Income Tax Appellate Tribunal - Chandigarh
Income Tax Officer vs Ashok Kumar on 30 July, 2004
Equivalent citations: (2005)92TTJ(CHD)467
ORDER
N.K. Saini, A.M.
1. This is an appeal by the Department against the order of learned CIT(A) dt. 24th Feb., 1999.
2. The only effective ground raised in this appeal reads as under :
"On the facts and in the circumstances of the case, learned GIT(A) Chandigarh, vide order dt. 24th Feb., 1999, in appeal No. 417/P/1998-99 has erred in deleting the addition of Rs. 4,41,359 out of total addition of Rs. 4,50,000 made by the AO on account of unaccounted purchases and sales."
3. The relevant and material facts relating to this issue in brief are that the assessee derived income from manufacture and sale of screws. During the year under consideration, the assessee had shown GP at Rs. 3,60,073 on gross sale of Rs. 22,85,853 which gave GP rate of 13.38 per cent. In the immediately preceding year, the assessee had shown GP rate of 12.4 per cent on the gross sale of Rs. 12,68,602. The AO noticed that the assessee had shown a sum of Rs. 50,000 on account of surrender in the P&L a/c. After considering the surrendered amount of Rs. 50,000 net profit had been shown at Rs. 1,04,541. In the instant case, survey under Section 133A was carried out at the business premises of the assessee on 20th July, 1995. During the course of survey, the assessee was confronted with the copies of challans/bills numbering 68 out of which 29 pertained to the year under consideration, for the material purchased by the assessee Prop. M/s Rohit Fasteners from M/s Chandigarh Steel Products, Chandigarh. The said challans were seized from the premises of Chandigarh Steel Products, Chandigarh, during the course of search operation. The AO mentioned that the purchases recorded in the challans were not found entered in the books of account. The assessee agreed to make disclosure of Rs. 5 lakhs for the year relevant to assessment year under consideration. The AO, therefore, vide questionnaire dt. 9th Nov., 1998 asked the assessee to explain as to why the difference of Rs. 4,50,000 (Rs. 5 lakhs - Rs. 50,000) in the surrendered amount may not be added in his income. In response to that question, the assessee replied vide letter dt. 16th Nov., 1998 in the following words :
"During the course of survey under Section 133A, the ADI had herself recorded the statement of the assessee and had forced him to make a surrender of Rs. 5 lakhs without the concurrence of the assessee. The assessee had pleaded before her that he is not in a position to make the disclosure nor has committed any theft of the magnitude of surrender which he has forced to make. The assessee is an illiterate person and did not read the statement recorded by the ADI but was only forced to put his signatures failing which the due consequences would be taken against him. The assessee had brought this point to the notice of the higher authorities also but of no avail. The assessee's financial position is such that he can hardly make his ends meet and by no stretch of imagination could have dreamt of making a disclosure of Rs. 5 lakhs. The income disclosed in the return is peak + profit on sales outside the books to cover up any discrepancy.
Moreover, the statement of the assessee was recorded in English which the assessee does not understand and cannot..... (sic) and forced to sign the statement in the presence of four inspectors of the Department and was also mislead to believe that a disclosure of Rs. 50,000 for the earlier years, i.e., asst. yrs. 1995-96 and 1996-97. However, the figure was wrongly written by the ADI at Rs. 5 lakhs each for the above years. An affidavit singed by the assessee in support of above is enclosed. It will not be out of place to mention that the assessee has furnished an identical affidavit before the Director (Inv.) on 6th Feb., 1998. After the assessee learnt of the above statement from the colleagues in industry, he made repealed attempts to contact the ADI as well as the DI but the ADI refused to meet the assessee."
The AO had discussed the issue regarding retraction by the assessee in para 5 of the assessment order dt. 25th Nov., 1998. He observed that the surrender made by the assessee was on the basis of challans which were shown to him by the ADI during the course of survey and the allegation made by the assessee that the ADI had written disclosure figure at Rs. 5 lakhs against Rs. 50,000, was wrong and baseless. The AO pointed out that the assessee had made purchases of MS wire outside the books of account weighing 26.273 tonnes as per 29 copies of challans issued by M/s Chandigarh Steel Products, Chandigarh, which were not entered in the books of account of the assessee. The value of those goods was Rs. 4,72,914 and according to the AO, the assessee must have earned GP @ 12.40 per cent which worked out to Rs. 58,641. Thus, the total investment and profit was worked out at Rs. 5,31,555. Against that, the assessee had made disclosure of Rs. 5 lakhs; this was the observation of the AO. The AO further pointed out that the assessee had surrendered Rs. 50,000 in his return of income. He, therefore, added the balance amount of Rs. 4.50 lakhs to the income of the assessee.
4. The assessee carried the matter to the learned CIT(A) who, by following her earlier order for the asst. yr. 1995-96, sustained the addition of Rs. 8,641 by observing that the AO had worked out the profit on the purchases outside the books of account at Rs. 58,641 and the assessee had already surrendered a sum of Rs. 50,000 in the return and thus relief of Rs. 4,41,359 was granted to the assessee. Now the Department is in appeal.
5. During the course of hearing, this was the common contention of both the parties that a similar issue was the subject-matter of the Departmental appeal in ITA No. 289/Chd/1999 for the asst. yr. 1995-96 in assessee's own case and the facts of the present case are identical to the facts involved for the asst. yr. 1995-96. Although contention of both the parties were similar as were there for the asst. yr. 1995-96, however the learned counsel for the assessee while relying on the order of the Tribunal, Ahmedabad Bench 'A' (TM) in the case of Asstt. CIT v. Rameshchandra R. Patel (2004) 89 ITD 203 (Ahd)(TM), stated that the assessee had the right to retract from declaration made during the course of survey.
5.1 After considering the rival submissions and the material available on record, we are of the opinion that the findings given in ITA No. 289/Chd/1999 (supra), for the asst. yr. 1995-96 in assessee's own case, would be applicable for the assessment year under consideration since the facts for both the years are identical. We think it appropriate to reproduce the findings of this Bench of the Tribunal in assessee's own case in ITA No. 289/Chd/1999 for the asst. yr. 1995-96 vide order dt. 15th July, 2004. The relevant findings are reproduced as under :
"2.5 We have considered the rival submissions of both the parties, perused the records and carefully gone through the orders of the tax authorities below.
2.6 In order to dispose of this ground of appeal, we are required to settle the issues, i.e., whether the assessee has surrendered a sum of Rs. 5 lakhs during the course of survey and as to whether the assessee has successfully retracted from Ms statement recorded during the course of survey regarding the surrender of Rs. 5 lakhs.
2.7 The uncontroverted facts are that survey was conducted at the premises of the assessee on 20th July, 1995 and as per the statement recorded on that day, the assessee voluntarily surrendered a sum of Rs. 5 lakhs in financial year 1994-95 and another Rs. 5 lakhs in financial year 1995-96 when he was questioned by the ADI regarding the copies of the challans indicating the purchase of wire worth Rs. 11,03,045 in the months of May and June, 1995 and during the months of August, September and October, 1994, to the tune of Rs. 67,784 tons of wire which were found not recorded in the books of accounts of the assessee. Later, the assessee protested against the action of the ADI and through an affidavit dt. 6th Feb., 1998, retracted from his statement made on 20th July, 1995 as according to him, he had agreed to a surrender of Rs. 50,000 and not Rs. 5 lakhs incorporated in his statement made at the time of survey recorded by the ADI. While filling the return for the asst. yr. 1995-96, the assessee declared net taxable income at Rs. 58,440 and also declared a sum of Rs. 1 lakh as the amount surrendered by the assessee.
2.8 In his explanation before the AO, as to why the assessee offered a surrender of Rs. 1 lakh in his return and accounted for the same in the P&L a/c, when he had made a surrender of Rs. 5 lakhs voluntarily before the ADI at the time of survey under Section 133 of the Act, the assessee said that he was an illiterate person and did not read the statement, recorded by the ADI but was forced to put his signatures falling which dire consequences would be taken against him. He had also brought this fact to the notice of the higher authorities but to no avail. Now in this background, we proceed to dispose of the issue. The simple question required to be answered is whether the explanation of the assessee is creditworthy or not. It is important to mention here that in his statement recorded at the time of survey, the assessee put his signatures in English and even from the signatures, it cannot be presumed that the signatures were of an illiterate person. The assessee has put his signatures on the statement at about 4 places in the same manner so factually that it cannot be said that the assessee was an illiterate person and was not knowing English.
2.9 The assessee's first statement was recorded on 20th July, 1995 wherein he surrendered a sum of Rs. 5 lakhs and he retracted from the same on 6th Feb., 1998, almost after a period of about two and half years. So, it cannot be said that he retracted from the statement at the earliest point of time in case importance is to be attached to his retraction from his statement. We also fail to understand that, when on one side the assessee says in his statement recorded by the ADI that he agreed to a surrender of Rs. 50,000 and not for a surrender of Rs. 5 lakhs, then why he surrendered a sum of Rs. 1 lakh in his return while working out the profits. He has also not led any evidence to prove his contention that against this forced surrender, he has complained to the higher authorities. Neither he has brought on record any evidence as to why the higher authorities did not consider his complaint against the forced surrender.
2.10 The assessee has also not given any reason as to why the lady ADI forced him to make a surrender of Rs. 5 lakhs. It is also not a case where immediately at the beginning of a survey, the assessee was forced to make a surrender of Rs. 5 lakhs whereas, on the other hand, when the survey party cornered the assessee regarding unrecorded purchases on the basis of papers seized from the premises, he came out with a disclosure of Rs. 5 lakhs each for the financial years 1994-95 and 1995-96. It is also important to note that the ADI concluded the operation immediately after the surrender made by the assessee and even did not make identification marks on the ledger produced by the assessee. It means that after the assessee made disclosure, the survey team stopped further survey operations. It further means that the assessee was indirectly benefited from this disclosure because the survey team, thereafter, was deprived from detecting further unrecorded transactions by the assessee.
2.11 So, in these facts and circumstances, the retraction by the assessee from the disclosure of Rs. 5 lakhs after a period of about 2-1/2 years and substituting the same by a surrender of Rs. 1 lakh during the assessment proceedings, was not at all justified. More so, because the surrender has been made by the assessee when unrecorded purchases were detected by the ADI at the time of survey and so it is an afterthought and it cannot be called a genuine transaction.
2.12 We have also considered the case law which does not apply to the above discussed facts of the case of the assessee. However, the principles laid in these citations (supra) have applied by us before reaching the above conclusion. We have also gone through the order of the GIT(A) wherein on the basis of hypothetical assumptions, she concluded that the assessee was uneducated and illiterate person and had no knowledge of English and he signed a surrender of Rs. 5 lakhs recorded by the ADI presuming the same to be a surrender of Rs. 50,000, which amount was sufficient to cover the unaccounted purchases as he was a small dealer and his total turnover was never more than Rs. 15 lakhs and also that he was living in a small house and could not have had the capacity to earn income of Rs. 5 lakhs and hence, the assessee being a small businessman, a surrender of Rs. 5 lakhs was beyond his resources ignoring the fact that the assessee signed in English and did not controvert the observations of the AO that the assessee issued the sale bills himself which were written in English and also the fact that surrendered amount of Rs. 5 lakhs was written in words as well as in figures by the ADI and also the fact that the assessee claims to have surrendered a sum of Rs. 50,000 against Rs. 5 lakhs and still in the return he surrendered a sum of Rs. 1 lakh when he himself showed a loss in case he had not surrendered a sum of Rs. 1 lakh and also ignoring the fact that because he incurred loss, then why he converted it into profits by surrendering Rs. 1 lakh. These conclusions drawn by the CIT(A) are not based on proper appreciation of entire facts and circumstances of this case because she ignored the fact that this was the first year when the assessee purchases and hence, the same were detected at the time of survey prior to which the assessee admittedly never filed any return, cannot be accepted by the Bench as analytical and justified conclusions, as analysed by us hereinabove in our order.
2.13 We have also considered the findings of the CIT(A) while deleting the impugned addition made by the AO that the assessee was a small time dealer and his total turnover had never been more than Rs. 15 lakhs. Therefore, the AO was not justified while considering that the assessee earned an income of Rs. 5 lakhs. However, we find that the finding of the CIT(A) was not based on material evidence and the specific observations of the AO during the survey operations at the business premises of the Chandigarh Steel Products. A survey under Section 133A was also conducted at the business premises of the assessee wherein it was found that the purchases made through challan from Chandigarh Steel Products were not recorded in the books of account. It had also been mentioned by the AO that such purchases not recorded in the books, were related to 24.742 tones, the value of which was worked out at Rs. 3,95,872. It had also been pointed out by the AO that even during the assessment proceedings, the assessee was asked to work out the purchase of wire which were not recorded in the books and as per the assessee, such purchases worked out at Rs. 14,923 tones, the value of which came to Rs. 2,38,760. The more surprising fact in this case is that the dispute relating to such purchases not recorded in the books of accounts of the assessee related to the period 23rd Dec, 1994 to 23rd Jan., 1995 which still suggests that the assessee's purchases were more than Rs. 2 lakhs during one month from only one party i.e. Chandigarh Steel Products.
2.14 Therefore, we find no force as well as justification in the order of the GIT(A) while observing that since the assessee's turn over was not more than Rs. 15 lakhs, therefore, he could not be doubted to have earned an income of Rs. 5 lakhs during the year. Since the above facts and circumstances duly pointed out by the AO suggest that the assessee was in regular practice to make purchases outside the books which reasonably implied subsequent sale of such unrecorded sales and, therefore, there was sufficient and reasonable material in the hands of the AO to deduce that the assessee was not showing its true turnover during the year and that was the reason that the assessee, when confronted with such concealment, was pushed to back seat and to surrender Rs. 5 lakhs to cover such unrecorded sales/purchases.
2.15 Hence, for the reasons stated above, the issues involved for the disposal of this ground of appeal are decided against the assessee and in favour of the Revenue. Therefore, against a surrender of Rs. 5 lakhs made by the assessee during the course of survey, the assessee was not justified in offering a surrender of Rs. 1 lakh while filing the return of income and so the order of the CIT(A), reversing the order of the AO wherein he assessed the total income of the assessee at a Rs. 4,58,840, against the declared income of the assessee, is set aside and the order of the AO in this regard is sustained. The ground of appeal taken by the Revenue is allowed."
Since the facts of the present case are similar to the facts involved for the asst. yr. 1995-96 and even the learned CIT(A) for the impugned order had followed her earlier order dt. 25th Jan., 1999 in appeal No. 21/P/1998-99 for asst. yr. 1995-96 and this fact had not been denied by both the parties, we, therefore, respectfully following the earlier order dt, 15th July, 2004, of this Bench of the Tribunal in ITA No. 289/Chd/1999, for asst. yr. 1995-96 in assessee's own case, reverse the order of learned CIT(A) and restore that of the AO. 6. As regards to the case law relied upon by the learned counsel for the assessee is concerned, in our opinion, the facts of that case are distinguishable from the facts of the present case. In the said case it has been held that-
"An assessee has a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reason and material accepting retraction. The cogent and sufficient material has to be placed on record for acceptance or retraction. It was not a case of pressure or coercion having been applied against the assessee. It was a statement in the presence of two witnesses and not an extraction from the assessee. The assessee was explained the provisions of Expln. 5 to Section 271(l)(c) and upon understanding the provisions, he replied and made a declaration of Rs. 25 lakhs stated to have been earned by him out of business of sale and purchase of shares. The assessee had not retracted that portion of the statement namely, the earning part of the income. It was only the utilisation which was being challenged where the assessee wanted to state that it was wrong and not supported by sufficient evidence."
In the aforesaid case, the assessee retracted that portion of the statement which was not supported by sufficient evidence. However, in the present case, challans related to the purchases of MS wire weighing 26.273 tonnes having the value of Rs. 4,72,914 were found and the assessee was earning GP rate of 12.4 per cent in the preceding year. On that basis, investment and profit was worked out at Rs. 5,31,555 against which the assessee had made disclosure of Rs. 5 lakhs. Therefore, supporting evidence was available when the assessee agreed to surrender a sum of Rs. 5 lakhs when first statement was recorded on 20th July, 1995. This Bench of the Tribunal in the order dt. 15th July, 2004, for the asst. yr. 1995-96 (supra) at para 2.9 observed that-
"The assessee has also not led any evidence to prove his contention that against this forced surrender, he has complained to the higher authorities. Neither he has brought on record any evidence as to why the higher authorities did not consider his complaint against the forced surrender."
At para 2.10 it had further been observed in the said order:-
"The assessee has also not given any reason as to why the lady ADI forced him to make a surrender of Rs. 5 lakhs. It is also not a case where immediately at the beginning of a survey, the assessee was forced to make a surrender of Rs. 5 lakhs whereas on the other hand, when the survey party cornered the assessee regarding unrecorded purchases on the basis of papers seized from the premises, he came out with a disclosure of Rs. 5 lakhs each for the financial years 1994-95 and 1995-96. It is also important to note that the ADI concluded the operation immediately after the surrender made by the assessee and even did not make identification marks on the ledger produced by the assessee."
From the above notings, it is crystal clear that the surrender made by the assessee was not forced surrender. On the contrary, the assessee surrendered a sum of Rs. 5 lakhs when he was cornered regarding unrecorded purchases. Therefore, the case law relied on by the learned counsel for the assessee is of no help to the assessee. In view of the above discussion, the appeal of the Department is allowed.
7. In the result, appeal of the Department is allowed.