H.gouthamchand Jain v. The Income Tax Officer,Ward-I(2)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21.09.2016 CORAM: THE HONOURABLE MR.JUSTICE NOOTY.RAMAMOHANA RAOandTHE HONOURABLE DR.JUSTICE P.DEVADASS T.C.A.No.1061 of 2014 H.Gouthamchand Jain .. Appellant Vs. The Income Tax Officer,Ward-I(2),No.181, Nungambakkam High Road,Nungambakkam, Chennai-600 034. .. Respondent Tax Case Appeal filed under Section 260-A of the Income TaxAct against the order, dated 12.02.2014 in I.T.A.No.1222/Mds/2013 on the file of the Income Tax Appellate Tribunal, A-Bench, Chennai against the order of the Commissioner of IncomeTax (Appeals) VI, Chennai 34, dated 17.01.2013 made in ITANo.582/2010-2011 and against the order of the Income Tax OfficerBusiness ward (2), Chennai 34 in PA/G1 No.AAFPC 0959 B. For appellant : Mr.N.Devanathan For respondent: Mr.T.Ravikumar, Senior Standing Counsel for Income Tax JUDGMENT (The Judgment of the Court was delivered by Nooty.Ramamohana Rao,J) This appeal is preferred by the assessee under Section 260-Aof the Income Tax Act, against the order passed by the IncomeTax Appellate Tribunal, A-Bench, Chennai on 12.02.2014, allowingthe appeal preferred by the Revenue before it. 2. The substantial questions of law that have been raisedfor consideration in this appeal are as follows: https://hcservices.ecourts.gov.in/hcservices/ "(i) Whether on the facts and circumstances ofthe case, the order of the ITAT is not perverse inlaw ? and (ii) Whether on the facts and circumstances ofthe case, the ITAT in the absence of tangiblematerials was right in confirming double additionmade to the sum of Rs.15 lakhs over and above theincome offered and taxable under any of theprovisions of the Income Tax Act ?" 3. For the assessment year 2008-2009, the assessee, who wasa dealer of pharmaceuticals, has filed Return in respect of histotal income of Rs.12,24,423/-. However, on 27.02.2008, surveyoperations were carried out at the business premises of theassessee under Section 133-A of the Income Tax Act. During thecourse of answering the questionnaire, the assessee offered toreturn additional income for Rs.15 lakhs. But however, the totalincome in respect of which the Return was filed by him, fellshort of the said amount. Right at this stage, it will berelevant for us to notice the following from the sworn statementrecorded from the assessee during survey operations, by way ofanswers furnished by the assessee for Question Nos.6 and 16,which have been relied upon by the assessing officer, whilepassing the assessment order on 29.12.2010. The said questionsand answers are as under: Ans: In the computer the details of purchase andsales are maintained daywise. For sales the details ofsale receipts by way of cash and cheque are written ina note book. For expenses incurred I don't have anykind of record, and hence I could not tell the quantumof expenses in cash for the period from 1.4.2007 and27.2.2008. Apart from this I don't have any otherrecord. For Gautham Pharma I am not maintainingregular Day Book and ledger required under income taxAct either in computer or manually. Q.No.16: In the answers to Q.No.6, you havestaed that there is no records for the expensesincurred from 1.4.2007 to 27.2.2008 and also quantumof expenses incurred, and you have replied that youare not maintaining cash book in the answer to Q.No.5considered the sales of Rs.9,23,01,893/- during thecurrent years as on date, as per your computer and in the absence of account books, how are you going toprepare a/c books ? Ans: In the absence of regular a/c books, as wellas primary documents for the preparation of accounts Imay not be able to draw proper a/cs and arrive atcurrent income. Hence I am offering voluntarilyRs.15,00,000/- (Rupees fifteen lakhs only) as incomeover and above the regular income and pay tax on thissum." Q.No.16: In the answers to Q.No.6, you havestaed that there is no records for the expensesincurred from 1.4.2007 to 27.2.2008 and also quantumof expenses incurred, and you have replied that youare not maintaining cash book in the answer to Q.No.5considered the sales of Rs.9,23,01,893/- during thecurrent years as on date, as per your computer and in the absence of account books, how are you going toprepare a/c books ? Ans: In the absence of regular a/c books, as wellas primary documents for the preparation of accounts Imay not be able to draw proper a/cs and arrive atcurrent income. Hence I am offering voluntarilyRs.15,00,000/- (Rupees fifteen lakhs only) as incomeover and above the regular income and pay tax on thissum." 4. From the above statement, it is more than clear that theassessee has offered voluntarily Rs.15 lakhs as income over andabove the regular income. But however, he has booked certainexpenditure in the immediate aftermath of the survey operationscarried on 27.02.2008 and claimed that because of theexpenditure thus incurred, the net income has come down, thoughhe did include Rs.15 lakhs increase in the total income. Theassessing officer has discredited this attempt of the assesseeand essentially based his reasonings on the following twofactors: (i) The expenditure is incurred towards commission by way ofcash payments, but however, no receipts/vouchers, etc. have beenproduced in support of the said claim. (ii) Similar expenditure was not booked by the assessee inthe past four assessment years, though there was not much changein the line of activity of the business carried on by theassessee. 5. Against the above order of assessment, an appeal wascarried to the Commissioner of Income Tax (Appeals), who by hisorder dated 17.01.2013, has allowed the appeal partly. Insofaras the additions made by the assessing officer by disallowingthe inflated expenditure, the CIT (Appeals) reversed the sameupon the following reasons: "11.2. I had gone through the submissions madeby the AR and the observations of the AO. It is a factadmitted by the assessee during the course of surveyu/s 133A that the books of accounts were not regularlymaintained. In order to overcome its deficiency theassessee has come forward by disclosing the additionalincome of Rs.15 lacs over and above his regularincome. He has accordingly offered the same bycrediting these monies to the capital account and thuswere brought to tax. Having been established thatbooks of accounts were not maintained regularly andthe additional incomes were brought to tax, it would not be fair to go into each and every item ofexpenditure debited to the P&L account, especially anestimated amount is admitted as additional incomes. Ina sense where the additional incomes over and abovethe regular income were offered, the AO cannot go intothe details of the expenditures as book results getssubmerged under the provisions of S.145. Hence theadditions cannot be sustained." 6. Hence, the Revenue went before the Income Tax AppellateTribunal, which by its order, dated 12.02.2014, allowed theappeal of the Revenue. It is against this order that the presentappeal is directed. 7. Heard Shri.N.Devanathan, learned counsel for theappellant/assessee and Shri.T.Ravikumar, learned Senior StandingCounsel appearing for the respondent-Income Tax Department. not be fair to go into each and every item ofexpenditure debited to the P&L account, especially anestimated amount is admitted as additional incomes. Ina sense where the additional incomes over and abovethe regular income were offered, the AO cannot go intothe details of the expenditures as book results getssubmerged under the provisions of S.145. Hence theadditions cannot be sustained." 6. Hence, the Revenue went before the Income Tax AppellateTribunal, which by its order, dated 12.02.2014, allowed theappeal of the Revenue. It is against this order that the presentappeal is directed. 7. Heard Shri.N.Devanathan, learned counsel for theappellant/assessee and Shri.T.Ravikumar, learned Senior StandingCounsel appearing for the respondent-Income Tax Department. 8. There is no gain-saying that during the surveyoperations, the assessee has given his statement in the form ofquestions and answers. In relation to Question No.6, calling forthe details of the account books maintained, the assessee hassaid the following, which would be relevant for our inquiry:" .... For expenses incurred I don't have anykind of record, and hence I could not tell the quantumof expenses incurred in cash for the period from1.04.2007 to 27.02.2008. Apart from this, I don't haveany other record .... I am not maintaining regularDay Book and ledger required under the Income Tax Acteither in the computer or manually...." 9. From the above statement of the assessee, it becomesclear that he has not maintained any record for incurring theexpenditure in cash for the period from 01.04.2007 up to27.02.2008, the date on which the survey operations were carriedout. 10. Insofar as Question No.16 is concerned, the answerfurnished by the assessee, inter-alia, is as follows:" ... Hence, I am offering voluntarilyRs.15,00,000/- (Rupees fifteen lakhs only) as incomeover and above the regular income and pay tax on thissum." 11. Therefore, what has been offered by the assesseevoluntarily is in respect of filing Return with regard to Rs.15lakhs over and above the regular income. This is the reason why,to ascertain the quantum of regular income, normally that can be https://hcservices.ecourts.gov.in/hcservices/ expected in respect of the Return filed by an assessee for therelevant assessment year, the assessing officer will look intothe Returns of the immediately preceding four years period. Fromthat, it has emerged that the gross turnover for the fourpreceding years, was shown to the tune of Rs.3,44,27,963/-,Rs.4,24,67,070/-, Rs.5,79,89,402/- and Rs.8,12,36,798/-. Asagainst this, for the assessment year 2008-2009, the assessee hasreported the gross turnover of Rs.9,71,88,656/-. It is no doubttrue that there was consistently considerable quantum of increasein the gross turnover and consequently, the gross profit and netprofit had been reflected by the assessee by incremental increaseeach year. Hence, in those circumstances, the assessing officerhas reversed some of the expenditure said to have been incurredin cash, for the relevant assessment year, and added it to thetaxable income. 12. The order passed by the assessing officer has containedadequate reasons as to why he has discredited the expenditureincurred in cash. When the expenditure has been booked in thepost-27.2.2008 period, upto 31.03.2008, it has not inspiredenough confidence in the assessing officer's mind, for it, topass the muster, whereas, the CIT (Appeals) has not looked intothose factors while reversing the order of assessment passed bythe assessing officer. The Income Tax Appellate Tribunal hasnoticed that what was pointed out by the assessing officer isthat the assessee has not claimed any expenditure by way ofpayment of commission during the preceding four assessment years,but however, for the relevant assessment year, he has booked anexpenditure of payment of commission of Rs.6 lakhs in cash. Thisamount of expenditure towards the payment of commission in cash,which was considered by the assessing officer, is booked tonullify the offer of additional income of Rs.15 lakhs. Further,during the course of assessment, no receipts had been produced bythe assessee, on his own showing as of 27.02.2008, there are norecords/registers maintained by the assessee with regard to thecash payments made. Therefore, the finding of the assessingofficer is that there are no proper books of accounts maintainedby the assessee and hence, it is not possible to infer that hehas legitimately expended and claimed the expenditure in cash,particularly after the survey operations were carried out on27.02.2008. In those set of circumstances, the Income TaxAppellate Tribunal has reversed that portion of the order of theCIT (Appeals) and restored the order of the assessing officer.The learned counsel for the appellant/assessee submitted that thefinding of the Income Tax Appellate Tribunal is patently perverseand hence it calls for interference at our hands. 13. Perversity, as is too well known, is a factor whichvitiates any exercise, legal or otherwise, determinative of the rights and obligations of the parties. Broadly understood, theconcept of perversity, would mean all the facts possibly leadingtooneinference/conclusion,andifanoppositeinference/conclusion is drawn, then any such exercise can becalled as a result of perversity. Further, upon considering thesame material, if no reasonable body of men would have reachedsuch a conclusion, then the concept of perversity would springup. 14. In the instant case, the statement of the assesseeduring the survey operations, no doubt, could have been made dueto duress or stress of the very operations, but however, thecircumstance which could be taken note therefrom is that thereare no registers or records maintained by the assessee insofar asthe expenditure incurred by him up to that point. Only sales andpurchase details are maintained in the computer. Therefore, thesudden booking of huge expenditure in a month's time, that too,after survey operations were carried out, would lead anyreasonable and prudent man to an inference that the same wasdeliberately booked to neutralise the obligation to reportadditional income of Rs.15 lakhs over and above the normalincome. When expenditure in cash is incurred, receipts/vouchershave got to be maintained accurately and the same will have to beproduced for acceptance of the assessing officer. No explanationis forthcoming as to why an expenditure to the tune of Rs.6lakhs, has been shown to have been incurred for the first timeduring the relevant assessment year towards the payment ofcommission, while similar expenditure was not reflected at all inthe preceding four years, particularly, when there was no changein the line of business activity of the assessee, all theseyears. Therefore, the inference drawn by the assessing officercannot be construed to be perverse, and on the other hand, it isa reasonable deducible inference and that is exactly what theTribunal has subscribed to. 15. We, therefore, do not see any substantial question oflaw arising for consideration in this appeal and consequently, wedecline to grant admission to the appeal. The appeal standsdismissed at the stage of admission. No costs. Sd/- Assistant Registrar(CS III) //True Copy// Sub Assistant Registrar cs To: 1. The Income Tax Officer, Ward-I(2), No.181, Nungambakkam High Road, Nungambakkam, Chennai-600 034. No.181, Nungambakkam High Road, Nungambakkam, Chennai-600 034. 2. The Commissioner of Income Tax (Appeals) VI,Chennai 34.Chennai 34. 3. The Registrar, Income Tax Appellate Tribunal, "A" Bench, Chennai. Income Tax Appellate Tribunal, "A" Bench, Chennai. T.C.A.No.1061 of 2014 md cosrg 24.10.2016