Income Tax Appellate Tribunal - Delhi
Bhanwar Singh, Muzaffarnagar vs Department Of Income Tax on 25 March, 2010
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IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A' NEW DELHI
BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.2808/Del/2010
Assessment Year : 2007-08
Income Tax officer, vs Shri Bhanwar Singh,
Ward-2(1), S/o Sh. Sadi Ram Vill. & Post Dunger,
Muzaffarnagar. Distt. Muzaffarnagar.
(PAN: AJHPS4316B)
(Appellant) (Respondent)
Appellant by: Shri Bhim Singh, Sr.DR
Respondent by : Shri K.L. Aneja
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the revenue against the order of Commissioner of Income Tax(A)-Muzaffarnagar dated 25.3.2010 in Appeal No. 118/09-10/MZR/146 for AY 2007-08.
2. The grounds raised in this appeal by the revenue read as under:-
"1. The Ld. CIT(A) has on Law and facts by deleting the addition of Rs.I0,88,278/- and sustaining of addition of Rs.3,00,000/- out of the total addition made by the Assessing Officer of Rs.13,38,728/-.
2. The Ld. CIT(A) has erred on Law and facts by taking the yield of 700 Qtls. instead of 918.58 Qtls. taken by the Assessing Officer; without any reasoning and basis.2
3. The Ld. CIT(A) has erred on law and facts by deleting the addition of Rs.27,22,897/- regarding advance from customers, when assessee fails to furnish confirmatory details/copy of accounts or advances to Assessing Officer on repeated requests.
4. The Ld. CIT(A) has erred on law and facts by not appreciating the facts collected by Assessing Officer that no supply of Gur has been made by assessee to the persons from which the advances have-been taken, i.e., since last 3-4 years.
5. It is requested that the order of the Ld. CIT(A) should be set aside and- of Assessing Officer should be restored back."
3. Brief facts giving rise to this appeal are that the assessee is an individual, deriving income form manufacture and trading of Gur and Khandsari. The assessee filed a return declaring loss of Rs.18,78,893 and agricultural income of Rs.2,10,000 on 13.02.2008. The case was selected for scrutiny and the Assessing Officer issued notice u/s 143(2) of the Income Tax Act, 1961 (for short the Act) and section 142(1) of the Act along with questionnaire. The Assessing Officer noticed that in the trading and profit and loss account, there was an opening stock of Raab weighing 810 qtls amounting to Rs.12,15,000 and Khandsari weighing 109.59 qtls amounting to Rs.1,73,728 and no sales of the aforesaid items were affected by the assessee during the relevant period nor the aforesaid items were shown as part of closing stock in the final statement of accounts of the assessee. The 3 Assessing Officer rejected the explanation and submission of the assessee and held that the assessee was not able to produce any bills/vouchers in respect of manufacturing of Gur from Raab and Khandsari and no expenses in respect of coversion charges were debited to the Profit & loss account and no payable or outstanding expenditure was shown in the balance sheet in this regard. From the balance sheet, the Assessing Officer also noticed that the assessee has shown advance from customers amounting to Rs.27,22,897/-. In reply to the notice of the Assessing Officer, the assessee contended that the advance received from customers was also a liability as on 31.03.2006 and there was no fresh liability during the year under consideration. The Assessing Officer observed that during the relevant year, no manufacturing activity of Gur, Khandsari were carried out. Accordingly, it was surprising that under what circumstances, the customers could have advanced the assessee said huge amount. The Assessing Officer held that the contention of the assessee was found untenable and added back the amount to the income of the assessee treating it as bogus liability shown in the balance sheet.
4. Being aggrieved with the above assessment order, the assessee filed an appeal before the Commissioner of Income Tax(A)-Muzaffarnagar which was partly allowed by deleting both the additions made by the Assessing 4 Officer. Now, the revenue is before this Tribunal in the second appeal with the grounds mentioned hereinabove.
5. We have heard rival arguments of both the parties and carefully perused the records and the orders of the authorities below. Ground no. 1 & 2
6. Apropos ground no.1 and 2, ld. DR submitted that the assessee has shown Raab and Khandsari as opening stock but during the financial year, the assessee did not affect any sale of these items and at the end of the year, the assessee has not shown any closing stock in this regard. The DR also pointed out that the Assessing Officer rightly observed that the assessee has not claimed any conversion charges or expenditure pertaining to manufacturing of Gur from Raab and Khandsari, therefore, the Assessing Officer rightly made addition in this regard.
7. Replying to the above, ld. counsel for the assessee pointed out written submissions of the assessee before this Tribunal and submitted that the Commissioner of Income Tax(A) rightly held that if assessee has not shown any closing stock of Raab and Khandsari and there was sale of Gur and also the assesse has shown closing stock of Gur in the trading result, then the addition does not survive. The counsel of the assessee fairly conceded that there was excess Gur in the closing balance amounting to Rs.2,90,330/- and 5 the Commissioner of Income Tax(A) confirmed part addition in this regard by confirming addition of Rs.3 lakh and remaining addition was deleted granting relief to the assessee. The counsel supported the impugned order and submitted that the appeal of the revenue is baseless and misconceived.
8. After careful consideration of the above contentions and submissions, from the impugned order we observe that the Commissioner of Income Tax(A) has confirmed part addition of Rs. 3 lakh and remaining additional amount has been deleted with following observations:-
"6.1 Regarding manufacturing of Gur from Rab and Khandsari, it has been the contention of the appellant before the A.O. as well as before me is that Rab and Khandsari were converted into gur. The A.O. in the remand report has also admitted that there was opening stock of Rab at 810 Qts valuing Rs.12,15,000/- and Khandsari at 109.59 Qtls. valuing Rs.l,73,728/-.
Thus, there is no dispute over the fact that the balance sheet for the relevant period depicts opening stock of Rab and Khandsari and also excess of gur at 394.71 Qtl. in closing stock.
I find that at the time of assessment proceedings, the appellant also produced books of account along with manufacturing chart and the Assessing Officer has not been able to pin-point any defect.
Further, the appellant has also made sale of gur weighing 2328.30 Qtls. amounting to Rs.22, 14,225/- which is also undisputed. Out of this, as per the manufacturing chart in respect of gur it is noticed that there is opening stock of gur at 9362.372 Qtls, gur manufactured during the year is 394.71 Qtls. and closing 6 stock of gur is at 7428.782 Qtls. Thus, the closing of gur should be 7034.072 Qtls. But the same as per the manufacturing chart is 7428.782 Qtls and is in excess by 394.71 Qtls.
The fact which is to be taken into consideration is that as to from where this excess stock. of gur has come. Further, as per the balance sheet of the relevant period neither closing stock. of Rab and Khandsari has been shown nor sales of the aforesaid items have been executed.
Thus, I have no reason to disbelieve the contention of the appellant regarding conversion of Rab & Khandsari into gur which is well founded and thus, there remains no doubt about the fact that the appellant has actually produced gur from Rab and Khandsari.
Moreover, books of accounts were also produced before the Assessing Officer as well as before me which shows that the manufacturing of gur of 394.71 Qtl. has been accounted for in stock. Thus, the apprehension of the Assessing Officer that the Rab & khandsari have been sold outside the books, is imaginary and not supported with the facts of the case.
However, the yield of gur shown by the appellant from 918.58 Qtls. Rab was 394.71 Qtls. appears to be on the lower side. It will meet the interest of justice if the yield is taken at 700 Qtls. and keeping in view the selling rate of gur shown by the appellant in the balance sheet, the same works out to Rs.951/- per Qtl (22,14,225/2328.30 = Rs.951/- per quintal) thereby resulting in addition of Rs.2,90,330/- (700 Qtl. - 394.71 Qtl. = 305.28 Qtls X 951) to the returned loss of the assessee.
Thus, keeping view the facts and circumstances of the case, I find that it will be reasonable and proper if addition of Rs.3,00,000/- is upheld in place of total addition of Rs.13,88,728/- and accordingly relief of Rs.10,88,728/- is 7 just and proper to be allowed to the appellant on this ground."
9. In view of above observations and findings of the Commissioner of Income Tax(A), we find that the Commissioner of Income Tax(A) rightly observed and pointed out final accounts and trading results of the assessee and held that it will be reasonable and proper if addition of Rs.3 lakh is upheld and the Commissioner of Income Tax(A) granted relief regarding remaining amount of Rs.10,88,728/-. From the assessment order and impugned order, we observe that the assessee produced books of accounts along with manufacturing chart before the Assessing Officer which was not accepted by the Assessing Officer and addition was made ignoring the fact that the assessee has not shown closing balance of Rab and khandsari. Per contra, closing stock of gur has been substantially enhanced. The assessee also affected sale of gur during the year under consideration. In view of above, we hold that the Commissioner of Income Tax(A) rightly considered the factual matrix and confirmed addition of Rs. 3 lakh and remaining addition has been deleted granting part relief to the assessee. We are unable to see any infirmity or any other valid reason to interfere with the impugned order in this regard. Accordingly, we hold that ground no. 1 and 2 of the revenue are devoid of merit and hence we dismiss the same. 8 Ground nos. 3, 4 & 5
10. Apropos ground no. 3, 4 & 5, ld. DR submitted that the Commissioner of Income Tax(A) has erred in law and facts in deleting the addition of Rs.27,22,897 regarding advance from customers shown by the assessee in the balance sheet when the assessee fails to furnish confirmatory details/copy of accounts of advance to the Assessing Officer on repeated requests. The DR further submitted that the Commissioner of Income Tax(A) was not justified in not appreciating the facts collected by the Assessing Officer which clearly show that there was no supply of Gur to the person from whom impugned advances have been taken since last 3-4 years. The DR vehemently contended that the Commissioner of Income Tax(A) was not justified in accepting the contention of the assessee that he has made repayment of these advances from year to year. The DR finally submitted that the impugned order may be set aside by restoring that of the Assessing Officer in this regard. Alternatively, the DR submitted that the issue may be restored to the file of Assessing Officer for afresh adjudication.
11. Replying to the above, the counsel of the assessee submitted that admittedly, the assessee manufactured Gur from Rab and Khandsari into Gur. The counsel further submitted that the Assessing Officer has not disputed the point that the assessee made sale of Gur weighing 2328.30 qtls 9 during the year under consideration and the Commissioner of Income Tax(A) has also confirmed part addition pertaining to the excess closing stock of Gur. The counsel submitted that when the assessee has contended the fact that he has made repayment of advances from year to year which is also depicted in the audited accounts of the assessee, then the findings of the Assessing Officer are not sustainable that there was no supply of Gur to the persons from whom said advances have been taken. The counsel of the assessee finally submitted that the wrong action of the Assessing Officer was rightly corrected by the Commissioner of Income Tax(A) by passing impugned order and revenue has no case to stand on legal footing.
12. On careful consideration of above submissions and perusal of the observations and findings of the authorities below, we observe that the Commissioner of Income Tax(A) has relied on the judgment of Hon'ble High Court of Rajashtan in the case of Commissioner of Income Tax vs Parmeshwar Bohra (2007) 208 CTR 218 wherein it has been held that when opening capital or balance was shown in the earlier previous year as closing capital or balance of that year and subsequently, it was carried forward to the previous year under consideration, then it does not become an investment or cash credit of the relevant year and no addition can be made thereto.
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13. From the impugned order, we observe that the observations and findings of the Commissioner of Income Tax(A) deleting the impugned addition read as under:-
"Regarding expenditure incurred towards conversion of Rab and Khandsari inot gur, it is contended by the appellant that he got manufactured gur from Rab and khandsari on job work basis from one Sh. Ram Mohan S/o Sh. Pheru Siongh resident of Garhi Pukhta Distt. Muzaffarnagar on payment of Rs.80000. These expenses were paid in the subsequent financial year. In support of this contention, the appellant has also filed certificate from Sh.Ram Mohan dated 25.12.2009 about the fact of payment made in month of April, 2007 which is in support of assessee's contention raised before the Assessing Officer then the payment of Rs.8000 for job work was made in subsequent financial year i.e. 2007-08.
Thus, I find nothing wrong if the payment was made during the subsequent financial year.
6.2 Regarding advance from customers amounting to Rs.22,22,897/- the appellant ahs furnished copies of audited accounts for year ending 31.3.2003, 31.3.2004, 31.3.2006, 31.3.20o07 which reveals that these advances related to earlier years and no fresh advances were taken during this financial year. The appellant has also made repayment of these advances from year to year which is also depicted in the audited accounts.
In the case of Commissioner of Income Tax vs Parmeshwar Bohra (2007) 208 CTR page 218 the Hon'ble Tribunal held as under:-
"There is a clear finding and about which there is no dispute the amount added in the income of the ssessee as unexplained investment or cash credit in the AY 1993-94 was the same amount which was credited in the books of 11 account of the assessee for previous year ending 31st March, 1992. The Tribunal has categorically come to a finding, that finding is not under challenge, that this is not a case of cash credit in the books of account of the assessee during the year but it is case in which the assessee has invested the capital in the business and this amount was shown as closing capital as on 31st March, 1992 and on 1st April, 1992 it was an opening balance. It does not require any elaborate argument that a carried forward amount of the previous year does not become an investment or cash credit generated during the relevant year 1993-1994. This alone is sufficient to sustain the order of the tribunal in deleting the amount from the assessment for asstt. yr 1993-94.
The genuineness of the creditors whose accounts show substantial opening credit balance brought forward from the preceding year having been accepted."
I find that facts of the above case are squarely applicable to the case under consideration. The impugned amount of Rs.27,22,897/- was credited in the books of the account of the appellant in the earlier previous years and is shown as closing capital of those years. Thus, the carried forward amount of the earlier years does not become investment or cash credit of the relevant year.
Further, I find that the appellant's case was also taken up for scrutiny during the A.Y.2003-04. The appellant has also supplied copy of the order of the A.O. for the relevant period. I find from the copy of assessment order that the A.O. has not pointed out any defects in respect of advance raised from customers and no addition has been on this score.
Thus, the action of A.O. in disallowing the impugned sum cannot be termed as logical. If at all the A.O. is doubting the genuineness of advances received from customers, he can still take remedial action in the relevant assessment 12 years when these advances were actually received for the first time.
But for the present, as discussed above, as these advances do not relate to the year under consideration and thus, the addition made by the A.O. on this score cannot be sustained. . Accordingly, addition made at RS.27,22,897/- is deleted."
14. In the case in hand, admittedly, the assessee was in the manufacturing activity of Gur by conversion of Rab and khandsari as raw material. It is also not in dispute that the assessee manufactured and sold substantial quantity of Gur during the year under consideration. The Assessing Officer made an addition with an observation that the assessee has shown advance from customers and the assessee was required to furnish details of advance from customers along with documentary evidence but assessee has not furnished the details of advance from the customers. Before the Assessing Officer, the assessee vide his reply dated 24.12.2009 submitted that the advance from customers shown in the balance sheet was also a liability as on 31.3.2006 and there is no fresh liability but the above contentions were rejected by the Assessing Officer by holding that the assessee has failed to furnish list and copy of accounts, confirmation from the customers and moreover, during the year under consideration, there was no manufacturing activity of Gur and Khandsari by the assessee.
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15. From the relevant portion of the impugned order as reproduced hereinabove, we observe that the Commissioner of Income Tax(A) has considered the audited accounts for the year ending on 31.3.2003, 31.3.2004, 31.3.2005, 31.3.2006 and 31.3.2007 and observed that the impugned advances from customers were related to earlier years and no fresh advances were taken during the year under consideration. The Commissioner of Income Tax(A) also observed that the appellant has also made repayment of those advances from year to year which are also depicted in the audited accounts. In the later part of the impugned order, the Commissioner of Income Tax(A) relying on the judgment of Hon'ble Rajasthan High Court in the case of Parmeshwar Bohra (supra) held that the impugned amount was credited in the books of accounts of the assessee in the earlier previous years and was shown as closing capital of those years. Therefore, the carried forward amount of the earlier year does not become an investment or cash credit of the year under consideration. The Commissioner of Income Tax(A) has also observed that in the AY 2003-04 the assessee's case was also taken up for scrutiny and from the copy of the assessment order, the Commissioner of Income Tax(A) observed that the Assessing Officer has not pointed out any defect in respect of the advance rate from customer and 14 no addition has been made on this count. With these observations, the Commissioner of Income Tax(A) had deleted the addition.
16. On this point, the ld. counsel of the assessee contended that the earlier year trading liability in the shape of advance from customers carried forward to the year under consideration does not bring any benefit to the assessee, therefore, Assessing Officer was not justified in invoking deeming provisions for making addition in this regard.
17. After careful consideration of above rival contentions of both the parties, we are of the view that perhaps the Assessing Officer has made impugned addition to the income of the assessee treating the same as bogus liability standing in the balance sheet by invoking deeming provisions of section 68 of the Act. As per section 68 of the Act, if the assessee offers no explanation about the nature and source of any sum which is found credited in the books thereof or the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year.
18. In the case in hand, the Assessing Officer asked explanation from the assessee and assessee simply replied that the advances from customers were also liability as on 31.3.2006 and there is no fresh liability during the year under consideration and the assessee did not furnish the details of advance 15 from customers along with documentary evidence and confirmation. Consequently, the Assessing Officer made addition to the income of the assessee treating the amount of advance from customers as bogus liability standing in the balance sheet. In the first appeal, the Commissioner of Income Tax(A) considering the audited accounts of the earlier years and observing that the assessee has also made re-payments of these advances, deleted the addition. But the authorities below had no occasion to examine the issue in the light of letter and spirit of section 68 of the Act which stipulates that if any sum is found credited in the books of assessee and assessee offers no explanation or explanation offered by the assessee is not satisfactory in the opinion of the Assessing Officer about the nature and source of the said sum so credited, then the same may be charged to income tax.
19. In this situation, we find that the Commissioner of Income Tax(A) decided the issue in a slipshod and cryptic manner without going to the root of the issue and on the other hand, since the explanation and required confirmations from the assessee by Assessing Officer could not be placed and considered during the assessment proceedings, therefore, it would be justified to restore the issue to the file of Assessing Officer with a direction that he shall adjudicate the issue afresh in the light of provisions of section 16 68 and other relevant provisions of the Act de novo by affording due opportunity of hearing to the assessee. Accordingly, ground no. 3 and 4 of the revenue is decided by setting aside observations and findings of the Commissioner of Income Tax(A) and restoring the issue to the file of the Assessing Officer with the directions as indicated above.
19. In the result, the appeal of the revenue is disposed of and may be treated as allowed for statistical purposes.
Order pronounced in the open court on 31.05.2013 Sd/- Sd/-
(SHAMIM YAHYA) (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 31st MAY 2013
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. Commissioner of Income Tax(A)
4. CIT
5. DR
True copy
By Order
Asstt.Registrar