Sind Medical Stores, Kota v. The Commissioner Of Income-Tax, Jaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR***JUDGMENT DB Income Tax Reference No.24/1992 Sind Medical Stores, Kota vs The Commissioner of Income-tax, Jaipur Judgment reserved on ::: 16[th] October, 2014 Judgment pronounced on ::: 12[th] November, 2014 PRESENTHON'BLE MR. JUSTICE AJAY RASTOGI.HON'BLE MR. JUSTICE J.K. RANKA. Mr. PK Kasliwal, for the petitioner.Mrs.Parinitoo Jain, for the respondent. By the Court : (Per Hon'ble Ranka, J.) 1.This income tax reference u/s 256(1) of the Income TaxAct (for short, 'IT Act') is directed against the order of IncomeTax Appellate Tribunal, Jaipur (for short, 'ITAT') and relates tothe assessment year 1994-95. 2.Following questions of law have been referred and arerequired to be answered by this Court:- 1.“Whether on the facts and in the circumstancesof the case the Tribunal was justified in holdingthat the benefit of peak credit could not beautomatically granted to the assessee?”of the case the Tribunal was justified in holdingthat the benefit of peak credit could not beautomatically granted to the assessee?” 2“Whether on the facts and in the circumstances ofthe case the Tribunal was justified in holding thatwhen the fiction provided in section 69 of the I.T.Act comes into play, all unexplained expenditurehas to be added to the income of the assessee forsuch financial year?” 3.The counsel for the assessee does not press thequestion No.2 quoted above and thus this question is decidedagainst the assessee. 4.Brief facts, with reference to question No.1, is that theassessee being a partnership firm carried on business ofdealing in medicines on retail basis. On examination of booksof account, the Assessing Officer (for short, 'AO') had noticedthat certain goods purchased by the assessee from M/s. SurajMedical Stores were accounted for in cash book on later datesthan the date of bills. The AO further found that in the books ofM/s. Suraj Medical Stores, the credit for cash received was onthe same date when the bill was issued but in the books of theassessee, the payment was shown on a later date and onfurther verification, the AO found 31 such bills wherein thisdiscrepancy was noticed. Noticing this discrepancy, the AOraised a query as to why the addition of Rs. 28,576/- be notmade which were the totals of aforesaid purchases. 5.The assessee explained that the purchases from the localseller are accounted when they make payment, as per theprevailing system in the business and as regards mode forcash purchases, the seller sends the bill and assessee makespayment whether on single bill and couple of bills collected atone point of time and entries are made in the cash book whenthe amount is actually paid in cash. It was further narrated by the assessee that in so far the assessee is concerned there isno discrepancy but if there is any it may be in the books of M/s.Suraj Medical Stores who made entries in advance. TheAssessing Officer has also made an independent query fromM/s. Suraj Medical Stores who however was firm in their standand noticing this fact the Assessing Officer made an addition ofRs. 28,576/- u/s 69 of Income Tax. 6. Similarly, the Assessing Officer being not satisfied with the trading result also made a trading addition of Rs. 28,934/-by invoking provision of section 145 of Income Tax Act as theassessee did not maintain day to day stock register andaccordingly ordered for addition of Rs. 28,934/- 7. Dissatisfied with the two additions of Rs. 28,934/- and the assessee that in so far the assessee is concerned there isno discrepancy but if there is any it may be in the books of M/s.Suraj Medical Stores who made entries in advance. TheAssessing Officer has also made an independent query fromM/s. Suraj Medical Stores who however was firm in their standand noticing this fact the Assessing Officer made an addition ofRs. 28,576/- u/s 69 of Income Tax. 6. Similarly, the Assessing Officer being not satisfied with the trading result also made a trading addition of Rs. 28,934/-by invoking provision of section 145 of Income Tax Act as theassessee did not maintain day to day stock register andaccordingly ordered for addition of Rs. 28,934/- 7. Dissatisfied with the two additions of Rs. 28,934/- and Rs.28,576/- the matter was carried in appeal before the CIT(A). While CIT(A) in so far as the trading addition is concernedsustained rejection of books of accounts and affirmed totaladdition of Rs.5,000/- but in so far as the addition on accountof cash purchases under section 69 is concerned did not agreewith the contention of the assessee and approved finding of theAssessing Officer. However alternative argument of theassessee was accepted that only peak of these credits shouldhave been taken and directed to the Assessing Officer to addonly the peak amount and allowed consequential relief. 8.Dissatisfied with the relief granted by the CIT(A) onaccount of peak credits addition only, the respondent department carried the matter in appeal before the ITAT whichallowed the appeal of the revenue and upheld the addition ofRs. 28,576/- and held that the benefit of peak credit cannot begiven to the assessee automatically and that too particularlywhere the assessee having denied any such investmentoutside the books of accounts. 9.Counsel for the assessee has contended that the additionof Rs. 28,576/- was unjustified and the assessee was followingthe system of accounting for the purchases when the paymentis made and such system was being followed on regular basisand on account of smallness of transaction entries were madeonly when the amount was actually paid towards the purchasesof such medicine from M/s. Suraj Medical Stores. He furthercontended that the addition if any has to be in the light ofjudgment rendered by the Hon'ble Apex Court in the case ofAnantharamVeerasinghaiah&Co. vs.Commissioner of Income Tax (1980) 123 ITR457 (SC)andjudgment of this court in the case ofCommissioner of Income Tax Vs. TyaryamalBalchand (1987) 165 ITR 453 (Raj.) wherein thebenefit of peak credit was allowed as the same fund hasrotated and therefore, the addition of Rs. 28,576/- in the light ofaforesaid judgments could not have been made and theTribunal wrongly sustained the addition ignoring the peak credittheory propounded by the Hon'ble Apex Court and this Court. He has limited his argument that the question is squarelycovered by the judgment of the Hon'ble Apex Court andjudgment of this Court. 10.Per contra ld. counsel for the Revenue has contendedthat the Tribunal has rightly discarded this theory of theassessee and automatic benefit of peak credit cannot be givento the assessee and that too particularly in the present casewhen the assessee himself denied having investment outsidethe books of accounts and thus contended that this view ofTribunal is correct and reference is required to be answered infavour of the Revenue. He has limited his argument that the question is squarelycovered by the judgment of the Hon'ble Apex Court andjudgment of this Court. 10.Per contra ld. counsel for the Revenue has contendedthat the Tribunal has rightly discarded this theory of theassessee and automatic benefit of peak credit cannot be givento the assessee and that too particularly in the present casewhen the assessee himself denied having investment outsidethe books of accounts and thus contended that this view ofTribunal is correct and reference is required to be answered infavour of the Revenue. 11.We have considered the rival submissions advanced byld. counsel for the parties and in our view, arguments of ld.counsel for the assessee have force that the items purchasedby the assessee were on short interval from M/s. Suraj MedicalStores and upon perusing the chart given in the assessmentorder it transpires that so called purchases or unaccountedpurchases which the Assessing Officer has held are shown tobe purchased on 01/04/1983, 08/04/1983, 18/04/1983,20/04/1983 & 30/04/1983 and so on and so forth and theseare at short intervals therefore, in our view, funds rotated andbenefit of peak credit theory can be invoked and entire additioncannot be made. The Hon'ble Apex Court in the case ofAnantharam Veerasinghaiah & Co. (supra) observed thatsecret profit or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even thoughconcealed from which the assessee may draw subsequently and it has been held as under: “Now it can hardly be denied that when an"intangible"addition is made to the book profitsduring an assessment proceeding, it is on the basisthat the amount represented by that additionconstitutes the undisclosed income of the assesseeThat income, although commonly described as"intangible", is as much a part of his real incomeas that disclosed by his account books. It has thesame concrete existence. It could be available tothe assessee as the book profits could be. InLagadapati Subha Ramaiah v. CIT, [1956]30ITR593, the Andhra Pradesh High Courtadverted to this aspect of secret profits and theiractual availability for application by the assessee.That view was affirmed by the Madras High Courtin S. Kuppuswami Mudaliar v. CIT, [1964] 51I.T.R. 757. There can be no escape from the propositionthat the secret profits or undisclosed income of anassessee earned in an earlier assessment year mayconstitute a fund, even though concealed, fromwhich the assessee may draw subsequently formeeting expenditure or introducing amounts in hisaccount books. But it is quite another thing to saythat any part of that fund must necessarily beregarded as the source of unexplained expenditureincurred or of cash credits regarded during asubsequent assessment year. The mere availabilityof such a fund cannot, in all cases, imply that theassessee has not earned further secret profitsduring the relevant assessment year. Neither lawnor human experiences guarantees that anassessee who has been dishonest in oneassessment year is bound to be honest in asubsequent assessment year. It is a matter forconsideration by the taxing authority in each casewhether the unexplained cash deficits and the cashcredits can be reasonably attributed to a pre-existing fund of concealed profits or they arereasonably explained by reference to concealedincome earned in that very year. In each case thetrue nature of the cash deficit and the cash creditmust be ascertained from an overall considerationof the particular facts and circumstances of the case. Evidence may exist to show that reliancecannot be placed completely on the availability of apreviously earned undisclosed income. A numberof circumstances of vital significance may point tothe conclusion that the cash deficit or cash creditcannot reasonably be related to the amountcovered by the intangible addition but must beregarded as pointing to the receipt of undisclosedincome earned during the assessment year underconsideration. “ 12. This court in the case of Commissioner of Income Tax Vs. Tyaryamal Balchand (supra),after relying onseveral judgments, also upheld the finding about peak credittheory. This Court in CIT Vs. Ishwardas Mutha (2004) 270 ITR597 (Raj.) also accepted the contention to take into account,the peak credit. When any amount is paid, later withdrawn fromthe books, would be available for recycling and rotation, unlessotherwise established as invested elsewhere by the Revenue.We hold the assessee was entitled to the benefit of peak creditwhich ought to have been allowed instead of making separateaddition of entire amount. However, we may observe that theAssessing Officer has to come to a definite finding that theamount withdrawn was used by the assessee in any otherexpenditure or investment. If the Assessing Officer comes to afinding that withdrawn amount was used or spent by theassessee for any other investment or expenditure than thebenefit of peak of such credit, in such circumstances, may notbe available. 13.Accordingly, the question of law No.1 is answered in affirmative in favour of the assessee with the above saidobservations. So far as question No.2 is concerned, it being notpressed by the assessee, is decided in favour of revenue. Weanswer accordingly. No order as to costs. [J.K. RANKA],J. ,J. om Certificate:All corrections made in the judgment/order havebeen incorporated in the judgment/order being e-mailed.Om Prakash PA