of India, Esplanade Branch, Kolkata. The Profit shown in the said fabricated accounts was the same i.e. Rs. 1,1 7,270/- as declared by appellant in his return of income. These papers were sent by the Bank to the ACIT Circle-38 for verification of genuineness and based on these papers the appellant's case was reopened u/s. 147 and a notice u/s. 148 was served on the appellant on 28.12.2006. The appellant had been suffering from Heart Problems, High Blood Pressure and Diabetes since August, 2007 and therefore, could not put before the Assessing Officer. The Assessing Officer while assessing the income of the appellant added difference of Rs.84,09,656/- between Credit side of the firm M/s. Mangaldeep, partnership firm and the figures of credit side in Profit and Loss A/c submitted to Bank. The fact that Messers, Mangaldeep was a partnership firm and that how gross credit side can be treated as income were completely ignored. It was also ignored that the Income at both the places was same. The A.O. acted as sales tax officer and not Assistant Commissioner of Income Tax, because he has assessed the sales and closing stock and not income.
At the outset it is submitted that there cannot be any addition to the appellant's income because the income declared by the appellant in his return of income and that as per the fabricated accounts submitted to Bank is same. Gross sales or total of credit side of P/L Account cannot be basis of making assessment under the Income Tax Act. The income assessable under Income Tax Act has to be net income and not gross total of credit side of Profit and Loss Account as has been done by the A.O. Thus the order of assessment is bad in law, against natural justice and excessive in nature and without basis"
5.1 The appellant further contended as follows:-
(1) That the appellant is a very small trader. The total turnover since the inception of the business has been always very low, below the taxable turnover, excepting this year (i.e. A. Y. 2005-2006) which is quite evident from his earlier accounts.
(2) That due to shortage of funds and to expand the business, he was eager to have finance for development of business.ITA No.497/Kol/2009 3
(3) That very unfortunately he come across with unscrupulous persons who introduced themselves to be the mediators for Bank finances. The appellant being a natïve/simple and honest person unschooled in the science of Income Tax Law and finance relied and believed on them. (4) That the appellant signed all the papers/documents prepared by their Chartered Accountants and visited their office several times and even to the State Bank of India, Esplanade Branch, thus he became the prey and victim to their hunts and activities for their dishonest and mischievous.
(5) That your appellant testify that those mediators assured him not bother for Income Tax matter which they would manage.
(6) That whatever sales and closing stocks are shown are all imaginary and not actual, which are not related with the business commenced in the financial year 2004-05 (i.e. A. Y. 2005-06) of appellant. The said sales and closing stocks are shown only to get loans from the Bank, nothing else.
(7) That there is no suppression of sales and closing stocks, eventually there is no undisclosed income and evasion of tax.
5.2 Reliance was placed by the assessee on the following case laws:-
a. Smt. Sokhi Sona Mullick Vs. ITO,W 40(4),Kol ITAT Kolkata 'B' Bench [ ITA No. 408/Kol/2005] b. M/s. Detron Plastics (P) Ltd. Vs. DCIT 105 Taxman 107 c. India Insurance Co. Ltd Vs. Smt. Nirmala Devi 118 ITR 507 d. CIT Vs. N.Swamy 241 ITR 363 (Mad) e. Coimbatore Spng.& Weaving Co. Ltd Vs. CIT 95 ITR 375 (Mad) f. Padmavati Cotton Mills Vs. CIT 236 ITR 340(Mad) g. CIT Vs. Punjab Rice & General Mills 137 Taxman 314(P&H) h. CIT Vs. Udaipur Chemicals & Fertilizers (P) Ltd 166 Taxman 226(Raj)
6. The ld. Commissioner of Income-tax (Appeal) vide his letter dated 28-11-08 asked the Assessing Officer to clarify certain issues. He also directed the Assessing Officer to make enquiries with the bank to ascertain whether subsequent to the loan proposal as submitted by the assessee any further details were furnished by the assessee to the bank. The Assessing Officer vide his letter dated 12-01-09 reported that the bank has stated that the loan proposal was rejected by the bank and no records have been maintained by the bank. In the above facts the ld.Commissioner of Income- tax(Appeal) in para 2.5 to 2.10 of his order held as under:-
"2.5 Though during the course of assessment proceedings the appellant did not submit any explanation during appellate proceedings it has been submitted by the appellant that the balance sheet and trading and P&L A/c which were submitted to the bank were fabricated showing M/ s Mangaldeep as a proprietary concern with the intention of obtaining funds for the business by way of loan from the bank on the advise of Mediators and Chartered Accountants. The appellant claimed that he was a very small trader and his turnover was very low and as he was eager to expand the business he had fallen prey to the advise given by unscrupulous person though no such business are carried out. Whatever sales and closing stock were shown was imaginary and not related with the business carried ITA No.497/Kol/2009 4 out by the appellant in the financial year 2004-05. The appellant therefore, contended that there was no suppression of sales and closing stock and no undisclosed income as assessed by the AO was earned.
2.6 The submission of the appellant is considered and seen in the light of the fact that there are no corroborative evidences or finding on record to show that during the year under consideration the appellant carried out business to the tune of the turnover shown in the accounts submitted to the bank. There is no finding on record that the turnover and stock shown by the appellant to the bank were actually made. There are no details of quantity of stock shown to the bank. No stock statement/debtor-creditor statements are available on record. The AO has also proceeded to treat the trading account submitted to the bank as showing the business carried on by the appellant and worked out the excess by comparing this with the result shown by a separate entity. There is thus no finding as to what was the quantum of stock and sales and whether such quantum was pertaining to the appellant or to the firm in which appellant was the partner. There is no finding that the accounts statement which were submitted by the appellant to the bank were actually verified by the bank as to the correctness of the existence of stock and sale shown therein. The bank on the other hand had depended on the AO for verification of the same and on there being a difference as pointed by the AO, the loan proposal of the appellant was rejected by the bank. - 2.7 These facts are to be seen in the light of the judgment cited by the appellant wherein it has been held that the appellant's income is to be assessed on the basis of material which is required to be considered for the purpose of assessment and not merely on the basis of statement which may have been given to a 3rd party unless there is material to corroborate the statement of the appellant given to a third party. The mere fact that the appellant have made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the appellant. The burden is on the revenue to prove that the income sought to be taxed is within the taxing provision and there was in fact income are proposition which are settled by the Supreme Court (CIT vs N. Swamy, Madras 241 ITR 363) 2.8 It is also relevant to discuss the judicial position as arrived at by the Hon'ble Madras High Court in the case of Coimbatore Spinning and Weaving Co Ltd wherein the Court has held as under:
"When the stocks are inflated in the statements given to bank for obtaining overdraft and loan facilities whether rejections of account and estimation of income would be justified? Such a practice is not recognize in commercial circles or by Court even if such practice exists the Tribunal is not expected to take judicial notice of such sub- standard morality. A heavy burden is on the assessee to prove that the account books alone give a correct picture."
The Court in the said decision thus upheld the position that once it is found that there was excess stock they represent income of the assessee. However, the facts of the present case can be distinguished as in this case there is no admission that business of M/s Mangaldeep, Prop Madhusudan Das was at all carried out as in the above referred case where the assessee was found to be carrying the business and had submitted inflated statements of his stock to the bank. Part of the stock in these statements was shown to be in excess of the book stocks and part of the stock was shown to be less than the book stock in terms of quantity and value. In the case under consideration there is no finding that any quantitative details of ITA No.497/Kol/2009 5 stock/ sales were submitted or that any such quantitative records were kept at all. The most important point of distinction is that though in the case decided by the Hon'ble Court there was no confusion as to the fact that the stock statement submitted to the bank pertains to which concern in the case under consideration there is no clarity as to the statement submitted to the bank pertains to which concern. As has been discussed earlier and at the cost of repetition it is pointed out that the statement submitted to the bank pertained to a proprietary concern called M/s. Mangaldeep while the statement submitted to the bank were used to work out the discrepancy by making reference to the statement of the firm M/s Mangaldeep and finally, the discrepancy was treated as income of the proprietor. 2.9 In the light of these facts the observations in the case of CIT vs. N. Swami Madras 241 I'FR 363 are more appropriately applicable to the instant case wherein it has been held that such statements given to a third party can not be relied upon unless there is some material to corroborate the statement given to the third party. The statement submitted to the bank cannot be the sole foundation for a finding that the assessee had deliberately suppressed his income. In the instant case there is no corroborating evidence on record to suggest that the statement submitted to the bank contained real figures of stock/sale. The action of the bank also upholds the view that as these statements were not found to be satisfactory these were rejected and the loan application of the appellant was rejected.
The appellant has also relied on the judgment in the case of Smt Sokhi Sona Mullick by the ITAT, Kolkata in ITA No. 2473 & 2474/2004 wherein the ITAT has upheld the view that the discrepancy with reference to the statement submitted to the bank can not be the sole basis for making addition in the declared income and has deleted the addition made on account of difference in stock as per the books of the appellant and as per stock statement submitted to the bank.
2.10 Keeping in view the above facts and circumstances of the case and following the decisions of the jurisdictional ITAT it is considered that the addition of Rs.84,09,656/- made to the total income of the appellant on the basis of stock statement submitted to the bank is not in accordance with the law. The same is therefore deleted. The appellant gets relief of Rs.84,09,656/ -. Accordingly these grounds of the appellant are allowed."
7. Aggrieved the revenue has filed appeal before the Tribunal.
8. Before us the ld.DR relied on the order of the AO. It was emphasized by him that the case was reopened on the basis of receipt of information from the bank and that the assessee did not co-operate before the A.O for which the assessment had to be completed u/s.144 of the Act.
9. The ld.AR for the assessee, on the other hand, in addition to relying on the order of the ld.CIT(A), has placed reliance on the following case laws ;-
a. Commissioner, Trade Tax, U.P., Lucknow Vs. Varanasi Bottling Co. P.Ltd [29 VST 251(All) ] b. Smt. Sokhi Sona Mullick Vs. ITO, W 40(4), Kol. [ITAT 'B' Bench] [ITA Nos.408 to 410/K/06 dt.29.06.06] ITA No.497/Kol/2009 6 9.1 It was pointed out to the ld. A/R for the assessee that copies of document available at PB pages 17-18 were not only signed by the assessee, but the same were also authenticated by the Chartered Accountant. He was, therefore, asked by the bench as to why reliance on such document should not be placed for working out the income of the assessee. No specific reply was given by the ld.AR for the assessee.
10. We have heard the parties and perused the record. The facts of the case are that the assessee claimed before the bank that he was proprietor of M/s. Mangal Deep for the impugned assessment year and he furnished P & L account and balance sheet of such proprietorship, which was certified by the chartered accountants. Such P & L account and balance sheet were in variance with that furnished before the A.O. When asked to reconcile this discrepancy the assessee did not cooperate with the A.O and therefore, the AO added the difference between the sales shown in the two P & L accounts. During the appellate proceedings before the ld. CIT(A), the ld. CIT(A) asked the AO to make enquiries with the bank to ascertain whether any further details were furnished by the assessee to the bank. The AO after enquiry reported to the ld.CIT(A) that as the bank did not sanction the loan proposal, it had not maintained any records of the case. It was submitted by the assessee before the ld.CIT(A) that the documents furnished before the bank were fabricated with the aim to obtain funds from the bank on the advice of mediators and chartered accountants. This submission of the assessee was accepted by the ld.CIT(A), as there were no corroborative evidence other than the documents furnished before the bank. It is to be decided as to whether such finding of the ld.CIT(A) is justified or not. 10.1 It is not disputed that the documents furnished before the bank were not only signed by the assessee, but also authenticated by the chartered accountants. Thus, prima-facie it has to be accepted that the assessee carried on business as shown in the above documents. The onus was on the assessee to dispute the same. The assessee has made a bald statement before the ld.CIT(A) that such documents were fabricated without supporting the same with any admissible evidence, such as affidavit supported by relevant evidence. Thus, we are of the considered opinion that the onus cast on the assessee to disprove the documentary evidence furnished before the bank has not been discharged by the assessee. The ld.CIT(A), therefore, was not justified in putting the onus on the AO to prove the authenticity of such documents. In this view of the matter, we hold that the decision of the ld.CIT(A) is not correct. As the order of the ld.CIT(A) is based on above factual conclusion, we set aside the impugned order of the ld.CIT(A).
10.2 We have also noticed that the AO has added the difference between the sales shown in the two P & L accounts. There is no basis for doing the same. If the documents are to be believed, the same has to be believed as a whole. Part of it cannot be believed and part discarded. Thus, the order of the AO is ITA No.497/Kol/2009 7 also not based on correct principle of law. In this view of the matter, we set aside the impugned order of the AO and remand the matter back to his file with the direction that a fresh order be passed in the light of our above observation and as per law after giving the assessee adequate opportunity of being heard.
11. In the result, the appeal filed by the revenue is allowed for statistical purpose.
यह आदे श खुले Ûयायालय मɅ सुनाया गया है
This order is pronounced in the open court on 29-10-2010
Sd/- Sd/-
(डȣ. के. ×यागी ), Ûयायीक सदःय ( बी.के.हालदार ), लेखा सदःय,
(D.K.Tyagi), Judicial Member.) (B.K.Haldar, Accountant Member)
(तारȣख)Date :29-10-2010
*PP/Sr. Private Secretary :
आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. (अपीलाथȸ/APPELLANT ): DCIT, Circle-38,8th Fl., Poddar Court, 18 Rabindra Sarani, Kol-1
2. (ू×यथȸ/RESPONDENT) : Shri Madhusudan Das 33 Nimtolla Ghat St., Kol-6
3. आयकर किमशनर (अपील)/The CIT(A)
4. आयकर किमशनर (अपील)/The CIT
5. वभािगय ूितनीधी / DR, Kolkata Bench
6. Guard File स×याǒपत ूित/True Copy, आदे शानुसार/ By order, उप पंजीकार/Deputy Registrar