Income Tax Appellate Tribunal - Pune
Ashiq Khan Sher Khan, , Bhusawal vs Assessee on 26 September, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 1371, 1372 and 1373/PN/2011
(Assessment Years 2003-04, 2004-05 & 2007-08)
Ashiq Khan Sher Khan,
Prop. A.S. Trading Company,
Khadka Road, Bhusawal,
PAN No. AIUPK8573A .. Appellant
Vs.
ACIT, Circle-2, Jalgaon .. Respondent
Appellant by : Shri Nikhil Pathak
Respondent by : Shri H.C. Leuva
Date of Hearing : 26-09-2013
Date of Pronouncement : 27-09-2013
ORDER
PER R.K. PANDA, AM :
The above 3 appeals filed by the assessee are directed against the common order dated 24-08-2011 of the CIT(A)-II, Nashik relating to Assessment Years 2003-04, 2004-05 & 2007-08 respectively. Since identical grounds have been taken by the revenue in all these appeals, therefore, these were heard together and are being disposed of by this common order.
ITA No.1371/PN/2011 (A.Y. 2003-04) :
2. Facts of the case, in brief are that the assessee is an individual engaged in the business of trading in scrap and having turnover below Rs.40 lakhs. He filed his return of income on 18-06-2008 showing total income of Rs.71,535/-. The Assessing Officer noted that information was collected from Maharashtra State Power Generation Company Ltd. 2 Deepnagar, Bhusawal according to which the assessee had made purchases of Rs.13,33,093/- for the period from 29-10-2002 to 20-12- 2002. The Assessing Officer noted that the assessee has paid the entire amount in cash on different dates each amount exceeding Rs.20,000/-. He therefore asked the assessee to explain as to why 20% of the above amount should not be disallowed in view of provisions of section 40A(3). It was explained by the assessee that the return has been filed on estimate basis u/s.44AF and therefore provisions of section 40A(3) are not applicable. Relying on various judicial decisions and stating that provisions of section 44AF is applicable for trading in scrap in which the assessee is engaged in, the assessee submitted that provisions of section 40A(3) are not applicable.
3. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He observed that violation of provisions of section 40A(3) has been detected by the revenue due to enquiries conducted by it. The assessee is a dealer in scrap which is not a simple item in which single customer may purchase any item from him for his personal use and therefore it is not a retail trade. Further, the assessee could not demonstrate by filing documents that he is a retail trader. Rejecting the various explanations given by the assessee the Assessing Officer disallowed an amount of Rs.2,66,618/- being 20% of the purchase of Rs.13,33,093/-.
4. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer by observing as under :
3
"6.2 I have carefully considered the facts of the case and rival contentions. The contention of the appellant that the appellant is retailer cannot be accepted as the AO has correctly pointed out that the scrap has been purchased and sold in substantial quantity from few suppliers and few customers. The scrap traded has not been sold to the customers for their personal use and hence the appellant is not a retail trader as envisaged by provisions of section 44AF of the Act. The contention of the appellant that the appellant has purchased goods from and made payment to electricity generating unit and corporation owned by Maharashtra Govt. cannot be accepted as no such exception has been provided in section 40A(3) or Rule 6DD. The contention of the appellant that as the profit is estimated at 5%, the provisions of section 40A(3) are not applicable is also not accepted as the actual profit can be arrived at on the basis of purchase and sale figures and expenses appearing in the trading and profit and loss account prepared and filed by the appellant. Infact Gross Profit for the years under appeal is deduced from the figures supplied by the appellant in regard to opening stock, purchases, sales and closing stock. There is no element of estimation in the gross profit. Since purchases form part of the trading account, which is based on actual purchases and sales, appellant's contention that no addition canbe made u/s.40A(3) of the Act on estimated profit is devoid of any merit and therefore, not tenable. The appellant has given figures for expenses. The said expenses are accepted in toto and the GP and net profit for the AYs under appeal are worked out as follows :
A.Y. Op Purchase and Sales Cl.Stock G.P. Exps. Net Profit stock MVAT 5% Claimed Sales by appellant 03-04 NIL 13,33,093 15,03,384 NIL 1,70,291 83,295 86,996 04-05 NIL 29,65,433 31,73,013 NIL 2,07,580 48,929 1,58,651 05-06 NIL 10,00,266 11,35,520 NIL 1,35,254 78,478 56,776 06-07 NIL 13,15,203 14,31,615 NIL 1,16,412 44,831 71,581 07-08 NIL 37,20,641 39,06,673 37,500 2,23,532 28,198 1,95,334 From the above it is established that all the purchase which are mainly from Maharashtra State Power Generation Co. Ltd. are accounted for. Similarly sales figures are maintained by the appellant. Taking into consideration the above, trading account of the appellant is prepared as above and GP calculated. There is also no question of estimating the profit especially when the expenses claimed by the appellant are accepted as such. In view of the above, without estimating the net profit, the Gross/Net profit for AYs under appeal are derived on the basis of figures declared by the appellant in trading, profit and loss account prepared and filed by him. The purchases from the Govt. company and corporation have been found by Investigation Wing and are duly supported. The cash payments are also noted as per payments made to the said concerns. The sales are also supported as per trading accounts filed by the appellant wherein exact sales in odd figures have been mentioned. The decisions relied on by the appellant are on distinguishable facts. In the said decisions net profit has been estimated by the AO, whereas in the case under appeal, I am not estimating the net profit of the appellant but deriving the gross profit and calculating net profit there from by using appellant's trading figures and profit and loss account. The appellant has avoided to produce books of accounts or has not prepared regular books of accounts to avoid disallowance u/s 40A(3) of the Act. The legislature has introduced section 40A(3) to avoid cash transactions of purchase and sale which are generally not recorded by the assessees in the books of accounts to suppress the profit. It is worth noting here that the legislature has not prescribed form of keeping and maintaining books of accounts for persons engaged in business. The appellant can maintain record from which profit of the business could be reasonably 4 ascertained. It is a settled law that in the cases where though the regular books of accounts are not maintained but profit can be reasonably ascertained from the records maintained, penalty for non maintenance of books is not leviable. It has also been laid down by Hon'ble ITAT, Delhi in the case of Smt. Rajni Vs. ITO (2004) 91 TTJ 26 that when the assessee is maintaining record of bank transactions, sundry debtors and creditors, investments and withdrawals from which balance sheet is drawn and is declaring income by comparing increase of assets over those in last year and no form of keeping maintaining accounts having been prescribed for persons engaged in business, penalty u/s 271A could not be sustained. Therefore, the legislature also does not require the appellant carrying on business to maintain particular books of accounts but it is sufficient to maintain record from which profit can be reasonably ascertained. In the case under appeal, the appellant has maintained the record for purchase and sales, purchase expenses and has also drawn balance sheet for the years under appeal. In fact the appellant has produced copy of the B/S for AY 2002-03 to explain opening balance of capital account for AY 2003-04. Therefore, the appellant has reasonably arrived at gross profit and also net profit of his business, which has been duly accepted by me. Therefore the contention of the appellant that in the absence of books profit is estimated and hence disallowance u/s 40A(3) is not justified is rejected. The appellant seems to have adopted colorable device to evade tax on account of disallowances u/s 40A(3) by stating that he has not maintained books of accounts and his profits were on estimated basis. In view of the above facts the addition made by the AO on account of disallowance u/s 40A(3) amounting to `2,66,418/-, `1,05,983/-, `7,02,081/- in AYs. 2003-2004, 2004-2005 and 2007- 2008 is confirmed. Ground No.2 for AYs 2003-2004, 2004-2005 and 2007-2008 relating to disallowance u/s 40A(3) are therefore dismissed."
5. Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before us with the following grounds :
"The following grounds are taken without prejudice to each other. On facts and in law:
1] The learned CIT(A) erred in confirming the disallowance of Rs.2,66,618/- u/s 40A(3) of the Act.
2] The learned CIT(A) erred in holding that -
a. The assessee had violated the provisions of section 40A(3) and therefore, the disallowance made by the A.O. was justified. b. The assessee had maintained books of accounts and the profits were not estimated and therefore, the A.O. was justified in making the disallowance u/s 40A(3).
3] The learned CIT(A) failed to appreciate that -
a. The assessee had estimated its profits and the A.O. had also estimated the income of the assessee and therefore, the question of disallowance u/s 40A(3) did not arise.
b. The assessee had not maintained proper books of accounts and therefore , the income was estimated and in such a scenario, no disallowance u/s 40A(3) could be made.5
4] The learned CIT(A) erred in holding that the case of the assessee was not covered within the exceptions provided in Rules 6DD and hence, the learned A.O. was justified in making the disallowance.
5] The learned CIT(A) failed to appreciate that the assessee had made payments to Govt. undertakings and therefore, the case was covered under Rule 6DD(b) and hence, disallowance made was not justified. 6] The learned CIT(A) erred in holding that the payments made by the assessee to MSRTC / MSEB, etc. were not covered within the exception provided under Rule 6DD(b) and thus, the disallowance made by the learned A.O. was justified.
7] The learned CIT(A) failed to appreciate that there were business compulsions because of which the assessee had made the payments in cash exceeding Rs.20,000/- and therefore, it is submitted that since the payments were made to Govt. the disallowance made ought to have been deleted.
8] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal."
6. The Ld. Counsel for the assessee at the outset referring to the order of the Tribunal in the case of Satishkumar Vishnudas Bhutada vide ITA No.1522/PN/2011 and other connected appeals order dated 19-04- 2013 submitted that provisions of section 40A(3) cannot be applied in case where the assessee does not maintain books of accounts and the profit is estimated. Referring to the copy of the assessment order the Ld. Counsel for the assessee drew the attention of the Bench to the very first paragraph of the assessment order and submitted that the Assessing Officer himself had observed that the assessee did not maintain any books of accounts. He accordingly submitted that since the assessee does not maintain books of accounts and profit has been estimated, therefore, in view of the decision of the Tribunal in the case of Satishkumar Vishnudas Bhutada (Supra) no disallowance u/s.40A(3) can be made.
7. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A) and submitted that the order of the 6 CIT(A) being a reasonable one and in accordance with law, therefore, the same should be upheld.
8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. In the instant case, we find the Assessing Officer in the very first paragraph of the assessment order has mentioned that the assessee did not maintain any books of accounts. Further, it is an undisputed fact that the assessee has declared its profit u/s.44AF. We find the Assessing Officer made disallowance of Rs.2,66,618/- u/s.40A(3) on the ground that the assessee has made cash payments exceeding Rs.20,000/- and thereby violated the provisions of section 40A(3). We find the Ld.CIT(A) upheld the action of the Assessing Officer by rejecting the contention of the assessee that assessee has not maintained proper books of accounts and profit has been estimated and therefore provisions of section 40A(3) are not applicable. It is the case of the Ld. Counsel for the assessee that since the assessee does not maintain books of accounts as has been held by the Assessing Officer and since the profit has been estimated, therefore, provisions of section 40A(3) are not applicable in view of the decision of the Pune Bench of the Tribunal in the case of Satishkumar Vishnudas Bhutada (Supra). We find the Tribunal from Page 29 to 34 of the said order has discussed the issue of addition u/s.40A(3) when the assessee does not maintain books of accounts and profit is estimated. The relevant arguments by both the sides and the finding of the Tribunal are as under : 7
"29. The learned counsel for the assessee vehemently opposed the addition sustained by the CIT(A). He submitted that when the assessee does not maintain books of accounts and all transactions are unaccounted for which the Assessing Officer has estimated the profit then in that case addition u/s.40A(3) is not warranted.
29.1 Referring to the decision of the Pune Bench of the Tribunal in the case of Kirtikumar Vishnudas Bhutada, (a copy of which was filed in the Paper Book) he submitted that under identical facts and circumstances the Tribunal has deleted the addition made by the Assessing Officer u/s.40A(3). He also referred to the decision of Hon'ble Allahabad High Court in the case of CIT Vs. Banwari Lal Banshidhar reported in 229 ITR 229 and submitted that when the gross profit rate is applied that would take care of everything and there was no need for making addition u/s.40A(3). He accordingly submitted that under the facts and circumstances of the case no addition u/s.40A(3) is called for.
30. The learned Departmental Representative on the other hand relied on the order of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO reported in 191 ITR 667 and submitted that the purpose of introduction of section 40A(3) was to curb black money and to regulate the business transaction. Therefore, the Ld. CIT(A) was fully justified in upholding the addition made by the Assessing Officer u/s.40A(3) of the Act for violation of the provisions of the said section. Referring to the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Sai Metal Works reported in 241 CTR 377 he submitted that even in cases of estimation of profit provisions of section 40A(3) would be applicable.
31. The learned counsel for the assessee in his rejoinder submitted that the Tribunal in the case of Kirtikumar Vishnudas Bhutada (Supra) has considered the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Sai Metal Works (Supra) and applied the ratio laid down by the Hon'ble Supreme Court in the case of CIT Vs. Vegetable products reported in 88 ITR 1 (SC) and accepted the view favourable to the assessee. Since the profit has been estimated in absence of maintenance of regular books of accounts, therefore, no disallowance u/s. 40A(3) is called for.
32. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited by both the sides. There is no dispute to the fact that it is a case of non- maintenance of accounts and profit has been estimated by rejecting the book results. There is also no dispute to the fact that disallowance of Rs.6,08,222/- has been made on account of violation of provisions of section 40A(3). It is the case of the assessee that since profit has been estimated and assessee does not maintain any accounts, therefore, no addition can be made u/s.40A(3) in view of the various decisions. It is the case of the revenue that even in case where profit is estimated disallowance u/s.40A(3) can be made.
33. We find the Pune Bench of the Tribunal in the case of Kirtikumar Vishnudas Bhutada (Supra) under somewhat similar circumstances has deleted the disallowance made u/s.40A(3) by holding as under :
"19. Having gone through the above cited decisions by the parties, we find that in view of several decisions including the decision of the Hon'ble Punjab & Haryana High Court in the case of M/s. Sai Metal Works (Supra), the Pune Bench of the Tribunal in its recent decision in the case of ACIT Vs. M/s. Rushiraj Builders & Developers (Supra) has come to the following conclusion on the issue:8
9. Considering the above submissions, we find that the learned CIT(A) have decided the issue in favour of the assessee following the decision of Nagpur Bench of the Tribunal in the case of Sadhuram Wadhwani (Supra) holding that the disallowance u/s. 40A(3) in the block assessment was outside the ambit of chapter XIV B of the I.T. Act. The Ld CIT(A) has discussed several decisions relied upon before him including the decisions of Pune Bench of the Tribunal in the case of Janata Tiles, 66 TTJ 695 (Pune) and Sharma Associates, 55 ITD 171 (Pune) holding that once the transactions are unrecorded and undisclosed from the regular books of account, there can't be further disallowance u/s. 40A(3) of the Act.
Reliance has also been placed on the decision of Mumbai Bench of the Tribunal in the case of Western India Bakers (P) Ltd. vs. DCIT (2004) 84 TTJ (Mum) 223 expressing the similar view with this observation that heading of Chapter XIV B is special procedure for assessment of search cases. Section 158BA deals assessment of undisclosed income as a result of search. This Section opens with a non-obstinate clause and this enacts provisions of overriding nature so as to prevail over any other provisions of the Act. The assessed undisclosed income is assessed at the higher rate of 60% U/s. 113 of the Act, observed the Tribunal. We, however, find that different views have been expressed by different High Courts on the issue and no decision of Hon'ble jurisdictional High Court on the issue has been brought to our notice by the parties. Under these circumstances, in view of the decisions of Hon'ble Supreme Court in the cases of CIT Vs. Vegetable Products (Supra) and CIT Vs. Podar Cement Pvt. Ltd. (Supra), we adopt the judgment on the issue which is favourable to the assessee. We thus respectfully are following the decision of Cargo Clearing Agency (Guj.) vs. JCIT (Supra) & others relied upon by the Ld. A.R. hold that the Ld CIT(A) has rightly deleted the disallowance u/s. 40A(3) of the Act made by the A.O with direction to delete the same involving amount of Rs.24,15,160/-. The same is upheld. Ground No.3 to 5 involving this issue is thus rejected." In view of the above decision of the Pune Bench in the case of ACIT Vs. M/s.Rushiraj Builders & Developer (Supra), we thus hold that once the transactions are unrecorded and undisclosed from the regular books of account, there cannot be further disallowance u/s. 40A(3) of the Act. We thus while setting aside orders of the authorities below direct the A.O. to delete the disallowance of Rs.2,27,978/- made u/s. 40 A(3) of the Act. The ground no. 4 is thus allowed."
34. Respectfully following the decision of the Coordinate Bench of the Tribunal we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition made u/s.40A(3) in the instant case where admittedly profit has been estimated in absence of maintenance of books of accounts. Grounds raised by the assessee are accordingly allowed." 8.1 Considering the fact that the assessee does not maintain books of accounts and profit has been estimated u/s.44AF, therefore, respectfully following the decision of the Tribunal cited (Supra) we hold that there is no need for disallowance u/s.40A(3) in the facts and circumstances of 9 this case. We accordingly set-aside the order of the CIT(A) on this issue and the grounds raised by the assessee are allowed.
ITA No.1372/PN/2011 and 1373/PN/2011 (A.Yrs. 2004-05 & 2007-
08) :
9. After hearing both the sides, we find the assessee in the above 2 appeals has challenged the addition of Rs.1,05,983/- and Rs.7,02,081/- respectively u/s.40A(3) by the Assessing Officer for the above 2 years which has been upheld by the CIT(A). We find the grounds raised by the assessee in the above 2 appeals are identical to the grounds of appeal in ITA No.1371/PN/2011. We have already decided the issue and the grounds raised by the assessee have been allowed. Following the same ratio, the grounds raised by the assessee are allowed.
10. In the result, all the 3 appeals filed by the assessee are allowed.
Pronounced in the open court on this the 27th day of September 2013 Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: 27th September 2013
Satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-II, Nashik
4 CIT-II, Nashik
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune