D.b. Income Tax Appeal v. The Acit, Udaipur

D.B. INCOME TAX APPEAL NO.50/2003. [MUMAL MARBLES LTD. VS. THE ACIT, UDAIPUR] DATED : 24.01.2007 HON'BLE MR. RAJESH BALIA, J.HON'BLE MR. CHATRA RAM JAT, J. Mr.Rajendra Mehta for appellant.Mr.K.K.Bissa for the respondent. ***** Heard learned counsel for the parties. In this appeal following substantial question of law arisefor consideration as per order dated 08.09.2003. Whether in the facts and circumstances whenthe assessee has not claimed any deductionon account of Rs. 8,60,000/- made by him,the fact that receipt of repayment of theamount from the receipients is not believedby the Income Tax Authorities, anydeductions can be made in the income? It has been pointed out by learned counsel for the partiesthat in the last but one line of the question the word 'deductions'appears to have been a clerical slip because the dispute relatesto the 'additions' made by the Assessing Officer about theadvances made by the assessee and is not related to any claimto deduction by the assessee. This appears to be correct. Accordingly, the correction isallowed and the question framed on 08.09.2003 is correctedand in the last but one line of the question the word 'deduction'is substituted by 'additions'. From perusal of the three orders placed on record itappears that while real question that has cropped before theAssessing Officer was about the entries made in a cash bookwhich was prepared for the purpose of explaining certaindocuments seized during the search and seizure operation onthe premises of the appellant assessee. According to theAssessing Officer the cash book so prepared on the basis ofdocuments seized during the search and seizure appear torepresent certain unaccounted expenditure, capital expenditureand certain advances given and recoveries against thesupplies of goods. Amongst these entries were the entriesshowing advances of Rs.8,60,000/- to twelve persons which theassessee had claimed to have advanced to certain suppliers ofmarble. This necessitated holding an inquiry into the natureand source of these advances. The Assessing Officer was ofthe opinion that amount of Rs.8,60,000/- is not paid by chequeand the assessee could not satisfactorily explain and could notproduce any material evidence from which it can been provedthat such transactions have been duly recorded in the cash book. The assessee has stated before the learned AssessingOfficer that the amount advanced have been received in duecourse but the same have not been entered into cash booksbut entered into loose papers of dairy. By referring to thesefacts the Assessing Officer has rejected the explanation andadded a sum of Rs.8,60,000/- in the hands of the Company. Apparently, Rs.8,60,000/- could have been added only ifthe Assessing Officer had examined the source wherefrom theAssessee secure Rs.8,60,000/- for making such advance. Butobviously, he was not considering it to be a case whereassessee was considered to be in possession of unexplainedcash but were examining the nature of advances made by theassessee as to purchase of marble or for some other purpose.In such event only advances could not have been added. Inthat event if the assessee's transactions were not found to becorrectly and completely recorded, only the profits or incomeinvolved in such transaction could have been subjected toadditions. The CIT [Appeals] in its order observed that there wasno such entry of credit in diary or loose papers therefore itcould not be established that amount has been received back.However it is a fact that advances were given to those who aredealing in marble. Therefore, the stand taken by the appellant The CIT [Appeals] in its order observed that there wasno such entry of credit in diary or loose papers therefore itcould not be established that amount has been received back.However it is a fact that advances were given to those who aredealing in marble. Therefore, the stand taken by the appellant has some force because if the amounts were not receivedback against such advances then appellant must have receivedsupplies of marble. Appellant has already surrender unrecordedsales of marble to the tune of Rs.9,32,000/- which wouldexplain the unrecorded transactions of marble received throughadvance of Rs.8,60,000/-. Therefore, no addition can be madebecause either the advance was received back or the rawmaterial was received against the advances. The appellant hasalready included unrecorded sale of Rs.9,32000/- and if thepurchases of raw material amounting to Rs.8,60,000/- isaccounted for it will increase the loss by Rs.8,60,000/-.Therefore, the addition of Rs.8,60,000/- will get neutralised tozero. On this premise relying on the decision of the ITAT, Patnathe additions were deleted. The Tribunal found the reasoning of CIT [Appeals] to befaulty. The Tribunal considering it to be that even if there wassome unexplained expenditure, the addition under Section 69Cof certain unexplained expenditure could be made. In thecircumstances expenses have not been explained. Therefore,the additions made by the Assessing Officer were sustained. The Tribunal's order is somewhat obscure as tocontroversy it was dealing. Reference for unexplained expenses in the light of Section 69C was wholly out of place.The assessee has not claimed any deduction of expensesincurred. Hence, reference to unexplained expenses appears tobe beyond the issue in contention before the Tribunal.Reference to Section 69C with reference to unexplainedexpenses also does not give a clue as to what Tribunal wasaddressing itself. Section 69C had nothing to do aboutexpenses. It refers to investment found out of books. However,at one point it was observed by the Tribunal while consideringthe fourth submission by the authorities Representative of theAssessee that 'increase of the sales by a sum of Rs.9,32,000/-cannot lead us to the conclusion that advance made to twelvepersons on various dates came out of these sales'. However, the Assessee had not been asked by the twoauthorities below about source of Rs.8,60,000/- stated to havebeen advanced to supplier of marbles. But their inquiry wasconfined to fact whether in fact the transaction worthRs.8,60,000/- took place or did not take place as the assesseehad claimed that said advance had been received back by himhaving no profit came out of it. This rejection of fourthconsideration on the ground which the assessee was neverasked to explain has seriously prejudice to the case of theassessee. In these circumstances, the order of the Tribunal cannotbe sustained as it suffers from serious defects in reaching thereal controversy arising out of the order of the Assessing Officeras well as CIT [Appeals] and the ground relied or by theTribunal was never put to assessee so as to provide him anyopportunity to explain it. This is without prejudice to objection, ifany, that may be raised about such inquiry at second appellatestage. In these circumstances, we deem it just and proper to setaside the order of the Tribunal and direct the Tribunal to decidethe appeal filed by the Department afresh in accordance withlaw after clearly defining issues it is deciding and record itsfinding after giving adequate opportunity to respective partiesbefore it. Appeal is accordingly allowed. No costs. J. , J. mamta