M/S. Grand Bazzar85A, Cross Cut Roadappellant Incoimbatore...both Appeals v. The Assistant Commissioner Of Income Taxspecial Investigation Circlerespondent Incoimbatore...both Appeals

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.1.2007 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANAND THE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN M/s. Grand Bazzar85A, Cross Cut RoadAppellant inCoimbatore...both appeals Vs. The Assistant Commissioner of Income TaxSpecial Investigation CircleRespondent inCoimbatore...both appeals Appeals under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras 'B' Bench dated26.6.2001 in ITA Nos.462 & 463/91 for the assessment year 1981-82 and1984-85 respectively against order in ITA.No.613-C/90-91/and 618/C/90-91respectively dated 28.12.1990 of the Commissioner of Income Tax (Appeals)Coimbatore and the Assessment order dated 24.09.1990 in PAN.GIR.No.FQ-7413/SIC/II/CBE of the Assistant Commissioner of Income Tax, SpecialInvestigation Circle II, Coimbatore respectively. (Delivered by P.D.DINAKARAN, J.) The above tax case appeals are directed against the order of theIncome-tax Appellate Tribunal in ITA Nos.462 & 463/91 dated 26.6.2001. 2.1. The appellant/assessee is a partnership firm doing the businessof selling garments. For the assessment years 1981-82 and 1984-85, theassessee filed its returns on 28.12.1983 and 28.2.1985 respectively. TheAssessing Officer completed the assessments under Section 143(3) of theIncome-tax Act, 1961 (hereinafter referred to as 'the Act'). The saidassessments were set aside by the Commissioner of Income tax undersection 263 of the Act with a direction to consider the entire cash credits appearing in the books of account as undisclosed income of theassessee under Section 68 of the Act. On appeal, the Tribunal directedthe assessing officer to make a thorough investigation and arrive at theundisclosed income after considering the growth of wealth. 2.2. Afterwards, considering the credits in the books of account, theAssessing Officer determined the total income for the assessment years1981-82 and 1984-85 at Rs.2,41,020/- and Rs.8,02,320/- respectively. Whenthe assessee was required to prove the genuineness of the credits, theassessee admitted that the credits were nothing but suppressed sales.Ultimately, the Assessing Officer made addition of Rs.1,66,825/- andRs.5,08,031/- respectively for the assessment years 1981-82 and 1984-85as income from other sources under section 69C of the Act. 2.3. On appeal, the Commissioner of Income-tax (Appeals) held that inrespect of assessment year 1981-82, the assessing officer was not correctin adding a sum of Rs.1,66,825/- since all the purchases were not made ona single day and it would be reasonable to consider only Rs.20,000/- asthe unexplained purchases outside the books of account on the ground thatthe amount used in the first purchase could have been rolled over for thepurchases on subsequent days. Accordingly, the Commissioner of Income-tax(Appeals) sustained the addition of Rs.20,000/- as against Rs.1,66,825/-.For the assessment year 1984-85, the Commissioner of Income-tax (Appeals)found that since the transactions were taking place outside the accountsright from the assessment year 1981-82 and additions had been made in theearlier years, it would not be necessary to estimate anything towardspossible capital utilised outside the accounts during the year as againstthe undisclosed purchases. Considering the addition sustained atRs.1,60,000/- during the assessment year 1984-85, the additions made inthe earlier years, the peak credit position even as on 30.11.1985, theabsence of any accretion to wealth in excess of the additional incomeoffered for assessments or determined finally and other relevantcircumstances, the Commissioner of Income-tax (Appeals) deleted the entireaddition of Rs.5,08,081/-. 2.4. On appeals, at the instance of the Revenue, the Tribunal heldthat the assessee had introduced the suppressed sales (Rs.20,000/- beingthe expenditure on the first purchase for the assessment year 1981-82 andgross profit of Rs.1,60,000/- for the assessment year 1984-85) in theregular books of account as cash credit which means that the fundsintroduced as credits in the books had gone into the assessee's businessaccount and so, the same could not have been utilised for making theunaccounted purchases and the assessee could not be given credit to anyamount already introduced as credits in the account books as availableto meet any unaccounted expenditure including the unaccounted purchases.Accordingly, the Tribunal restored the addition of Rs.1,66,825/- for theassessment year 1981-82. In so far as the assessment year 1984-85 isconcerned, the Tribunal sustained the addition to the extent ofRs.2,83,982/-. 2.5. As regards the estimation of gross profit, for the assessmentyear 1984-85, the assessing officer adopted 25% whereas the Commissionerof Income-tax (Appeals) reduced it to 20%. The Tribunal found that thequestion whether the gross profit estimated at 20% or 25% would not makeany difference in the overall addition and ultimately estimated the grossprofit at 25% as reasonable in the circumstances of the case. 2.6. Aggrieved by the order of the Tribunal, the assessee haspreferred these appeals raising the following common substantial questionsof law: (a) Whether on the facts and in the circumstances of the case,the Tribunal was right in sustaining the action of therespondent herein by making an addition in terms of Section69C of the Act? (b)Whether on the facts and in the circumstances of the case,the Tribunal was right in sustaining the gross profitwithout indicating any basis or reasons in the orderappealed against? 3. In the instant case, admittedly, there were certain cash creditsappearing in the assessee's books of account which were found to be boguscredits. The assessee also, by letter dated 24.9.1990, admitted that thecredits were nothing but the suppressed sales. The assessing officerestimated the gross profit on the suppressed sales and made additions.The assessing officer, while estimating the gross profit, considered thedifference as cost of purchases and since the source for unaccountedpurchases remained unexplained, the assessing officer made additionsunder section 69C of the Act. 4.1. Before proceeding further, it would be apposite to refer Section69C of the Act which reads as follows: "69C. Unexplained expenditure, etc.: Where in any financial yearan assessee has incurred any expenditure and he offers noexplanation about the source of such expenditure or part thereof,or the explanation, if any, offered by him is not, in the opinionof the Assessing Officer, satisfactory, the amount covered bysuch expenditure or part thereof as the case may be, may bedeemed to be the income of the assessee for such financial year:Provided that, notwithstanding anything contained in anyother provision of this Act, such unexplained expenditure whichis deemed to be the income of the assessee shall not be allowedas a deduction under any head of income." 4.2. A bare reading of the above section makes it clear that if theassessee incurred any expenditure, but offered no explanation about thesource of such expenditure or part thereof, or the explanation so offered https://hcservices.ecourts.gov.in/hcservices/ is not satisfactory, such expenditure may be deemed to be the income ofthe assessee. In the case on hand, therefore, the additions were madeunder section 69C of the Act, as the assessee had no explanation regardingthe source of funds for the purchases. 4.2. A bare reading of the above section makes it clear that if theassessee incurred any expenditure, but offered no explanation about thesource of such expenditure or part thereof, or the explanation so offered https://hcservices.ecourts.gov.in/hcservices/ is not satisfactory, such expenditure may be deemed to be the income ofthe assessee. In the case on hand, therefore, the additions were madeunder section 69C of the Act, as the assessee had no explanation regardingthe source of funds for the purchases. 5.1. Learned counsel appearing for the assessee submits that thefindings of the Commissioner of Income-tax (Appeals) have to be sustainedas the Commissioner of Income-tax (Appeals) proceeded on reasonable basisin arriving at the amounts of addition towards undisclosed purchases. Onthe other hand, learned counsel appearing for the Revenue sought tosustain the order of the Appellate Tribunal. 5.2. The Commissioner of Income-tax (Appeals), taking intoconsideration the acceptance of the assessing officer that the actual cashcredits were only suppressed sales and such sales had come fromundisclosed purchases, found that the expenditure on the unaccountedpurchases could be Rs.20,000/- for the assessment year 1981-82 on thebasis that with the first purchase making use of Rs.20,000/- the assesseecould have made some sales and then, the sale proceeds could be utilisedfor the subsequent purchases and thus, funds could be rolled over for thepurchases totalling Rs.1,66,825/-. For the assessment year 1984-85, theCommissioner of Income-tax (Appeals) found that there was a separateaddition of Rs.1,60,000/- representing the gross profit which could berolled over for the purchases. On that basis, the Commissioner of Income-tax (Appeals) made an addition of Rs.20,000/- for the assessment year1981-82 and deleted the addition for the assessment year 1984-85, undersection 69C of the Act. 5.3. In the present case, the assessee had not explained as to thesource of purchases and the additions under section 69C of the Act are,therefore, sustainable. Further, the Commissioner of Income-tax (Appeals)is not justified in reducing/deleting the additions. As rightly observedby the Tribunal, the funds introduced by the assessee as cash credits inthe books of account had gone into the assessee's business account and so,the same could not have been utilised for making the unaccounted purchasesand the assessee could not be given credit to any amount alreadyintroduced as credits in the account books as available to meet anyunaccounted expenditure including the unaccounted purchases. We are,therefore, of the opinion that the Tribunal was justified in restoring theadditions under section 69C of the Act for both the assessment years. 5.4. That apart, the Tribunal estimated the gross profit at 25%instead of 20% as adopted by the Commissioner of Income-tax (Appeals). TheTribunal recorded a finding that whether the gross profit estimated at 20%or 25% would not make any difference in the overall addition andestimated the gross profit at 25% as reasonable, in the circumstances ofthe case. We are of the view that the gross profit estimated at 25% bythe Tribunal is a finding of fact and we are not inclined to render anyfinding on the same. 5.5. In this view of the matter, we hold that the addition made bythe Tribunal under section 69C of the Act is sustainable and that theTribunal estimated the gross profit at 25% in the circumstances of thecase, and accordingly, we answer both the questions in the affirmative andagainst the Revenue. The tax case appeals stand dismissed. No costs. Sd/Asst.Registrar /true copy/ kplTo Sub Asst.Registrar 1. The Assistant Registrar,Income-Tax Appellate TribunalRajaji Bhavan, III Floor,Besant Nagar, Madras. 2. The Commissioner of Income Tax (Appeals)Coimbatore.3. The Assistant Commissioner of Income TaxSpecial Investigation Circle II,Coimbatore. 5.5. In this view of the matter, we hold that the addition made bythe Tribunal under section 69C of the Act is sustainable and that theTribunal estimated the gross profit at 25% in the circumstances of thecase, and accordingly, we answer both the questions in the affirmative andagainst the Revenue. The tax case appeals stand dismissed. No costs. Sd/Asst.Registrar /true copy/ kplTo Sub Asst.Registrar 1. The Assistant Registrar,Income-Tax Appellate TribunalRajaji Bhavan, III Floor,Besant Nagar, Madras. 2. The Commissioner of Income Tax (Appeals)Coimbatore.3. The Assistant Commissioner of Income TaxSpecial Investigation Circle II,Coimbatore. 1 cc To Mr.C.V.Rajan, Advocate, SR.3909.2 cc To Mr.N.Muralikumaran, Advocate, SR.4097, 4098. TC (A) Nos.86 & 87 of 2002. SSV(CO)RVL 16.02.2007