Income Tax Appellate Tribunal - Chandigarh
Shyam Lal Athwal, Kaithal vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No. 342/Chd/2011
Assessment Year: 2007-08
Shri Shyam Lal Athwal, Vs. The ITO,
Kaithal Ward-4, Kaithal
PAN No. AHEPA 5474 F
(Appellant) (Respondent)
Appellant By : Shri Permil Goel
Respondent By: Smt. Sarita Kumari
ORDER
PER SUSHMA CHOWLA, JM
The appeal by the assessee is against the order of CIT(A), Karnal dated 16.2.2011 relating to assessment year 2007-08 against the order passed under section 144/147 of the I.T. Act, 1961.
2. The grounds of appeal raised by the assessee are as under:-
"Notice u/s 148 is not a legal and valid notice, as notice u/s 148 is issued when time available for issuing notice u/s 143(2) has not expired.
Alternatively
1) Assessing Officer erred in law and facts in
making addition reduced by CIT(A) of Rs. 2,40.220/- on account of purchase of car ignoring car loan & CIT(A) further erred in calculating car loan installments actually paid during year, out of current income @ 6342 X 12.2
2) Assessing Officer erred in law & facts in making addition of Rs. 2 lakh on account of deposit of fees as Income from undisclosed sources.
3) Assessing Officer erred in law and facts in making addition of Rs. 2 lakh on account of presumed investment in stock / furniture / fixture / advance rent of shop was ever made by the appellant.
4) Assessing Officer erred in law and facts in making addition of Rs. 175000/- on account of estimating profit @ 5% u/s 44AF on presumed sales of Rs. 35 lakhs, particularly when no payment was ever made for liquor purchase by appellant & someone else purchased / sold liquor.
3. The first issue raised in the present appeal is against the re- assessment proceedings initiated u/s 147 / 148 of the Act.
4. The brief facts of the case are that the return of income filed by the assessee declaring income of Rs. 92,000/- was processed u/s 143(1) of the Act on 24.3.2008. The Assessing Officer received the information from CIB Wing of the Department that the assessee had purchased a car for Rs. 2,88,696/- on 28.4.2006 and was also allotted a vend by DETC (Excise), Kaithal at Pai. The assessee was asked to explain the source of investment through letter dated 11.6.2008 but no repl y was filed to the same and even to a reminder letter. The Assessing Officer recorded reasons for reopening the assessment u/s 147 of the Act to bring to tax the income from wine business and the investment in car. Notice u/s 148 of the Act was issued on 10.10.2008 and was served upon the assessee. The assessee failed to file any return of income in response to the said notice issued u/s 148 of the Act. The Assessing Officer issued a notice u/s 142(1) of the Act along with letter on 30.3.2009 asking the assessee to file return of income and also to produce the books of account as well as bank pass books. The Assessing Officer further issued several notices u/s 3 142(1) of the Act on various dates. All the above said notices remained un-complied with; neither the return of income was filed nor any document was produced. The Assessing Officer levied penalt y for non compliance of notices u/s 142(1) of the Act. Another notice was issued on 10.7.2009 for compliance on 22.7.2009, on which date the assessee appeared but neither filed the return of income nor produced any documents. At his request, the case was adjourned to 7.8.2009 on which date none attended the office of the Assessing Officer nor any application was moved for adjudication. The Assessing Officer accordingl y completed the assessment u/s 144 of the Income Tax Act on the basis of the material available on record and gathered during the assessment proceedings.
5. The Assessing Officer noted the assessee to have claimed deduction under Chapter VI-A at Rs. 28,000/- for which the necessary evidence was not filed and hence the same was disallowed. The assessee had failed to furnish the evidence of source of investment for purchase of car for Rs. 2,88,696/- and expenditure on insurance and registration of car. The Assessing Officer estimated the said expenditure at Rs. 15,000/- and an addition of Rs. 3,03,696/- was made as deemed income of the assessee. The assessee had not declared any income from wine business but as per the information received from Excise Department, the vend at Village Pai was allotted to the assessee during the financial year 2006-07. The assessee had deposited license fee of Rs. 10 lacs vide monthl y installments as detailed at part of pages 2 & 3 of the assessment order. The assessee in his verbal repl y dated 22.7.2009, had stated that the said vend was sold to some other persons who had run the said business and 4 license fee was also deposited by the said persons. The contention of the assessee was rejected as he could not file any evidence of the sale of the vend. The Assessing Officer held that out of the first two installments of Rs. 3 lacs of license fee, Rs. 2 lacs was deposited out of undisclosed sources and as the assessee had run the business, the Assessing Officer held that the balance was funded out of the sale proceeds of wine. The Assessing Officer estimated the initial investment in the stock, furniture and fixture and advance rent for shop at Rs. 2 lacs which was also included as income of the assessee. Further, addition was made on account of income from wine business by estimating the sale for the financial year at Rs. 35 lacs and in the absence of the books of account being produced, provisions of section 44AF of the Act were applied for estimating the net profit @ 5%. The addition of Rs. 1,75,000/- was made on account of income from wine business.
6. In appeal, the contention of the Ld. AR for the assessee was that issue of notice us/ 148 of the Act was invalid since the time was available to issue notice u/s 143(2) of the Act. Reliance was placed on the ratio laid down by the Hon'ble Madras High Court in the case of Zora Singh v ITO [308 ITR 249(Mad.)]. The Assessing Officer in repl y placed reliance on the ratio laid down by the Hon'ble Bombay High Court in Mittal Port Premises Cooperative Societ y Ltd v ITO [(2004) 140 Taxman 145 (Mumbai)] wherein it is held that merely because time was available to take the case in scrutiny by issuing notice u/s 143(2) of the Act, it is not correct that notices can not be issued u/s 147 / 148 of the Act. In rejoinder, the assessee claimed that issue stands covered by the Third Member decision of Tribunal in Super Spinning Mills v ACIT [(2010) 38 5 SOT 14 ( TM)]. The CIT(A) placing reliance on the ratio laid down by the Hon'ble Andhra Pradesh High Court in A.Pusa Lal v C IT [169 ITR 215 (AP) and Deepak Kumar Podar and others v UOI and others [224 ITR 95 (Patna)] upheld the issue of notice u/s 148 of the Act. In the absence of any evidence filed by the assessee, disallowance of deduction claimed at Rs. 28,000/- was upheld by the CIT(A). The assessee filed an application under Rule 46A of I.T. Rules during the appellate proceedings before the CIT(A) which is reproduced at para 2 of page 6 of the appellate order. Under the said application, the assessee sought admission of the copy of the Loan Account raised during the year from bank totaling Rs. 2,30,000/- The Assessing Officer in the remand report submitted that the copy of the loan account filed by the assessee was not authenticated by the company and also objection were raised to the admission of additional evidence on the ground that sufficient opportunit y were afforded to the assessee during the assessment proceedings, which were not availed off hence the ex. parte assessment. In rejoinder, the assessee furnished the stamped car loan letter. The C IT(A) noted that the assessee had failed to file the purchase bill of car nor specified the amount of insurance and registration. As the total income shown by the assessee was onl y Rs. 92,000/-, after allowing the credit of amount of finance i.e. Rs. 2,30,000/- , balance investment of Rs. 73,697/- was also held to be unexplained. Further, the Assessing Officer held that the amount of installment paid during the year totaling Rs. 1,40,524/- remained unexplained and accordingl y an addition of Rs. 2,40,220/- was confirmed by the C IT(A). The second addition on account of income from business was upheld by CIT(A) on two counts i.e. on account of initial payment of installments of the vend allotted, initial investment in the infrastructure and the 6 estimation of sale and income u/s 44AF of the Act. The assessee is in appeal against the aforesaid grounds.
7. The Ld. AR for the assessee pointed out that as period for issue of notice u/s 143(2) of the Income Tax Act had not expired; the notice issued u/s 147 of the Act before the expiry of the aforesaid period was invalid in view of the ratio laid down by the Third Member of the Tribunal in Super Spinning Mills Vs. ACIT ((supra)). Further, it was pointed out by the Ld. AR that even before the Hon'ble Supreme Court in CIT v Rajesh Jhaveri Stock Brokers (P) Ltd [291 ITR 500 (SC)], no such issue arose. The Ld. DR for the Revenue placing reliance on the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT v Smt. Shukantala Devi [227 CTR 618 (P&H)] held that the notice issued u/s 147 of the Act was valid.
8. We have heard the rival contentions and perused the records. In the facts of the present case before us, the assessee had furnished the return of income on 30.11.2007. The said return of income was processed u/s 143(1) of the Act. Thereafter, on the receipt of certain information from CIB Wing of the Department, the Assessing Officer recorded the reasons for reopening the assessment and notice u/s 148 of the Act was issued on 10.10.2008. The said notice was issued within one year from the date of filing of the return of income. The case of the assessee is that in the relevant year, the notice u/s 143(2) for initiating the assessment proceedings, can be issued within one year from the date of filing of the return of income. The said period having not been expired, the issue of notice u/s 147/148 of the Act was invalid.
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9. We find that the issue in the present case stands covered by the ratio laid down by the Hon'ble Jurisdictional High Court in CIT v Smt. Shakuntala Devi (supra) wherein, the proceedings u/s 147 of the Act were initiated and notice u/s 148 of the Act was issued within one year form the date of filing of the return of income. The Hon'ble Court held that in view of the amendments by way of Explanation 2(b) to section 147 of the Act, even if it is assumed that the proceedings could not be initiated u/s 147 in respect of the pending assessment, there is no bar in the present case to proceed u/s 143(2) of the Act and hence the proceedings were held to be valid. The assessment was thus held to be correct. The Ld. AR for the assessee has placed reliance on the Third Member decision of Chennai Bench of the Tribunal in Super Spinning Mills Ltd v ACIT (supra) wherein contrary view was taken than the one taken by the Hon'ble jurisdictional High Court in CIT v Smt. Shakuntala Devi (supra). Following the ratio laid down by the Hon'ble jurisdictional High Court in CIT v Smt. Shakultala Devi (supra), we hold that the re-assessment proceedings initiated u/s 147 and the notice issued u/s 148 of the Act have been validl y instituted. Accordingl y, the ground of appeal No.1 raised by the assessee is dismissed.
10. Now coming to the merits of the addition before us, the Ld. AR for the assessee pointed out that the initial investment in the purchase of a car totaling Rs. 73,697/- was out of the savings of the assessee and hence no addition is warranted in this regard. Further, , with regard to the addition on account of car installments paid totaling Rs. 1,40,524/-, the Ld. AR stressed that the said figures was wrong. The assessee had paid installments of Rs. 6,342/- for a period of 12 months totaling Rs. 73,104/- 8 In respect of the estimation of profits, the Ld. AR pointed out that after such estimation of income from business, no other addition was warranted on account of the investment in the business and deposits of license fee. The Ld. AR for the assessee fairl y conceded that no request was made for supply of reasons recorded for reopening the assessment before the Assessing Officer. The said reasons were handed over to the assessee during the appellate proceedings, on which the assessee has raised the objections, which in turn were furnished to the Assessing Officer. Thus, no issue arises as to non suppl y of reasons recorded by the Assessing Officer for reopening the assessment u/s 147 of the Act. The Ld.DR for the Revenue placed reliance on the order of the authorities below.
11. We have heard the rival contentions and perused the records. The Assessing Officer while completing the assessment had made addition on account of two scores i.e. i) on account of investment for purchase of car and; ii) on account of investment and income from wine business. The Assessing Officer had received information from the C IB Wing on the above said accounts and despite several opportunities being afforded to the assessee, no information regarding the source of investment was furnished by the assessee before the Assessing Officer. The Assessing Officer accordingl y treated the investment in purchase of car at Rs. 2,88,696/- plus expenditure on insurance and registration of car estimated at Rs. 15,000/- as income of the assessee. Further, as per the information collected from the Excise Authorities, the assessee had paid license fee of Rs. 10 lacs in monthl y installments for the vend allotted during the financial year 2006-07. The assessee had paid Rs. 1 lac on 5.4.2006 and 9 Rs. 2 lacs on 15.5.2006. The Assessing Officer estimated the source of investment i.e. payment of License Fee of Rs. 2 lacs out of undisclosed sources. Further addition was made on account of investment in stock, furniture, advance rent for shop etc at Rs. 2 lacs. The Assessing Officer also estimated the sales at 3 to 3.5% of the License fee paid. An estimation of sales at Rs. 35 lacs relatable to the financial year was made by the Assessing Officer on which appl yi ng a GP rate of 5%, income from business was worked out at Rs. 1,75,000/- under the provisions of section 44AF of the Act. Before the CIT(A), the assessee moved an applicable under Rule 46A for the admission of the additional evidence, which is copy of car loan of Rs. 2,30,000/- taken from the bank during the year. The C IT(A) considered such additional evidence and observed that assessee has failed to furnish any evidence with regard to the source of initial investment of Rs. 73,697/- i.e. excluding the car loan amount raised by the assessee. Further addition was made of installments paid during the year totaling Rs. 1,40,528/- as the assessee had failed to explain the sources of the same, an addition of Rs. 1,40,524/- was made on account of unexplained investment. Thus, addition of Rs. 2,40,220/- was confirmed by CIT(A). In respect of the estimation of source of investment and income from the wine business, the contention of the assessee was that he had sold the said vend to other person and the license fee was also deposited by that person. However, no details of the said person or any evidence of sale of vend was furnished before the Assessing Officer. In its written submissions before the CIT(A), the claim of the assessee was that where income is estimated u/s 44AD / AF of the Act, no addition is warranted on account of deposit of fee as income from undisclosed sources or investment in the stock, furniture etc. Reliance was placed on the ratio laid down by the Hon'ble Punjab & Haryana High 10 Court in CIT Vs. Surinder Pal Anand in ITA No. 156 of 2010 and also CIT Vs. Aggarwal Engineering Company [206 CTR 648(P&H)]. The CIT(A) upheld the addition made by the Assessing Officer on account of initial payment of installment of vend allotted, initial investment in the infrastructure in purchase of furniture and also expenditure incurred in starting the business and thereafter estimating the business an income u/s 44AF of the Income Tax Act.
12. In the facts of the case before us, the assessee had decaled total income for the year at Rs. 1,20,000/- . The return of income was filed declaring an income of Rs. 92,000/- as against the said total income earned by the assessee. The information received was in respect of the investment in car of Rs. 2,88,676/- and also the investment in the wine business. In view of the income declared by the assessee and keeping in mind the house hold expenditure to be incurred by the assessee, we are of the view that assessee has failed to explain the source of investment in car and the wine business. Even if credit for the car loan taken from the bank at Rs. 2,30,000/- is allowed to the assessee, there is failure on the part of the assessee to bring on record the source of initial investment of Rs. 73,697/-. Further, the assessee has also paid on monthl y basis the installments due against the car loan account. The assessee is paying monthl y installments of Rs. 6,342/- starting from April 2006 with an initial account payment of Rs. 1000/-, that as such the assessee has paid a sum of Rs. 77,104/-. The assessee has failed to bring on record an y evidence of source of such payments. Accordingl y, the addition on this account is restricted to Rs. 73,697 + Rs. 77,104/- = 1,50,801/-. The 11 ground No.1 raised by the assessee against the merits of the addition is thus partl y allowed.
13. The ground Nos. 2, 3 & 4 raised by the assessee are against additions made on account of business started by the assessee. The onus was upon the assessee to establish that the investment / expenditure incurred in its name was out of proven sources of income / funds available. In the absence of the onus being discharged, we uphold the estimation of sales at Rs. 35 lacs and income of Rs. 1,75,000/-. Further, the said investment / expenditure is treated as deemed income of the assessee. We are in conformit y with the orders of the authorities below that the source of investment in making the initial investment in starting the wine business has not been proved by the assessee and addition on this account is warranted in the hands of the assessee. The first addition is on account of license fee paid to the Excise Authroties against the allotment of vend. The assessee has paid a sum of Rs. 3 lacs in the months of April and May, 2006 out of which credit for Rs. 1 lac was allowed by the authorities below out of the sale proceeds generated form the business and in the absence of any source for the initial investment of Rs. 2 lacs, the addition was made to that extent. We uphold the order of the CIT(A) in this regard. However, in respect of addition of Rs. 2 lacs made on account of estimated source of investment in furniture, stock etc, we are of the view that the said addition is on the higher side and the same is reduced to Rs. 1 lac. The Assessing Officer had estimated the income from business at Rs. 1,75,000/- by estimating the sale proceeds at Rs. 35 lacs. Keeping in view the license fee of Rs. 10 lacs paid by the assessee, we find no merit in the stand of the assessee that when presumptive 12 taxation provisions are applied u/s 44AF of the Act, no further addition is warranted. The addition is made on account of initial investment in business, sources of which have not been established by the assessee. In the facts of the case before Hon'ble Punjab & Haryana High Court in CIT V Surinder Pal Anand (supra), the additions were made on account of deposits in the bank account after estimating the income by appl ying the GP rate on the gross receipts. However, in the case of assessee before us, the additions are made on account of the initial investment made at the start of the business i.e. before the business has started and the assessee has started earning income. In the absence of any explanation / evidence being furnished by the assessee to prove its case, there is no merit in the stand of the assessee and the same is dismissed. We uphold the order of CIT(A) in estimating the said income u/s 44AF of the Act by appl ying the net profit rate of 5% on the total sales of Rs. 35 lacs and also addition of Rs. 2 lacs on account of License fee and Rs. 1 lac on account of investment in stock, furniture etc. Accordingl y, the ground Nos. 2 & 3 raised by the assessee are dismissed and ground No.4 is partly allowed.
14. In the result, appeal of the assessee is partl y allowed.
Order Pronounced in the Open Court on this 27 t h day of Jul y, 2011.
Sd/- Sd/-
(D.K.SRIVASTAVA) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : July, 2011
Rkk
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Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
True Copy
By Order
Assistant Registrar,
ITAT, Chandigarh