Income Tax Appellate Tribunal - Ahmedabad
Prakash Bhagwandas Jariwala, Surat vs Assessee on 2 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD ''SMC" BENCH - AHMEDABAD
Before S/Shri Rajpal Yadav, JM, & Manish Borad, AM.
ITA No.1873/Ahd/2013
Asst. Year: 2009-10
Prakash Bhagwandas Vs. Income-tax Officer, Ward-
Jariwala, House No.8-1889, 5(3), Surat.
A-4, Sangadiyawad,
Gopipura, Surat
Appellant Respondent
PAN ABUPJ 7906R
Appellant by Shri Mehul Shah, AR
Respondent by Sri Vilas V. Shinde, DR
Date of hearing: 03/12/2015
Date of pronouncement: 2/03/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal of the assessee is directed against the order of ld. CIT(A)-I, Surat, dated 1.4.2013. Assessment for Asst. Year 2009-10 was framed u/s 143(3) of the Income-tax Act, 1961 (in short the Act) on 22.10.2011 by ITO, Ward-5(3), Surat. Assessee has raised following grounds of appeal :-
Grounds of Appeal
1. On the facts and circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in making addition of Rs. 2,17,680/- by adopting net profit ratio @ 8% instead of 5% on turnover of Rs. 16,87,380/-
as claimed by the assesses and by taxing the peak amount.
ITA No. 1873/Ahd/2013 2Asst. Year2009-10
2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in further enhancing the income by Rs. j 5,76,2897- by estimating net profit @ 47% on turnover of Rs. 16,87,3807- as unaccounted' job work profit.
3. It is therefore prayed that above addition made by assessing officer and confirmed by Id. Commissioner of Income Tax (Appeals) and enhancement made by CIT(Appeals) may please be deleted.
4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.
2. Briefly stated facts as culled out of the case are that the assessee is the business of Jari labour income. He filed his original return of income on 31.12.2009 declaring total income at Rs.1,64,104/-. The return was processed u/s 143(1) of the Act. Thereafter the assessee filed a revised return on 24.1.2011 declaring total income of Rs.2,49,042/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 25.8.2010. As per AIR information assessee had deposited Rs.16,87,380/- in the bank account held with SBI, Sosyo Circle Branch, Surat and this bank account was not disclosed by the assessee in his books of account. On being asked by the Assessing Officer about the reason for not disclosing these transactions of Rs.16,87,380/- (by cash as well as by cheque) assessee submitted that these all are transactions relating to the business of trading in sarees and dress materials carried on by the assessee and the same was not accounted for in the regular books of account and income generated from the said business was not offered for taxation during the year. Accordingly ld. assessing officer framed the assessment by making addition of peak balance of Rs.82,690/- u/s 69 of the Act and also calculated net profit @ 8% on the total credit of Rs.16,87,380/-
ITA No. 1873/Ahd/2013 3Asst. Year2009-10 which works out at Rs.1,34,990/- and accordingly added the same to the income of the assessee. Also there was a minor addition of undisclosed bank interest of Rs.569/- and overall total addition of Rs.2,18,249/- was made and income of the assessee was assessed at Rs.3,82,350/-. The assessing officer did not accept the revised return filed under section 139(5) of the Act because the return was revised after the processing of return u/s 143(1) of the Act.
3. Aggrieved, assessee went in appeal before ld. CIT(A) who enhanced the addition to Rs.7,93,969/- by replacing the two additions from (Rs.82,690/- + Rs.1,34,990/-) by the assessing officer by estimating the net profit @ 47% of undisclosed credit of Rs.16,87,380/- and the enhanced addition works out at Rs.7,93,969/- by observing as under:-
7. DECISION :-
7.] At the outset, the assessing officer *s action of treating the revised return filed on 24.01.201! as 'non- est ' is not in accordance with law. The assessment in this case has been completed u/s 143 (3) on 22.10.20) I und u/s !39(5) of the Act, the appellant had time to file revised return of income till 30.03.2011. However, treating the return of income filed on 24.01.2011 as valid does not mean that profit disclosed therein in respect of deposits of Rs .16, 87, 380/- is correct.
7.2 The section 44AF provides for 5 % of the total turnover to be taken as * Profit; and Gains " or " Profession ' for an assessee engaged in the retails trade of any goods or mercantile .
However, primary condition for applicability of section is that the assessee must be engaged in the retail trade of any goods or mercantile. Unless the appellant establishes the existence of retail business, he cannot take shelter of section 44AF. The appellant -s business is of a job work related to work of jari, on which, 47% net profit has been shown in the return filed u/s 139(1). This unaccounted bank account was never disclosed to the department, till a notice u/s 143(2) was issued apart from notice u/s 142(1) asking for various details from the appellant.
ITA No. 1873/Ahd/2013 4Asst. Year2009-10 7,3 In the revised return filed, the appellant claimed that the deposits in undisclosed bank account are sales proceeds of unaccounted trading business. However, no evidence of existence of said retail trade has been furnished . As mentioned earlier, most of the withdrawals from the bank account are ATM withdrawals, while most of the deposits are in cash.
7.4 The appellant did not furnish evidence to link (he withdrawals with the expenditure and deposits with sale proceeds of trading business. The section 44^F exempts an assessee from the operation of the proviso to section 28 to Section 43C and sections 44AA and section 44AB. Therefore, in such cases, where section 44AF is applicable, -the section 44AA regarding maintenance of books of account does not apply. However, the appellant is still required to establish the existence of retail business and the correctness of turnover shown. Once the existence of retail business is established and the correctness of turnover is also established, the profit can be taken at 5% of the turnover provided the business does not exceed Rs.40,00,000/-.
7.5 In the case of the appellant, he failed to establish any evidence regarding existence of retail trade. Therefore, the deposits made in the undisclosed bank account either represent "undisclosed job work receipts' of the appellant or 'unaccounted income" from the activity of job work receipts. In case, the deposits represent unaccounted job work income, the addition made needs to be enhanced to Rs 16, 37,380/- from ( Rs 82,690/- + Rs 1, 34,990/-) and in case of deposits represent unaccounted receipts of job work, the assessment is required to be enhanced to 47% of Rs. 16,87,3807- ( i.e. NP disclosed in the return filed u/s 139(1). The appellant having failed to establish any evidence that the so called ATM withdrawals represent expenditure, the most reasonable view , which can be taken in this case is an estimation of net profit at 47% of Rs. 16, 87,3807-. Therefore, the two additions made of Rs. I, 34, 990/- and Rs. 82,690/- are replaced by an addition of Rs. 7,93,969/- and the assessment is enhanced accordingly.
7,6 In this case, separate penalty proceedings are not being initiated, for the reason that the A.O has already initiated penalty proceedings, u/s 271 (1)(c.) of the Act and in view of provisions to section 275 (IA) of the I T Act, the enhancement made gets covered by the said penalty
8. In the result, appeal is dismissed and the assessment made by the AO is enhanced.
4. Aggrieved the assessee is now in appeal before the Tribunal against the addition made by Assessing Officer as well as against the enhanced addition made by ld. CIT(A).
ITA No. 1873/Ahd/2013 5Asst. Year2009-10
5. Ld. AR of the assessee submitted that assessee has been regularly filing his return and showing business income of jari labour income and in the year under appeal he has filed his return of income showing business income from jari labour income and the same has not been controverted by the Revenue. In other words it has been accepted by the Revenue that assessee is engaged in the business. Ld. AR further submitted that all the transactions in the impugned bank account are related to business of trading sarees and labour income and few transactions are through cheques also. Therefore, ld. AR submitted that Assessing Officer ougt to have applied the net profit rate of 5% on the total turnover of the assessee and it was completely wrong on the part of ld. CIT(A) to apply net profit rate of 47% on the undisclosed cash credit of Rs.16,87,380/-.
6. Ld. AR further submitted that in this assessment order the Income-tax Officer has wrongly added the amount of Rs.l.34,900/- taking the net profit of 8 % of the. total turnover of Rs, 1687380/- of cloth business, as against correct income of net profit of 5 % only as provided u/s 44AF of the Act. Again he has also wrongly added an amount of Rs.82,690/- being the .peak credit of the undisclosed bank account No, 30408683898 with State Bank of India, Sosyo Circle Branch, Surat. In connection ld. AR stated that assessee has deposited Rs.90.000/-(Rs.40.000/- on 30-06-2008. Rs.25,000/-. on 02-07-2008 and Rs.25.000/- on 08/07/2008) .in the said bank account which is already debited in capital account and therefore there is no question of addition of peak. Moreover in fact assessee has already ITA No. 1873/Ahd/2013 6 Asst. Year2009-10 disclosed an income of Rs.84.369/- at 5% of the total :turnover of the cloth business of Rs,16,87.380/- U/s, 44AF of the Act. in the revised Return of Income filed on 24/01/2011. Thus this is the wrong and double addition to the income declared as the profit on the undisclosed turnover of cloth business reflected in the bank account is considered in the income assessed then there is no question of further adding peak credit of the said bank account of Rs.82,690/- and the same is required to be deleted. Further in light of the .above facts the action of the income-tax Officer taking 8% net profit of total turnover of Rs. 16.87.380/- is wrong against the net profit of 5 % on such turnover declared under section 44AF of the Act and therefore, on excess profit at 3% at Rs.50,621/-should be reduced and delted from total income.
7. In support of his claim ld. AR further relied on various decisions which are as follows :-
1. CIT vs. Tirupati Construction co. 55 taxmann.com 308 (HC)(Guj)
2. CIT vs. Pradeep Shantilal Patel - 42 taxmann.com 2 (HC)(Guj)
3. CIT vs. Lovish Oberoi vs. 54 taxmann.com 23 (HC) (Del)
4. ITO vs. Shri Kishor C. Parmar -ITA No.1069/Ahd/2012 (Ahd Trib)
5. Shri Narpatsingh A. Rathod vs. ITO ITA No.116/Ahd/2011 (Ahd Trib)
6. Shri Manjuben Champaklal vs. ITO 1155/Ahd/2011 (Ahd trib)
7. Shri Sanjay Kumar Bucha vs. ITO ITA No.1897/Ahd/2011 (Ahd Trib)
8. On the other hand, ld. DR supported the orders of lower authorities.ITA No. 1873/Ahd/2013 7
Asst. Year2009-10
9. We have heard the rival contentions and perused the material on record. There are two issues before us which relate to profit estimation on the undisclosed credits of Rs.16,87,380/- and application of peak theory for undisclosed investment at Rs.82,690/-. Undisputed facts both on the part of assessee and the Revenue are that the assessee is engaged in the business of jari labour income and he has been regularly filing its return of income as business income and further there is a bank account held with SBI, Surat having credits at Rs.16,87,380/- and the same has not been disclosed in the regular books of account of the assessee.
10. We find that in the case of CIT vs. Pradeep Shantilal Patel in Tax appeal No.899 of 2013 vide its order Hon'ble Gujarat High Court has decided a similar issue by observing as under :-
"7. At the outset, it is required to be noted that in the bank account of the assessee the actual cash deposit was of Rs.35,33,414/-. The learned CIT(A) also confirmed the finding of the Assessing Officer that the bank account in which the aforesaid amount was deposited was not the HUF account but it was the bank account of the assessee himself. However, by observing in paras 4.2 and 4.3, the learned CIT(A) has restricted the addition to the extent of Rs. 1.80 lacs by way of business income from retail trade of the assessee. Paras 4.2 and 4.3 reads thus:
"4.2. I have gone through the asst. order passed by AO and the written submission filed by the appellant. I have also considered the evidence produced by the appellant in his paper book. I find considerable force in the contentions raised by AO that the transactions recorded in the bank a/c no. 2831 with Amarnath Co-op Bank Ltd. do not pertain to his HUF, The contemporary evidence by way of filing the return of income in the status of HUF after the time allowed u/s. 139(4) of the Act and that too after issuance of first show cause notice by AO, making application for PAN on 28.07.2009, neither getting registered under Gujarat VAT Act nor filing any returns under it, failure to furnish name and address of the suppliers in respect of Iron scrap business claimed by the appellant - all these facts clearly establish that claim of the business of HUF was an afterthought and it was rightly rejected by AO, ITA No. 1873/Ahd/2013 8 Asst. Year2009-10 4.3. Now, coming to the next contention of the appellant that the transactions in the said bank a/c were related to the Iron Scrap business, it was rejected by AO simply for the reason that sales cannot precede the purchases because sales (credit) comes first before the purchase (debit) in the bank a/c. However, from the perusal of the bank statement as produced in the paper book at page 3-7 that the modus operand! adopted by the appellant seems to be depositing cash either a day before or on the same day and the cheque for the payment getting cleared against such amount. It is also observed that the cash deposits are almost equal to the amounts to be paid/cheques to be cleared and the bank balance is a meager amount not exceeding Rs.1,000/- (except in couple of instances). The manner of carrying out both credit and debit transactions clearly indicate that payments have been made to the different parties out of cash deposited which is claimed by the appellant from the sale proceeds In this view of the matter, sales (credit) will precede the purchases (debit) in the bank account. The contention of the appellant is that the cash deposits have been made out of sale proceeds of retail trade and purchasers have been paid out of it at a later date. It after all depends upon the terms and conditions of the sale between the two parties. The appellant has rightly contended that the payment for the purchase could be at later date but the goods cannot be delivered or sold without making its purchases unless it is a forward transaction. The payment for the purchases may precede the sale or subsequent to it depending upon the terms and conditions between the concerned parties. Therefore in the present case the contention of the appellant that the transactions in this bank a/c pertain to his business deserves to be accepted but still there would be a question of determining income in respect of these transactions. There is no evidence on record excepts the statement of the appellant with regard to the nature of business carried on by him and the details relating to the computation of income. The appellant has riled return of income on 13.08.2009 declaring income of Rs.1,76,660/-u/s 44AF in respect of the transactions appearing in this bank a/c. In view of such statement made by the appellant in his return of income under due verification and there being no other evidence to disbelieve it, I am inclined to accept as the transaction relating to retail trade. But the documents relating to this business such as sales purchase invoices, books etc. neither maintained nor produced by the appellant, the book result declared by the appellant cannot be accepted even the most of the credits (sales) are matching with the debits (purchases) which shows that the appellant has not deposited entire sale proceeds in this bank a/c. Therefore I have no alternative but to estimate income by estimating the sales. The total turnover of the appellant in this business is estimated at Rs.36 lacs and the net income u/s 44AF would work out to Rs.1.80 lacs. Accordingly the addition of Rs.35,33,414/- in respect of cash deposited in the bank a/c as undisclosed income is hereby restricted to Rs.1.80 lacs but by way of business income from retail trade of the appellant."ITA No. 1873/Ahd/2013 9
Asst. Year2009-10
8. The aforesaid finding has been confirmed by the learned ITAT by passing the impugned judgment and order and the order passed by the learned CIT(A) restricting the addition from Rs.35,33,414/- to Rs.1.80 lacs has been confirmed by the learned ITAT.
9. We are in complete agreement with the view taken by the learned CIT(A) as well as learned ITAT. The learned CIT(A) as well as learned ITAT have rightly held that the entire amount of Rs.35,33,414/- cannot be added in the income of the assessee as undisclosed income.
10. Considering the evidence on record and the total turnover of the assessee which came to be estimated! at Rs.36 lacs, the CIT(A) has worked out the net income of the assessee under Section 44AF to Rs.1.80 lacs. We have no reason to interfere with the order passed by the learned CIT(A) as well as judgment and order passed by the learned ITAT. No questions of law much less any substantial questions of law arise ii the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed."
11. We find that for Asst. Year 2009-10 assessee is engaged in retail business of sarees as well as jari laour work having annual turnover of less than Rs. 60 lacs and having option of computation of profits and gain of business on presumptive basis as referred in the provisions of section 44AD and 44AF of the Act. Before going further let us go through the provisions of these two sections :-
A. Section 44AD - Presumptive computation of profits for taxation for business (Provisions as Applicable from A.Y. 2011-12, the old provisions pertaining to Section 44AD will continue to apply till March 2010) 1] Applies to:
Any eligible assessee engaged in an eligible business. Eligible assessee is defined as an individual, HUF, resident partnership firm, but excludes an LLP under the LLP Act, 2008 and any assessee who has claimed a deduction under sections 10A, 10AA, 10B, 10BA or heading C of Chapter VIA (sections 80I-A, 80-IB, etc.). An eligible business means any business other than the business of plying, hiring, or leasing of goods carriage as given in section 44AE and whose turnover/gross receipt in the previous year does not exceed Rs.ITA No. 1873/Ahd/2013 10
Asst. Year2009-10 60,00,000 in A.Y. 2011-12 and 2012-13 and Rs. 1,00,00,000 in AY 2013-14 or in Year Succeeding the AY 2013-14.
2] Deemed Income:
8% of the total turnover or gross receipts of the assessee on account of such business or any higher amount voluntarily declared by him shall be deemed to be his income chargeable to tax.
Refer to 'A] Conditions' and 'B] Computation' below.
Provisions of Chapter XVII C relating to Advance Payment of taxes will not apply to the eligible assessee in respect of eligible business only.
- See more at: http://taxguru.in/income-tax/income-tax-provisions-related-to-presumptive- taxation-under-sections-44ad-44ae-and-44af-in-a-brief.html#sthash.G3bOqQ2A.dpuf E. Section 44AF - Business of retail trading of goods (Applicable till A.Y. 2010-11, this section will become inoperative from AY 2011-12 and the retail traders can choose to be governed by section 44AD from A.Y. 2011-12 which requires presumptive income at 8% of gross receipts/turnover) 1] Applies to:
Any person engaged in the business of retail trade in any goods or merchandise shall be covered by this provision. If his turnover from the above business do not exceed Rs. 40 lakhs.
2] Deemed Income:
5% of the total turnover of such person or a higher sum voluntarily declared by him shall be deemed to be his income from such business.
Refer to 'A] Conditions' and 'B] Computation' below.
Common Conditions and Computation method:
A. Conditions:
All deductions u/s. 30 to 38 including depreciation deemed to be allowed. No further deduction allowed under those sections.
The written down value of asset used in the business will be computed as if depreciation, as applicable, was allowed.
It will be assumed that disallowances if any u/ss. 40, 40A and 43B were considered by calculating the income estimated in 2] above.
In the case of a firm, the deduction in respect of salary and interest to partners u/s. 40(b) will be allowed.ITA No. 1873/Ahd/2013 11
Asst. Year2009-10 In respect of this business the assessee is not required to maintain books of account as per the provisions of s. 44AA.
The assessee is not required to get the books of account audited u/s. 44AB in respect of the above business.
If the assessee wants to declare lower income than the deemed profits as calculated above, he will have to maintain the books of account as per s. 44AA and get the accounts audited as per s. 44AB irrespective of turnover if his total income exceeds basic exemption limit.
B. Computation:
The income calculated above shall be aggregated with income from any other business or other heads of income under the other provisions of the Income-tax Act.
The brought forward business losses and other losses will be deducted.
All deductions u/ss. 80CCC to 80U shall be allowed NOTE:
1. The profit and loss from related businesses covered by sections 44B, 44BB, 44BBA, 44BBB, namely Shipping business in case of non-residents, Business of exploration, etc. of mineral oils, Operation of aircraft in case of non-residents, Foreign companies engaged in the business of civil construction, etc., in certain turnkey projects are not covered here as they have lower relevance and usage.
12. From going through the provisions of above two sections we find that a sum equal to 8% of gross receipts can be shown by assessee for being engaged in the work of exhibition of work contract (civil construction work) and as per the provisions of section 44AF when assessee is engaged in a retail business then a sum equal to 5% of the total turnover can be shown as income if the total income as per the books of accounts is less than the presumptive profit u/s 44AD/44AF of the Act.
13. Applying the provisions of these sections to the facts of the case of asssssee we find that the assessee is having some income from jari labour having total receipts of Rs.4,10,560/-. Work of jari ITA No. 1873/Ahd/2013 12 Asst. Year2009-10 labour involves the work performed by labourers doing work on sarees putting jari meaning thereby that there is some element of contractual work which is performed by the assessee on behalf of the dealer who gives sarees/raw materials to the assessee and in turn assessee performs the contractual work with the help of labourers on the sarees. On the other hand, the undisclosed credit of Rs.16,87,380/- have been pleaded by the assessee to have been carried on in the course of business of trading in sarees and dress materials and such type of business comes within the purview of provisions of section 44AF relating to profits and gains on retain business. In total the turnover of the assessee at Rs.20,97,940/- (Rs.4,10,560/- + 16,87,380/-) has been accepted by both the lower authorities. Ld. CIT(A) has applied the net profit rate shown by the assessee on his labour contract income i.e. 47% on the total undisclosed credits of Rs.16,87,380/-.by replacing the two additions made by the Assessing Officer including one related to peak credit.
14. From going through our above discussions we find that when separate provisions are available for estimation of profits u/s 44AD and 44AF of the Act then it will not be proper to apply exhorbitant net profits rate on the total undisclosed credit which too have been accepted by both the lower authorities as business receipts. Once the business has been established and there is a special provisions for a businessman having turnover less than Rs.60 lacs for applying net profit @ 5%/8% of the gross turnover as the case may be then we do not find the action of ld. CIT(A) to be proper in applying 47% rate of profit. However, looking to the facts that assessee has not disclosed ITA No. 1873/Ahd/2013 13 Asst. Year2009-10 the turnover routed through State Bank of India, Surat in its regular books of account then it will be justifiable to apply the higher of the two rates i.e. out of 5% and 8% which is 8% in this case on the total turnover of Rs.16,87,380/- which works out at 1.34.990/- and also sustaining addition of peak credit at Rs.82,690/- because assessee has not given any satisfactory explanation about the source of investment made towards this business and also we do not find any basis in the submissions of assessee that some amounts were debited in the capital account and has been invested in this account for the very reason that the impugned bank account was not disclosed in the return of income filed. We, therefore, quash the order of ld. CIT(A) and sustain the additions made by the Assessing Officer at Rs.2,18,249/-. Accordingly, the appeal of assessee is partly allowed.
15. In the result, appeal of assessee is partly allowed.
Order pronounced in the open Court on 2nd March, 2016 Sd/- Sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 2/03/2016
Mahata/-
ITA No. 1873/Ahd/2013 14
Asst. Year2009-10
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 16/02/2016
2. Date on which the typed draft is placed before the Dictating Member: 17/02/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 2/3/16
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: