M/S Rajendra Prasad Subhashchand v. Union Of Indiathrough The Chief Commissionerof Income Tax For Rajasthan Andothers

// 1 // IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR ORDERIN D.B. Income Tax Appeal No.567/2009 M/s Rajendra Prasad SubhashChand Vs. Union of Indiathrough the Chief Commissionerof Income Tax for Rajasthan andOthers Date of Order ::: 26.08.2010 Present Hon'ble the Chief Justice Mr. Jagdish BhallaHon'ble Mr. Justice Mohammad Rafiq Shri Anant Kasliwal, Counsel for appellantShri Sameer Jain, Counsel for respondents#### //Reportable// By the Court (Per Hon'ble Rafiq, J.):- This income-tax appeal has been filed bythe appellant-assessee challenging the judgmentdated 20.03.2009, of the Income Tax AppellateTribunal, Jaipur Bench 'B' Jaipur, (for short,'the ITAT') whereby the ITAT upheld thejudgment dated 26.03.2007 of the Commissionerof Income Tax (Appeals) Alwar (for short, 'theCIT'), who in its turn, confirmed theassessment order passed by the AssessingOfficer. Factual matrix of the case is that on06.05.2002 a survey under Section 133A of theIncome Tax Act, 1961 (for short, 'the Act') was conducted at the business premises of theappellant-assessee in which it was found thatthe books of account had been written only upto 26.04.2002 and no entries were thereaftermade till the date of survey. The appellant-assessee, however, on 02.12.2003 filed itsreturn of income declaring income ofRs.6,69,050/- along-with audited balance-sheet,profit and loss account tax audit report dated22.11.2003. Since the survey was carried outunder Section 133A of the Act, the case of theappellant-assessee was selected for compulsoryscrutiny by issuing notice to it under Section143(2) on 06.05.2004, however, the jurisdictionof the case was transferred to AssistantCommissioner of Income Tax, Circle-2, Alwar, asthe income of the appellant-assessee exceededRs.5,00,000/- and therefore notice underSection 143(2) and 143(1)(ii) along-with queryletter was issued to the appellant on27.10.2005 by the said authority. The assessingofficer i.e. the Assistant Commissioner,Income-tax, passed an assessment order on22.03.2006 thereby computing the income of theappellant at Rs.7,94,420/-, on the ground thatduring the course of survey an unexplained cashto the tune of Rs.2,95,000/- and unexplained stock to the tune of Rs.2,28,086/- have beendiscovered and further the assessing officerdisallowed the interest under Section 36(1)(iii) to the tune of Rs.26,833/-. Theappellant-assessee preferred an appeal on28.04.2006 before the CIT (Appeals), Alwar,assailing the additions made by the AssistantCommissioner of Income Tax, Alwar. The appealwas, however, dismissed by order dated26.03.2007. It was thereafter that theappellant-assessee preferred further/secondappeal before the ITAT, Jaipur, which, by itsjudgment dated 20.03.2009, dismissed the sameupholding the judgment of the CIT (Appeals) andthe assessment order passed by the AssessingOfficer. Hence, this appeal under Section 260-Aof the Act. Shri Anant Kasliwal, learned counsel forthe appellant-assessee has argued that thelearned ITAT and the authorities therebelowfailed to appreciate that the appellant-assessee had furnished copy of the cash bookbefore the assessing authority, which alsoincluded unexplained items. The entries in thecash book were made only up-to 26.04.2002,however, for subsequent period till the surveywas conducted i.e. 06.05.2002, such entries could not be made because the accountant of theappellant-assessee was on leave. Cash balanceas per the cash book as on 06.05.2002 wasRs.4,13,744/- and, out of the same, a sum ofRs.2,00,000/- was deposited in the bank accountand balance cash was found during the course ofsurvey. Shri Anant Kasliwal, learned counsel forthe appellant-assessee has argued that thelearned ITAT and the authorities therebelowfailed to appreciate that the appellant-assessee had furnished copy of the cash bookbefore the assessing authority, which alsoincluded unexplained items. The entries in thecash book were made only up-to 26.04.2002,however, for subsequent period till the surveywas conducted i.e. 06.05.2002, such entries could not be made because the accountant of theappellant-assessee was on leave. Cash balanceas per the cash book as on 06.05.2002 wasRs.4,13,744/- and, out of the same, a sum ofRs.2,00,000/- was deposited in the bank accountand balance cash was found during the course ofsurvey. Learned counsel argued that stock lyingin the godown was duly recorded in the books ofaccount and as such the same was notundisclosed as alleged by the assessingofficer. The unaccounted retail sales, recordedin the loose papers found during the course ofsurvey, relate to the period from 26.04.2002 to06.05.2002 and the same was properly recordedin the books of account which have been dulyverified by the assessing officer. It wascontended that the onus of verifying theentires made in the cash book after date ofsurvey was on the assessing officer, who hasutterly failed to discharge the same. Despiteof this contentions raised, the ITAT has failedto examine them in their true perspective anderred in law in holding that the appellant-assessee failed to submit cogent explanation.The learned ITAT was wholly unjustified inrejecting books of account of the appellant- assessee invoking provisions of Section 145(3)of the Act. Merely because the books of accountcould not be written for a period of 10 daysdue to absence of accountant, such books couldnot be rejected for the entire period.Alternatively, though contrarily, it was arguedthat once the books of account were rejectedand income of the appellant-assessee wascalculated on estimated basis, non-recording ofsome entries in the books lost its relevancefor the purpose of estimation of income. Shri Anant Kasliwal, learned counsel forthe appellant-assessee further contended thatrevenue authorities have seriously erred indisallowing a sum of Rs.26,833/- from out ofassessee's claim of interest merely on theground that some of the funds available withthe appellant-assessee were lent by it to itssister concern M/s. Shubham on interest freebasis and without considering the aspect thatsame was received back in the same financialyear. The learned counsel in support of hisarguments relied on the judgments of GujaratHigh Court in M. Kantilal Exports Vs. Asstt.–CIT (Guj) (2010) 36 DTR Judgments 296 andChattisgarh High Court in CIT Vs. Vijay Kumar Kesar – (2010) 36 DTR Judgments 13. According to the appellant-assesseefollowing questions of law arise in the presentcase for determination by this Court:- (a) Whether the ITAT was justified inhaving confirmed the invocation ofSection 69 & 69A in the present factswhen the amounts under considerationwere not only duly entered in thebooks of account when they werecompleted but were also dulysurrendered by the appellant in itsreturn of income? (b) Whether the ITAT was justified inhaving upheld the dis-allowance of apart of the interest paid and claimedas an expense merely on the groundthat no interest on a portion of theloans taken were extended to a sisterconcern on an interest free basis? Shri Anant Kasliwal, learned counsel forthe appellant-assessee submitted that therevenue authorities were not justified ininvoking the provisions of Sections 69 and 69Aof the Act particularly when the entires underconsideration were not only duly made in thebooks of account but they were completed andsuch income was also duly surrendered by theappellant-assessee in its return of income. It (b) Whether the ITAT was justified inhaving upheld the dis-allowance of apart of the interest paid and claimedas an expense merely on the groundthat no interest on a portion of theloans taken were extended to a sisterconcern on an interest free basis? Shri Anant Kasliwal, learned counsel forthe appellant-assessee submitted that therevenue authorities were not justified ininvoking the provisions of Sections 69 and 69Aof the Act particularly when the entires underconsideration were not only duly made in thebooks of account but they were completed andsuch income was also duly surrendered by theappellant-assessee in its return of income. It is submitted that when the appellant-assesseehad declared the income and on that basis,filed the return of income and submitted thebooks of account in support thereof, thefinding of the ITAT and the authoritiestherebelowthattheappellant-assesseeattempted to evade tax, is wholly pervers andsame is liable to be set aside. Per contra, Shri Sameer Jain, learnedcounsel for the revenue opposed the appeal andargued that the appellant has utterly failed togive explanation at any time either duringsurvey or at the time of assessment or evenwhen he unsuccessfully filed two appeals – onebefore the CIT (Appeals) and another before theITAT. Learned counsel submitted that books ofaccount were not properly maintained by theappellant-assessee which were rightly rejectedby the learned assessing officer by invokingprovisions of Section 145(3) of the Act. Theassessing officer estimated the sale of therelevant period at rupees two crore and grossprofit at 4.25%. He accordingly worked out thegross-profit at Rs.8,50,000/- as againstRs.8,09,939/- declared by the assessee and madea trading addition of Rs.40,061/- in the incomeof assessee. The CIT (Appeals) affirmed the action of the assessing officer. The learned counsel submitted that during the course of survey, certain looseslips of sale transactions were found and yetthe same were not recorded in the books ofaccount. The appellant-assessee failed tosubmit any cogent explanation therefor. Theassessing officer also noted that the appellanthad given advance of Rs.2,50,000/- to itssister concern working under the name and stileof M/s. Subham Hotel on 08.05.2002 and had notcharged any interest on such advance. He foundfrom the account that the assessee had paidinterest on unsecured loan and on the loanstaken from the banks to the tune ofRs.1,60,033/- during the said period. Heaccordingly worked out interest on amount ofRs.2,50,000/- given by the appellant-assesseewithout interest to its sister concern M/s.Subham Hotel and held held that the interest tothat extent was incurred for non-businesspurpose. He therefore disallowed the interestat the rate of 12% per annum on such amount atRs.26,833/-. All these being findings of fact, arenot open to interference and the appeal doesnot raise any question of law for adjudication by this Court. The cited judgments aredistinguishable on facts. The appeal thereforedeserves to be dismissed. We have given our anxious considerationto the rival submissions of the parties andperused the material on record. All these being findings of fact, arenot open to interference and the appeal doesnot raise any question of law for adjudication by this Court. The cited judgments aredistinguishable on facts. The appeal thereforedeserves to be dismissed. We have given our anxious considerationto the rival submissions of the parties andperused the material on record. Whether or not the books of account werebeing properly maintained and all the entiresabout the sale transactions therein were made,are all questions of fact. All the authoritiesbelow have concurrently decided this issueagainst the appellant-assessee holding thatduring the period of survey, various saletransactions were not entered in the books ofaccount and that certain sale transactions werefound to be recorded in loose papers. Suchtransactions were not entered in the books ofaccount. The loose papers were discoveredduring survey, which had entries regarding thesales amounting to Rs.31,500/-, Rs.3,000/- andRs.10,000/-, respectively, which were notrecorded in the regular books of account. Thebooks of account did not show any entryespecially the cash books entries made for theperiod from 26.04.2002, till the date whensurvey was conducted i.e. 06.05.2002. Theassessing officer, therefore, rightly invoked // 10 // the provisions of Section 145(3) and rejectedthe books of account. This action of theassessing officer has been upheld on thefactual satisfaction so recorded, not only byCIT (Appeals) but also by the ITAT. They haveall concurrently held that during the course ofsurvey discrepancy in cash and sugar stock andstock register were also detected. The assesseein the return of income has surrenderedunexplained cash of Rs.2,95,000/-, unexplainedstock of sugar in the sum of Rs.2,18,424/- andunexplained stock register of Rs.77,200/-.Although, during the assessment proceedings theassessing officer retained the addition withregard to discrepancy in cash amounting toRs.2,95,600/- detected at the time of survey;however, he noted that the assessee hadincluded only Rs.2,18,424/- on account ofdiscrepancy in stock of sugar and other goodsin his return of income as against adiscrepancy of Rs.2,28,086/- found at the timeof survey. During the course of survey,inventories were prepared in this regard andthe stock as per physical verification wasfound of Rs.14,23,250/- excluding the stock ofsugar at Rs.3,22,336/-. The stock as per thebooks of account, excluding sugar, was to the tune of Rs.13,26,323/- and as such thediscrepancy that was found, was to the tune ofRs.96,921/-. The assessee while filing thereturn of income included a sum of Rs.87,259/-but failed to give any justification for non-inclusion of the differential amount ofRs.9,662/-. Similarly the assessing officer notedthat the assessee had disclosed receipt ofinterest to the tune of Rs.900/- only, whereashe had given advance of Rs.2,50,000/- to itssister concern working in the name and style ofM/s.Shubham Hotel on 08.05.2002 and yet had notcharged any interest on such advance. Theassessing officer also found from the accountthat the assessee had paid interest to the tuneof Rs.1,60,033/- during the relevant period. Heaccordingly worked out the interest on the saidamount of RS.2,50,000/- given by the assesseewithout interest to its sister concern and heldthat the interest to that extent was incurredfor non-business purpose; he thereforedisallowed the interest at the rate of 12% onsuch amount at Rs.26,833/-. His action wasconfirmed by the CIT (Appeals) and the ITAT. Onthis aspect of the matter, we find that thesatisfaction recorded by the assessing officer and upheld by the CIT (Appeals) and ITAT islargely based on their findings on thequestions of fact. and upheld by the CIT (Appeals) and ITAT islargely based on their findings on thequestions of fact. The judgment of Gujarat High Court in M.Kantilal Exports can hardly be said to have anyapplication to the facts of the present casebecause in that case there was an apparenttyping mistake in the figure of consumption ofrough diamonds and actual figure tallied withrecords, which fact was also confirmed onaffidavit by the typist, auditor and partner ofthe assessee firm. In those facts, it was heldthat no addition under Section 69C was calledfor. Not only this, in that case the statementof the auditor was also recorded who clearlyadmitted to have committed typing mistake andattributed the same to his typist. The CIT(Appeals) accepting that explanation deletedthe additions made by the assessing officerunder Section 69C but that was however turneddown by the ITAT. It was in those facts thatthe High Court of Gujarat interfered with thematter. Similarly the judgment of ChattisgarhHigh Court is also distinguishable and does notapply to the facts of the present case becausewhat was held in that case was that the assessee was entitled to establish thatconfession made by him during surveyproceedings was not conclusive and it was opento him to establish that the same was not trueand correct, by filing cogent evidence. The CIT(Appeals) and ITAT accepted the explanation ofthe assessee for retracting from disclosure ofundisclosed income made by the latter duringthe survey proceedings and deleted theadditions made on account of excess cash andstock by accepting the updated books of accountprepared by the assessee, which were supportedby primary evidence on record. It was held thatthe concurrent findings of fact recorded by theCIT (Appeals) and the ITAT could not be said tobe perverse. In the present case, however, thesituation is entirely converse wherein theappellant-assessee failed to give anysatisfactory explanation on all the issuesreferred to above, and could not produce anycogent evidence in support of any suchexplanation. Not only the assessing officer butalso the CIT (Appeals) and ITAT in this casehave concurrently recorded their findingsagainst the appellant-assessee on all theissues. Those findings in the facts of the present case, in our considered view, cannot besaid to be either perverse or erroneous so asto warrant interference by this Court. Section 69 of the Act inter-aliaprovides that where in the financial yearimmediately preceding the assessment year, theassessee has made investments which are notrecorded in the books of account, if any,maintained by him for any source of income andthe assessee offers no explanation about thenature and source of the investments or theexplanation offered by him is not, in theopinion of the assessing officer, satisfactory,the value of the investments may be deemed tobe the income of the assessee of such financialyear. According to this provision, therefore,addition can be made on this count by theassessing officer towards the income from theundisclosed source. On the similar analogy the provisionscontained in Sections 69A and 69B about theinvestment made by the assessee or he beingfound in possession of any valuable jewelery orany other valuable article which exceeds theamount recorded in this behalf in the books ofaccount maintained by the assessee from anysource of income and he fails to offer any satisfactory explanation, this amount may bedeemed to be the income of the assessee forsuch financial year. On the similar analogy the provisionscontained in Sections 69A and 69B about theinvestment made by the assessee or he beingfound in possession of any valuable jewelery orany other valuable article which exceeds theamount recorded in this behalf in the books ofaccount maintained by the assessee from anysource of income and he fails to offer any satisfactory explanation, this amount may bedeemed to be the income of the assessee forsuch financial year. In the like manner Section 69C alsoprovides that where for any financial year anassessee has incurred any expenditure and doesnot offer any explanation about the source ofsuch expenditure or part thereof, or theexplanation, if any, offered by him is notfound satisfactory by the assessing officer,the amount incurred by assessee may be deemedto be the income of the assessee for suchfinancial year. Contention that the provisions ofSections 69, 69A, 69B and 69C of the Act, couldnot be invoked where the alleged unexplainedcash and stock are duly accounted for andexplained at the time of submitting the returnof income, which is duly supported by books ofaccount then produced, cannot be accepted forthe simple reason because this will bedependent on the satisfaction of the assessingofficer whether or not he finds the method ofaccounting adopted by the appellant-assessee tobe in order and, on that basis, records hissatisfaction with such finding under sub-section (3) of Section 145 that he was satisfied about correctness or completeness ofthe account of the assessee accordinglynotified under sub-section (2) and held suchaccount having been regularly followed andholds that the accounting standard as notifiedunder sub-section (2) thereof have beenregularly followed by the assessee. It is inthat background that the assessing officer isentitled to make computation of income or lossfor the purpose of assessment in the manner onbest judgment assessment basis as per Section144 of the Act. It can not therefore beaccepted that ingredients of Sections 69, 69A,69B and 69C were not satisfied in the presentcase because in all these provisions what isprovided is that if an assessee is found to bethe owner of any money, jewellery or any othervaluable articles not recorded in the books ofaccount and fails to offer any explanationabout nature and source thereof or in case anysuch explanation, if offered, is notsatisfactory in the opinion of the assessingofficer, then this may be deemed to be theincome of the assessee for such financial year. Ultimately, therefore, it would bedependent on the nature of explanationsubmitted by the assessee and the satisfaction oftheassessingofficerabouttheacceptability of the same, which is the sine-qua-non for invoking the provisions containedin Section 69, 69A, 69B and 69C of the Act. Itis in this context that the satisfaction of theassessing officer about the correctness andcompleteness of books of account maintained bythe assessee as per provisions contained inSection 145 of the Act co-relates with thesatisfaction of the assessing officer arrivedat under Section 69, 69A, 69B and 69C of theAct. We therefore do not find any infirmityin the impugned judgment passed by the ITAT soas to warrant interference by this Court inthis appeal. This appeal therefore fails and ishereby dismissed. (Mohammad Rafiq) J. (Jagdish Bhalla) CJ. //Jaiman//