Income Tax Appellate Tribunal - Jodhpur
Income Tax Officer vs Satyanarayan Agarwal on 30 October, 2007
Equivalent citations: (2007)112TTJ(JODH)717
ORDER
1. The appeal by the Revenue and cross-objection by the assessee, are directed against the order of the CIT(A) dt. 30th Nov., 2004, pertaining to asst. yr. 2001-02.
2. The Revenue has raised the following grounds of appeal:
1. Deleting addition of Rs. 50,918 made by the AO on account of excess stock found during survey.
2. Deleting addition of Rs. 5,14,900 made by the AO on account of unexplained cash credits under Section 68.
3. Deleting addition of Rs. 4,27,300 made by the AO under Section 69B on account of unexplained investment in purchases of plot.
4. Deleting addition of Rs. 12,000 made by the AO on account of inadequate withdrawals for household expenses.
In cross-objection the assessee has raised the following grounds of appeal:
1. Deleting addition of Rs. 50,918 made by the AO on account of excess stock found during survey.
2. Deleting addition of Rs. 5,14,900 made by the AO on account of unexplained cash credits under Section 68.
3. Deleting addition of Rs. 4,27,300 made by the AO under Section 69B on account of unexplained investment in purchases of plot.
4. Deleting addition of Rs: 12,000 made by the AO on account of inadequate withdrawals for household expenses.
3. First ground of Revenue's appeal relates to deletion of an addition of Rs. 50,918 made by the AO on account of alleged excess stock found. The facts of this case are that the assessee, who deals in lime products declared income of Rs. 1,92,070 by filing return of income on 31st Jan.,2002 along with copies of trading account, P&L a/c, balance sheet and capital account. The business is done in the name and style of M/s Hindustan Lime Products, Borunda. A survey under Section 133A of the Act was carried out at the business premises of M/s Hindustan Lime Products, Mertacity on 15th Jan., 2001. Physical verification of the stock in trade was made. The stock of lime was found at Rs. 2,56,803 as against Rs. 2,05,885 as per books. The assessee did not maintain day-to-day stock register and also did not maintain quantitative details. Thus, the stock was found excess by Rs. 50,918. To explain this anomaly Shri Satya Narain Agarwal in his statement recorded on 15th Jan., 2001 stated that the goods purchased from one M/s Shiv Enterprises were returned as there was some dispute about the same and that is why it was not accounted in the books. He also stated the variation in stock of Rs. 50,918 was on account of increase in GP during the year. He has agreed to pay tax on total sales of Rs. 34,41,960 by applying net profit rate of 5 per cent which would give taxable income of around Rs. 1,70,000. In his return, the assessee did not disclose excess stock found during the course of survey. The assessee explained vide letter dt. 19th Feb., 2004 that the stock was worked out after applying a GP rate of 3.37 per cent at the time of survey whereas the profit rate was 5.13 per cent and as such there was no variation in the stock. The AO did not agree with the explanation of the assessee, and made addition of Rs. 50,918 under Section 69 of the Act as unexplained investment in the stock. The learned CIT(A), however, deleted this addition by accepting the explanation of the assessee. Therefore, the Revenue is in appeal.
We have heard rival submissions and have perused the available materials on record carefully.
4. It is an undisputed fact that the difference in stock was worked out during the course of survey on the basis of GP rate of 3.37 per cent shown in the immediately preceding year whereas the assessee in his statement recorded under Section 131 had stated that the difference in the stock was as a result of application of profit rate of the past year and if the profit rate of the current year was applied, there was no such difference. The assessee had agreed to pay tax as per the Section 44AF and he has also honoured the same. The assessee has shown net income of Rs. 1,82,315 by applying a net profit rate of 5 per cent as against net profit worked out in P & L a/c of Rs. 91,385 which in our opinion clearly explains the amount of Rs. 50,918 taken as difference in stock. Consequently; we confirm the finding of the learned CIT(A) and dismiss ground No. (1) of Revenue's appeal.
5. Ground No. (2) of Revenue's appeal relates to deletion of addition of Rs. 5,14,900 made by the AO on account of unexplained cash credits under Section 68 of the Act.
The facts of this ground are that it was noticed by the AO that cash credits were brought in the books of accounts in the names of 33 persons. Out of them cash credits of 32 persons had been squared up during the accounting year itself. A total amount involved in the name of 33 cash creditors is Rs. 6,12,900. The particulars of these cash creditors are as under:
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S. Name of the creditors Amount Date of credit Date of No. (Rs.) repayment
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1. Svs. Laxamn Luhar Meghwalo ka Bas 18000 17.9.2000 30.12.2000 Borunda
2. Lunaram Meghwal Meghwalo Ka Bas 18000 18.9.2000 24.3.2001
8. Baldev Ram Nayak 17000 12.9.2000 9.2.2001
4. Chhotu Ram Sharma, Borunda 18000 24.6.2000 24.3.2001
5. Mahaveer Sharma, Borunda 17000 25.6.2000 20.3.2001
6. Rajesh Agarwal Chhipo ki Pole, Mertacity 15000 24.6.2000 6.7.2000 15000 20.9.2000 24.9.2000 19000 1.10.2000 5.10.2000
7. Sitaram Nayak Nayko Ki Dhani, Pundlu 18000 18.9.2000 24.3.2001
8. Chhitar Ram Redas V & P - Gunat, Tehsil- 16000 12.9.2000 20.12.2000 Porbastar
9. Lal Bahaduar Sahani Gotan Road, Borunda 16000 13.9.2000 9.2.2001
10. Jagdish Redas, V & P-Gunat, Tehsil- 15000 13.9.2000 2.2.2001 Parbastar
11. Satyanarayan Sharma Sadar Bazar, Ren 15000 14.9.2000 12.2.2001
12. Radheysyam Sharma Dagariyon Ka 15000 14.9.2000 29.03.2001 Mohalla Mertacity
13. Raju Harijan Village-Moriyana Tehsil 15000 15.9.2000 19.2.2000 Degana
14. Panchu Singh Rawat Village-Pratapgarh 17000 15.9.2000 21.12.2000 DistrictPali
15. Mansi Ram Dewasi 17000 17.9.2000 9.2.2001
16. Sadique Village-Malawas, Tehsil-Bilara 16000 17.9.2000 20.12.2000
17. Deen Mohammed Gotan Road, Borunda 18000 13.6.2000 20.03.2001
18. Islam Bhai Gotan Road, Borunda 15000 14.6.2000 20.03.2001
19. Jai Praksh Sukla Gotan Road, Borunda 17000 24.6.2000 9.02.2001
20. Paras Sarggara Binjaro Ka Bas Malawas, 17000 18.9.2000 20.12.2000 Tehsil-Bilara
21. Pukhji Nayak Village: Bher Bhakri, Nagaur 18000 10.9.2000 12.12.2000
22. Chhotu Ram Nayak Nayko Ki Dhani 16000 10.9.2000 21.12.2000
23. Bhaguram Chokidar Village : ARdai Tehsil- 15000 10.9.2000 27.12.2000 Jetran
24. Om Praksh Agarwal Soni Chowk, 17000 25.10.2000 21.2.2001 Mertacity
25. Madan Singh Charan Borunda 18000 27.10.2000 21.2.2001
26. Charna Ram Jat Borunda 18000 29.10.2000 7.3.2001
27. Kailash Mali Sojati Gate, Mertacity 17000 29.10.2000 8.3.2001
28. Manoj Choudhary Mutho Ka Mohall, 18000 14.11.2000 9.3.2001 Mertacity
29. Jitendra Choudhary Mutho Ka Mohall, 17000 14.11.2000 10.3.2001 Mertacity
30. Kaludas, Shivhar Mandi Mertacity 17000 16.11.2000 22.2.2001
31. Bhika Ram DholiMutho Mutha Nadi, 14900 16.11.2000 25.2.2001 Mertacity 27.2.2001
32. Ramavtar SikhwalSikhwalo.Ka Mohalla 18000 16.11.2000 23.2.2001 Mertacity
33. Ramroop.... 45000
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Total 6,12,900
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When the assessee was asked to explain the nature of cash credits appearing in the names of aforementioned persons, the assessee explained the same by filing a written submission. The AO examined the explanation of the assessee but did not found it favourable, so he made the addition of the entire amount. On the contrary, learned CIT(A) examined all the cash creditors with respect to their identity, capacity and genuineness of the transactions and he ultimately gave the following finding by accepting most of the cash creditors as genuine and some were held as ingenuine. Thus, both the parties are aggrieved and have taken their respective grounds. Ground No. (2) of Revenue's appeal and ground No. (1) of cross-objection are being decided together.
We have heard rival submissions and have perused the available materials on record carefully.
6. It is a settled position of law that the assessee is duty bound to, prima 'facie, establish the identity and capacity of the cash creditors along with genuineness of the transactions. Shri Laxman Lohar S/o Shanker Ram Lohar filed his affidavit in which he accepted the factum of deposit with the assessee of Rs. 18,000 and he also explained his source. But the AO made inquiry through his Inspector, who also recorded his statement on 18th Feb., 2004, on the basis of which this addition was confirmed. The statement recorded by Inspector behind the back of the assessee has got no evidentiary value. Therefore the averment of the affidavits, which confirmed the deposit of cash credit, remained uncontroverted. Therefore, this addition has to be deleted. Likewise, we have examined each and every cash creditor, out of 32 squared up cash creditors, 27 parties were examined by the Inspector of the Department. Even before the Inspector 24 parties confirmed the factum of loan having been given to the assessee and also having been received it back by them. These parties also confirmed receipts of interest oh their respective deposits. The identity of these persons was established beyond doubt. We (sic-They) have also explained their respective source(s) of income along with their monthly expenses. Therefore, their creditworthiness also stands explained being sufficiently proved on record. The transactions are found genuine; therefore, there is no justification for addition on account of 27 squared up cash creditors. We confirm the finding of the learned CIT(A) to that extent and hold that the learned CIT(A) has correctly deleted the same. As regards 5 cash creditors, who were not examined but they had their duly sworn in and attested affidavits filed which remained uncontroverted. When the affidavits remained uncontroverted by the Department, the averment of the affidavit has to be taken as truthful. All of them have confirmed the factum of their cash credits. The Tribunal Jodhpur Bench has taken a similar view in the cases of ITO v. Vardhman Industries (2006) 99 TTJ (Jd) 509, Kamal & Co. v. Asstt. CIT (1998) 62 TTJ (Jp) 527 and Raja Ram Mohan Lal v. ITO (1991) 40 TTJ (Jp) 320. There were only 3 cash creditors who did not confirm having given loan and having received the same back. The explanation of the assessee in respect of them is that the transactions in question took place, in financial year 2000-01 whereas the statements were recorded in February, 2004. It was also submitted that no oath was administered to these cash creditors. Apart from this, the statements were recorded by the Inspector, who has no legal authority to record the statements. This is also a consistent view of this Bench. Therefore, we accept these cash creditors also as genuine. As regards the contention of the AO regarding non-appearance of interest entry in the copies of accounts of the cash creditors the assessee explained that the interest was paid in cash and debited to interest account. This fact in our view is sufficient enough to explain the above doubt of the AO. Regarding transaction being not by cheque, it was explained that the place where the assessee has carried on business and further that in this line of the business, the banking habits are not normal. This is also a valid explanation. Therefore, the addition cannot be made merely because transaction was not through cheque. Hence, we accept all the cash creditors as genuine and delete the entire addition so made under Section 68 of the Act. Otherwise also, the assessee is entitled to set off of the amounts of some cash creditors who denied the factum of loan against the extra income declared by the assessee by declaring income under the provisions of Section 44AF. Therefore, ground No. (2) of Revenue's appeal is dismissed and ground No. (1) of assessee's cross-objection is allowed.
7. The next ground of appeal relates to addition of Rs. 4,27,300 made on account of alleged unexplained investment in the purchase of a plot.
8. The facts of this ground are that the assessee purchased a plot of land along with one built-up room and verandah for a (sum) of Rs. 2,00,000 which was disclosed. For stamp duty purposes, the market value of property was taken at Rs. 6,27,300. The assessee purchased this property from one Shri Budhraj S/o Shri Bhanwar Lai, resident of Mertacity. The learned AO got inquiries conducted through his Inspector to verify the actual price of this property. The Inspector recorded the statement of one Shri Pujkhraj Bhati, whose land was situated adjacent to plot purchased by the assessee. In his statement, Shri Pukhraj Bhati, recorded on 18th Feb., 2004, stated that the fair market value of this plot commonly known as godown, ranged between Rs. 9 lakhs to Rs. 12 lakhs. Finally, the learned AO concluded that this plot was purchased for a consideration of Rs. 6,27,300 and thus, added Rs. 4,27,300 after excluding the disclosed investment of Rs. 2 lakhs in the hands of the assessee under Section 69 of the Act as unexplained investment. The learned CIT(A), however, deleted the entire addition by relying on the decision of Hon'ble Tribunal Jodhpur Bench given in the case of Jai Marwar Co. (P) Ltd. v. Asstt. CIT in ITA No. 2226 reported at (2003) 79 TTJ (Jd) 178-Ed. in which it was held, by relying on the decisions of the Hon'ble Supreme Court given in the case of U.P. Jsd Nigam v. Kata Property AIR 1966 SC 1170 and that of the Hon'ble Rajasthan High Court in the case of CIT v. Raja Narendra (1995) 123 CTR (Raj) 459 : (1994) 74 Taxman 157 (Raj), that the rate fixed for the collection of stamp duty cannot be relied upon to determine the fair market value of the land.
We have heard rival submissions and have perused the available materials. on record carefully.
We are aware that only on the basis of stamp duty charged by the sub-Registrar no addition can be made on account of estimated investment made in the purchase of the property. In this case, the AO made addition simply on the basis of the valuation taken for stamp duty by the sub-Registrar, even after making further inquiries, which were not relied by him. Therefore, by respectfully following the abovenoted decision of the Jodhpur Bench, we confirm the impugned finding and dismiss ground No. (3) of Revenue's appeal.
9. The last ground i.e., ground No. (4) of Revenue's appeal relates to deletion of an addition of Rs. 12,000 made by the AO on account of inadequate withdrawals for household expenses.
The family of the assessee consisted of 2 members only and total withdrawals shown by him and his wife were at Rs. 48,000, which was considered to be quite reasonable by the learned CIT(A). On the very face of it, in the absence of any other material available on record, we also confirm the impugned deletion. The AO simply made this addition based on guesswork. We cannot approve the same. We hold that the learned CIT(A) has correctly deleted this addition.
10. The other grounds i.e., ground Nos. (2) and (3) of cross-objection read as under:
2. That the learned CIT(A) was not justified on facts and in law in confirming disallowance of Rs. 1,200 on account of telephone expenses more particularly when the income of the assessee has been determined under Section 44AF of the IT Act, 1961.
3. That the learned CIT(A) was not justified on facts and in law in confirming separate addition of Rs. 3,780 when the income of the assessee has been determined under Section 44AF of the IT Act, 1961.
11. The AO made separate addition of Rs. 12,000 on account of disallowance out of telephone expenses and Rs. 3,780 as separate addition. These were not really pressed by learned Authorised Representative. Therefore, ground Nos. (2) and (3) of cross-objection are dismissed.
12. In the result, the appeal of the Revenue is dismissed and cross-objection is partly allowed.