Income Tax Appellate Tribunal - Ahmedabad
Baldev T.Hariyani, Bharuch vs Department Of Income Tax on 24 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI D. K. TYAGI, JM AND A. MOHAN ALANKAMONY, AM)
ITA No.1011/Ahd/2010
A. Y.: 2006-07
The Income Tax Officer, Vs Shri Baldev T. Hariyani,
Ward - 2, Prop. Ganesh Traders,
Bharuch Purja Road, Bharuch
PA No. AALPH 1014 L
(Appellant) (Respondent)
Appellant by Shri S. P. Talati, Sr. DR
Respondent by Shri Mukund Bakshi, AR
Date of hearing: 24-05-2012
Date of pronouncement: 31-05-2012
ORDER
PER A. MOHAN ALANKAMONY: This appeal is filed by the revenue aggrieved by the order of the learned CIT(A)-VI, Baroda in appeal No. CAB-VI/452/08-09 dated 21-12-2009, for assessment year 2006-7.
2. The revenue has raised four grounds in its appeal wherein ground No.4 is general in nature and do not survive for adjudication. Grounds No.1, 2 and 3 of the appeal are reproduced below:
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.19,14,623/- on account of unaccounted purchases made and the peak investment therein, based on the disclosure made as per ITA No.1011/Ahd/2010 (AY: 2006-07) 2 ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani impounded material being Annexure A/11 and A/12 during survey u/s. 133A of the Act.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.14,82,877/- u/s. 40A(3) on account of casu payments for purchases as recorded in Annexure A/11 and A/12.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.1,23,450/- on account of unaccounted net profit in respect of sale of unaccounted purchases."
3. The assessee is an individual engaged in the business of trading in edible oil, filed his return of income for the assessment year 2006-07 on 22-12-2006 subsequent to the survey action conducted against the assessee u/s 133A of the IT Act on 10-02-2006. The assessee declared income of Rs.1,27,470/- in his return, however during the course of survey assessee had made the following disclosure:-
01. Cash difference (physical & books) Rs. 2,10,463/-
02. Excess profit (on undisclosed trading) Rs. 1,23,450/-
03. Peak investment(on undisclosed trading Rs.19,14,623/-
04. Disallowance u/s 40A(3) Rs.14,82,877/-
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Total Rs. 37,31,413/-
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4. The learned AO was of the view that since the assessee had made disclosure of Rs.37,31,413/- as his undisclosed income during the course of survey, it was not appropriate to retracted the same on a later date without furnishing any cogent reasons. Further, the learned AO relying on the findings made by the revenue at the time of survey, ITA No.1011/Ahd/2010 (AY: 2006-07) 3 ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani made additions for (i) peak investment for unaccounted purchases of Rs.19,14,623/-, (ii) disallowance u/s 40A(3) towards cash purchases which was not accounted Rs.14,82,877/- and (iii) profit on unaccounted sales Rs.1,23,450/- along with other disallowances aggregating to Rs.38,33,755/-. The assessee carried the matter before the learned CIT(A).
5. The learned CIT(A) deleted the additions made by the learned AO for peak investment for Rs.19,14,623/- and observed as under:
"4.3.2 Regarding the legal contention of the assessee with respect to the addition being made merely on the basis of statement recorded in the course of survey proceedings without any cogent and corroborative evidence and on going through the records and materials, I find that though an admission was made in the course of survey, the same was not accepted while filing the return wherein the assessee has mentioned that the statement recorded during the survey was not binding on him and thus, in these circumstances, it was imperative on the Assessing Officer to gather evidence or material to strengthen the addition. I find that the explanation of the assessee that the unaccounted purchases were made from a local party itself and the purchases from him are made almost on daily basis as per the Annexures impounded. If the statement given by the assessee at the time of survey was to be accepted that the purchases made are sold and realized in 15 days requiring the consideration of peak investment in such purchases as unexplained, there would have certainly been a difference in the inventory found on the date of survey. From the statement incorporating the contents of impounded material A/11 and A/12 on the basis of which the total unaccounted purchases and corresponding peak investment is determined, it is seen that the purchases are made for the period 29.11.2005 to
06.02.2006 and the purchases made during the period of 15 days prior to the last reported purchase on 06.02.2006 is substantial and therefore, if such purchases were to be retained ITA No.1011/Ahd/2010 (AY: 2006-07) 4 ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani as stock/investment, there would have a difference in the physical inventory taken on the date of survey as compared to the inventory recorded in the books. From the records, I do not find any such difference being found and, therefore, I am inclined to accept the explanation furnished by the assessee in this respect and respectfully following the principles laid down in the various decisions relied upon by the assessee and in absence of any corroborative material or evidence brought on record by the Assessing Officer, I hold that the addition made in respect of unexplained investment in stock cannot be sustained and therefore, directed to be deleted."
5.1 Further, the learned CIT(A) deleted the addition of Rs.14,82,877/- made u/s 40A (3) of the Act for cash payments for purchases made outside the books of account by following the decisions of the Tribunal in the case of (i) Hynoup Food & Oil Industries Pvt. Ltd., 48 ITD 202 (Ahd) and (ii) Sharma Associates Vs ACIT, 55 ITD 171 (Pune).
5.2 The learned CIT(A) also deleted the addition of Rs.1,23,450/- made on account of unaccounted profit generated from the sale outside the books by giving telescopic effect on addition made for Rs.2,10,463/- due to difference in physical cash and cash balance as per the books of accounts.
6. The learned DR vehemently argued in support of the order of the learned AO and submitted that the learned CIT(A) grossly erred in deleting Rs.19,14,623/- for addition made for peak investment for purchases made outside the books, the addition made for Rs.14,82,877/- for cash purchases outside the books u/s 40A (3) of the Act and further erred in granting benefit of telescoping for the ITA No.1011/Ahd/2010 (AY: 2006-07) 5 ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani addition made for profit generated outside the books for Rs1,23,450/-. The learned DR further submitted that these additions were agreed upon by the assessee at the time of survey based on the books of accounts and other materials found during the course of survey. The learned DR, therefore, prayed that the order of the learned AO with respect to these additions may be sustained.
7. The learned AR on the other hand, stoutly argued that thought the assessee was purchasing and selling edible oil outside the books of accounts on wholesale basis, there was no investment made by the assessee for such trading activity since all the purchases were made either on credit or by payment of cash and all the stock purchased was simultaneously sold for cash. He further submitted that since the trading activity of the assessee was kept outside the books of accounts no credits were extended to any party for the fear of it going bad and unenforceability in the court of law. The learned AR relied on the order of the learned CIT(A) with respect to the deletion of Rs.14,82,877/- u/s 40A (3) of the Act and Rs.1,23,450/- by giving telescoping benefit.
8. We have heard the rival submissions and perused the material on record.
8.1 (I) Deletion of Rs.19,14,623/-: The assessee has no doubt admitted the purchases and sales of goods outside the books of accounts, but at the same time retracted for the peak investment of Rs.19,14,623/- agreed upon at the time of survey. It is pertinent to note that the revenue has not looked into the nature of business and ITA No.1011/Ahd/2010 (AY: 2006-07) 6 ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani transactions and come out with any concrete evidence to establish that the assessee had made investment for such purchases made outside the books of accounts. The claim of the assessee cannot be simply brushed aside. The assessee had claimed that in his wholesale business of edible oil, cash and credit purchases were made however the goods were sold only on cash basis at very low margin of profit. The low margin of profit in this nature of trade is accepted by the revenue. In this circumstance the Revenue ought to have probed further to establish that the assessee had made investments for his trading activity outside the books with some reliable materials. Instead purely based on assumptions and presumptions the Ld.AO had held that the assessee would have made investments outside the books of accounts. Therefore, we rely on the findings of the learned CIT(A) cited supra and confirm the same.
8.2 (II) Addition of Rs.14,82,877/-: The learned AO had made addition u/s 40A (3) of the Act for Rs. 14,82,877/- since it was established that the assessee had made cash purchases of Rs.71,88,782/- which were more than Rs.20,000/- outside the books of accounts. The learned CIT(A) deleted this addition relying upon certain decisions rendered by the ITAT Ahmedabad Bench and Pune Bench mentioned supra wherein it was held that the provisions of section 40A(3) of the Act are not applicable to the transactions recorded outside the books of accounts. However, the decisions rendered by the Tribunal were not produced before us. Section 40A (3) of the Act reads as under:
ITA No.1011/Ahd/2010 (AY: 2006-07) 7ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani "Section 40A:
(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March,1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding [ (twenty) thousand] rupees otherwise than by [an account payee cheque drawn on a bank or account payee bank draft] [twenty per cent of such expenditure shall not be allowed as a deduction.]:
Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding [ (twenty) thousand] rupees otherwise than by [ an account payee cheque drawn on a bank or account payee bank draft] the allowance originally made shall be deemed to have been wrongly made and the [Assessing] officer may recomputed the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was also made;
Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding [(twenty) thousand] rupees is made otherwise than by [an account payee cheque drawn on a bank or account payee bank draft] in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.]"ITA No.1011/Ahd/2010 (AY: 2006-07) 8
ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani From the above provisions of the Act it is clear that the learned AO had rightly came to the conclusion for making the disallowance of Rs.14,82,877/-. The Act vividly stipulates that twenty percent of the expenses for which payment is made by cash exceeding rupees twenty thousand shall be disallowed. We, therefore, confirm the order of the learned AO on this issue and set aside the order of the learned CIT(A).
8.3 (III) Addition of Rs.1,23,450/- : The learned AO had made addition of Rs.1,27,472/- on account of profit earned from purchases and sales of goods outside the books of accounts. The learned CIT(A) deleted the same by telescoping the addition made on account of difference in physical cash balance and book balance as per the books of accounts for Rs.2,10,463/- which was confirmed. Considering these facts, we do not find the decision of the Ld.CIT(A) to be unjust. There is no dispute with respect to earning of profit from purchases and sales made outside the books of accounts. It is obvious that such profit will remain in the hands of the assessee outside the books of accounts and requires to be taxed. However, in such situation the surplus cash found during the course of survey which was not recorded in the books of accounts can be obviously pointed out to be the profit earned from the purchases and sales of goods made outside the books of accounts. Therefore, we do not find any infirmity in the order of Ld.CIT(A) of granting relief to the assessee by telescoping the excess cash in hand with the profit earned from trading activity outside the books of accounts. We therefore confirm the order of the learned CIT(A) on this count.ITA No.1011/Ahd/2010 (AY: 2006-07) 9
ITO Ward -2, Bharuch Vs Shri Baldev T. Hariyani
9. In the result, the appeal of the revenue is partly allowed.
Order pronounced in the open Court on 31-05-2012 Sd/- Sd/-
(D. K. TYAGI) (A. MOHAN ALANKAMONY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Lakshmikant Deka/
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
Dy. Registrar, ITAT, Ahmedabad
1. Date of Dictation: 24-05-12
2. Date on which the typed draft is placed before the Dictating Member: 25-05-12 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:
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: