Sri Chitta Ranjan Bera v. Income Tax Officer, Ward-3,Haldia

O-85 ITA/26/2010 IN THE HIGH COURT AT CALCUTTA SPECIAL JURISDICTION (Income Tax)ORIGINAL SIDE SRI CHITTA RANJAN BERA -Versus- INCOME TAX OFFICER, WARD-3,HALDIA BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 17[th] February, 2023 Appearance :Mr. Ananda Sen, Adv.…for the appellant. Mr. Smarajit Roychowdhury, Adv.…for the respondent. The Court : This appeal filed by the assessee underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 11[th] September,2009 passed by the Income Tax Appellate Tribunal, “A” Bench,Kolkata (the Tribunal) in M.A. No.173/Kol/2008 for theassessment year 2004-05. The appeal was admitted on 11[th] February, 2010 on the following substantial questions of law: (i)Whether on the facts and in the circumstancesof the case, the order of the Learned Tribunal was erroneous in so far as it was perversehaving been passed without considering theground that the remand report furnished by therespondent before the C.I.T. (Appeals), wasignored by the CIT (Appeals)?(ii)Whether on the facts and circumstances of thecase the order of the Learned Tribunal waserroneous in so far as it fail to considerthat the order of the C.I.T. (Appeals) upheldthe addition on account of discrepancy instock even after mentioning that the remandreport did not mention any discrepancy inrespect of transaction with AnnapurnaFertilizers ?” We have heard Mr. Ananda Sen, learned Counsel for theappellant/assessee and Mr. Smarajit Roychowdhury, learnedstanding counsel for the respondent/revenue. The short issue which falls for consideration is whether the Commissioner of Income Tax (Appeals) was right inignoring the remand report furnished by the Assessing Officer.The issue related to the closing stock of the assessee iswhether the same was duly established during the assessmentproceedings. Admittedly, during the assessment the originalbooks of accounts were not produced as it is the assessee’scase that they were not traceable and a complaint was lodgedwith the police and FIR was also registered. When this waspointed out before the First Appellate Authority, the CIT(A) by proceedings dated 27[th] February, 2007 directing the AssessingOfficer to clarify the following issues: As regarding addition of Rs. 3,86,055/- on a/c. ofundisclosed investment in stock, you are requested toclarify: (i)Basis on which the stock was shown in the accounts?Whether the assessee was maintaining a stockregister and if so, the said stock register wasverified?Whether the assessee was maintaining a stockregister and if so, the said stock register wasverified? inspection report of the bank should be forwarded. The Assessing Officer in his remand report dated 20[th]March, 2007 clarified the issues in the following terms: As directed I am to report as under for your kind perusal – 1.(i) Sri Ghosh, during the course of hearing statedthat the assessee maintained stock register during therelevant period and stock shown in the account was as perstock register and stock summary enclosed with the auditreport reflects closing stock as on 31.3.2004. (ii) During the course of assessment proceedings the bankwas asked to furnish details in respect of CC A/cmaintained by the assessee. The bank inter-alia sent copy of inspection report which is enclosed herewith for yourready reference. (iii)9 (nine) copies of stock statement filed by theassessee and as forwarded by the bank are enclosedherewith. 2. Out of total cash payment of Rs. 3,07,650/- made inviolation of Sec. 40A(3) of the I.T. Act, on two occasionspayments were made on days the bank was closed. Rs.92,000/- was paid on 18.1.2004, which was Sunday and Rs.33,950/- was paid on 26.1.2004 i.e. on Republic Day. Thesepayments are covered under exception laid down in Rule6DD(k) of I.T. Rule. (ii) During the course of assessment proceedings the bankwas asked to furnish details in respect of CC A/cmaintained by the assessee. The bank inter-alia sent copy of inspection report which is enclosed herewith for yourready reference. (iii)9 (nine) copies of stock statement filed by theassessee and as forwarded by the bank are enclosedherewith. 2. Out of total cash payment of Rs. 3,07,650/- made inviolation of Sec. 40A(3) of the I.T. Act, on two occasionspayments were made on days the bank was closed. Rs.92,000/- was paid on 18.1.2004, which was Sunday and Rs.33,950/- was paid on 26.1.2004 i.e. on Republic Day. Thesepayments are covered under exception laid down in Rule6DD(k) of I.T. Rule. As could be seen from the remand report nine copies ofstock statement filed by the assessee as forwarded by the bankwere enclosed. Copy of the said internal inspection report ofthe bank has been annexed in the paper book from which it isseen that the stock statement as on 31[st ]October, 2004 valued atRs.23.37 lacs was also noted in the said report. However,when we perused the order passed by the CIT(A) dated 15[th]October, 2007 we find that there is absolutely no reference tothe remand report. The assessee at the earliest point of timei.e., during the course of the assessment, was confronted withthe question that on comparison of stock statement enclosedwith the report, vis-à-vis statement submitted before the bankas on 31[st] March, 2004 the stock declared in the bank washigher than in the account. Assessee’s explanation was that to enjoy cash credit limit, submission of stock statement beforethe bank is a routine affair and the same should not be takenseriously. It was further stated that the stock declared tothe bank purely on estimate basis and the bank relied upon thestock statement, granted cash credit facility and neverphysically verified whether physical stock tallies with thestock statement. The CIT(A) did not take into considerationthis aspect of the matter. The legal issue is as to whetherthe assessee could be taxed based upon the inflated stock shownin the stock statement submitted to the bank. This issue isno longer res integra and has been decided in the Commissionerof Income Tax vs. N. Swami reported in (2000) 241 ITR 363(Mad.). In the said decision it was held that the assessee’sincome is to be assessed by the income tax officer on the basisof the material which was required to be considered for thepurpose of assessment and ordinarily not on the basis of thestatement which the assessee may have given to a third partyunless there is material to corroborate that statement of theassessee given to a third party, even if it be a bank. It wasfurther held that mere fact that the assessee had made such astatement by itself cannot be treated as having resulted in anirrebuttable presumption against the assessee. The burden ofshowing that the assessee had undisclosed income is on therevenue. That burden cannot be said to be discharged by merely referring to the statement given by the assessee to a thirdparty in connection with the transaction which was not directlyrelated to the assessment and making that the sole foundationfor a finding that the assessee had deliberately suppressed hisincome. Further, it was held that the burden is on the revenueto prove that income sought to be taxed is within the taxingprovision and there was, in fact, income. The decision in N.Swami was followed in Commissioner of Income Tax vs. AcrowIndia Ltd. reported in (2008) 298 ITR 447 (Bom.). Thus, thelaw on the subject having been well-settled, it is the burdenupon the Assessing Officer to show that the assessee hadundisclosed income and merely by referring to a bank statementthe assessment could not have been completed. However, onfacts, the assessee’s case, is better placed. We say sobecause that the CIT(A) had called for a remand report and theremand report clearly brings out all the facts and alsoencloses the inspection report submitted by the bank whichreflects the correct details. Thus, the CIT(A) and the learned Tribunal hadcommitted an error in not accepting the case of the assessee. For the above reasons, the appeal filed by theassessee is allowed and the substantial questions of law areanswered in favour of the assessee. Consequently, the order of assessment passed by the CIT(A) as well as the order passed by the Tribunal are set aside. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) A/s./S.pal/s.chandra/s.das