Commissioner Of Income Taxchandigarh-Ii v. Sanjay Chhabra

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 489 of 2005Date of decision: 31.3.2011 Commissioner of Income TaxChandigarh-II --- Appellant Versus Sanjay Chhabra, Proprietor ofM/s. Sanjay Chhabra Traders --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Urvashi Dhugga, Senior Standing Counselfor appellant-revenue. Mr. D.K. Goyal, Advocatefor the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961(for short “the Act”) has been filed by the Revenue against the order dated28.4.2005, passed by the Income Tax Appellate Tribunal ChandigarhBench ‘B’, Chandigarh (in short “the Tribunal”) in ITA No.264/CHANDI/2004, relating to the assessment year 1999-2000. 2. The appeal was admitted by this Court for determination ofthe following substantial question of law: “Whether the Tribunal erred in law in taking only profit ofunexplained transactions as undisclosed income instead oftaking investment in the said transactions into account.” 3.The facts, in brief, necessary for adjudication as narrated inthe appeal are that the assessee is engaged in the business of acommission agent and it derives income by way of commission from thesale of vegetables and fruits on behalf of the farmers and traders. Duringthe course of survey under Section 133A of the Act, carried at thebusiness premises of one Jagdish Chawla, the proprietor of M/s. SaiBaba Fruit Company, Chandigarh, certain documents were seized. Fromthe seized documents it transpired that the respondent-assessee hadmade sales of apples to the tune of Rs.5,75,654/- to the aforesaidJagdish Chawla. It was further noticed that as on 6.10.1998, theassessee had the debit balance of Rs. 4,20,856/- in the name of JagdishChawla. Since the sales were not found to be verifiable, the assesseewas asked to explain why addition of the amount of Rs. 5,75,654/-, beingthe peak investment, be not made to the returned income on account ofunaccounted sales to Jagdish Chawla. The assessing officer did notaccept the explanation of the assessee and made addition of Rs.5,75,654/-, vide order dated 21.3.2002, holding that the assessee hadmade sales to Jagdish Chawla and invested his own unexplained moneyin the purchase of apples. 4.Appeal filed by the assessee before the Commissioner ofIncome-tax (Appeals) [in short “CIT(A)”] was allowed by order dated23.12.2003 and the addition of Rs. 5,75,654/- made by the assessingofficer was deleted. A direction was, however, given to the assessing officer to assess the commission earned by the assessee on theaforesaid sales, at the rate of 5%. The CIT(A) while allowing the appeal,relied upon a decision of the Gujarat High Court in Commissioner ofIncome Tax vs. President Industries, (2002) 258 ITR 654. 5.The Tribunal, in the appeal carried by the Revenue, affirmedthe order of the CIT(A) by order dated 28.4.2005. 6.This is how the Revenue is in appeal before us.7.We have heard learned counsel for the parties and haveperused the record.7.We have heard learned counsel for the parties and haveperused the record. 8.The sole point for consideration in this appeal is that once theRevenue had come to the conclusion that the assessee had made salesof apples amounting to Rs. 5,75,654/- to one Jagdish Chawla, whether itwas the entire amount, or the 5% profit thereof, being commission onsuch sale, that was to be added to the income of the assessee. 9. According to the Revenue, the judgment of the Gujarat HighCourt reported in President Industries’s case (supra), was not applicableand the entire sale amount was assessable in the hands of the assessee.On the other hand, learned counsel for the assessee on the strength ofthe aforesaid decision argued that only 5% profit on the sale amount ascommission was exigible to tax. 8.The sole point for consideration in this appeal is that once theRevenue had come to the conclusion that the assessee had made salesof apples amounting to Rs. 5,75,654/- to one Jagdish Chawla, whether itwas the entire amount, or the 5% profit thereof, being commission onsuch sale, that was to be added to the income of the assessee. 9. According to the Revenue, the judgment of the Gujarat HighCourt reported in President Industries’s case (supra), was not applicableand the entire sale amount was assessable in the hands of the assessee.On the other hand, learned counsel for the assessee on the strength ofthe aforesaid decision argued that only 5% profit on the sale amount ascommission was exigible to tax. 10.We find force in the contention of the learned counsel for theRevenue. The assessing officer while holding that the assessee hadinvested his unexplained money in the purchase of apples which weresold to Jagdish Chawla had in para 3.1 of the assessment order recordedas under:- “3.1 As per document No.1, the assessee has a debit balanceof Rs. 4,20,856/- as on 6.10.1998 in the name of Sh. Jagdish Chawla. As per document Nos. 1 & 3, the assessee has soldapples worth Rs. 1,30,540/- and Rs. 74,528/- on 6.10.1998and 26.12.1998, respectively. The total sales were made atRs.6,25,654/-. The assessee has also received Rs. 50,000/-on 6.10.1998 from Sh. Jagdish Chawla against the salesmade. Since these sales were not recorded in thebooks ofaccounts, vide order sheet entry dated 21.3.2002, theassessee was asked to explain as to why addition amountingto Rs. 6,75,654/- to the extent of peak investment may not bemade to the returned income on account of unaccountedsales of apples to Shri Jagdish Chawla. On 21.3.2002, ShriSanjay Chhabra attended this office and his statement wasrecorded. The extract of his statement is as follows:- Question: As per documents found during the course ofsurvey operation carried out at the business premises ofSh. Jagdish Chawla, Prop. M/s. Sai Baba FruitCompany, SCF 23, Sector 26, Chandigarh on 6.11.1998,you have sold apples worth Rs. 5,75,654/-. Anexamination ofbooks of accounts shows that all thesales made to Sh. Jagdish Chawla have not beenentered. I am also showing you the documents whichare on the writing pad of your concern, M/s. SanjayChhabra Traders. All the sales made to Sh. JagdishChawla are entered on these documents. What youhave to say in this regard? Answer: In this regard I am to submit that from SCF 22,Sector 26, Chandigarh, my father Sh. Mangal Sain and brother Sh. Hemant Kumar were also running business besides my business. The detail of which are as under:- The writing pads of all the above concerns are kepttogether. Any person who needs the writing pad canuse the writing pad of another concern. As far as thesedocuments which are shown to me today are concerned,I have not made any sale of apples to Sh. JagdishChawla, Prop. M/s. Shri Sai Baba Fruit Company, SCF22, Sector 26, Chandigarh. Hence, these transactionsare not entered in mybooks of accounts, however, myfather Sh. Mangal Sain has made sale of apples duringthe F.Ys. 1997-98 & 1998-99 to Sh. Jagdish Chawla.My father has surrendered the income on thesetransactions in his return of income filed in your office.”11. The CIT(A), however, upheld the finding that the transactionsentered by the assessee with Jagdish Chawla had taken place but heldthat only profit on sale at 5% of the total value could be taxed in the handsof the assessee. The observations recorded by the CIT(A) in paras 2.2and 2.3 of the order read thus: “2.2 The submissions of the appellant have been consideredcarefully and I have gone through the facts of the case. It isobserved that the appellant has not been able to dischargethe onus by bringing any concrete evidence to substantiatethe claim that the transactions were not made by him.However, at the same time, I find force in the contentions ofthe appellant that at best, it is only the profit arising from thesale of the goods, which can be added. In this context, theappellant has rightly drawn my attention to the judgment of theHon’ble Gujarat High Court in the case of CIT v. PresidentIndustries reported in 258 ITR 654, wherein it has been heldthat: “The amount of sales could not represent the income ofthe appellant who had not disclosed the sales. The salesonly represented the price received by the seller of thegoods only the realisation of the excess over the costincurred could form part of the profit included in theconsideration for the sales.”the appellant who had not disclosed the sales. The salesonly represented the price received by the seller of thegoods only the realisation of the excess over the costincurred could form part of the profit included in theconsideration for the sales.” 2.3In the instant case, the appellant is a commission agentand gets 7% commission on sales. From this, 2% ispassed on to the market committee and the balance 5%remains in the hands of the appellant as income.Respectfully, following the latest judgment of Hon’bleGujarat High Court, quoted supra and after consideringthe totality of the facts, I am of the considered view thatthe profit on sales at 5% may be taxed in the hands ofthe appellant. This is so because the sales are outsideand gets 7% commission on sales. From this, 2% ispassed on to the market committee and the balance 5%remains in the hands of the appellant as income.Respectfully, following the latest judgment of Hon’bleGujarat High Court, quoted supra and after consideringthe totality of the facts, I am of the considered view thatthe profit on sales at 5% may be taxed in the hands ofthe appellant. This is so because the sales are outside books and in my view expenses against sales have dulybeen taken care of in the regular P&L account preparedby the appellant.” 12. The aforesaid findings were affirmed by the Tribunal. 13. A perusal of the order passed by the assessing officerclearly establishes that the assessee had made unexplained investmentin the purchase of apples which he had sold to Jagdish Chawla and insuch circumstances, it was not justified that only 5% profit` on saleconsideration was taxed in the hands of the assessee. The CIT(A) andthe Tribunal had reversed the order of the assessing officer holding thatthe commission on the sales made to Jagdish Chawla could be added.The CIT(A) and the Tribunal had no where, after appreciation of materialon record, concluded that the investment in the purchase of apples wasaccounted for in the books of accounts of the assessee. Learned counselfor the assessee was asked to show whether the amount which wasinvolved in value of the apples i.e. Rs. 5,75,654/-, was entered in thebooks of accounts or whether the father of the assessee, Shri MangalSain had made sales of apples during the financial years 1997-98 and1998-99 to Jagdish Chawla and had surrendered the income earned bymeans of those transactions, in his return of income filed with the income-tax Department. The learned counsel was unable to substantiate his claimand to show that the amount was either entered in thebooks of accountssor was ever surrendered by Shri Mangal Sain as claimed by him.Accordingly, the findings recorded by the CIT(A) and the Tribunal arevitiated and are set aside. 14.Reference is now made to judgment reported as PresidentIndustries’s case (supra). In that case, the CIT(A) and the Tribunal hadfound as a fact that there was no material on record to indicate that anyinvestment was made outside the books of accounts to make the salesand in such circumstances the entire sale proceeds could not be addedas undisclosed income of the assessee but the addition could be only ofthe profits embedded in the sales. The High Court in the light of theaforesaid finding of fact while dismissing the reference application underSection 256(2) of the Act filed by the Revenue had held that no questionof law arose for consideration. In the present case, in the absence of anyclear cut and unambiguous finding recorded by the CIT(A) and theTribunal on the basis of the material on record, that the investment in theapples was accounted for in thebooks of accounts of the assessee, noadvantage or support can be gathered by the assessee from the saiddecision. 15. Accordingly, the substantial question of law is answered in favourof the Revenue and against the assessee. 16.In view of the above, the appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE March 31, 2011*rkmalik* (ADARSH KUMAR GOEL) JUDGE