Sri Sanjay Saha v. Commissioner Of Income Tax,Kolkata- Xii

OD-3 ITA/167/2010 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (Income Tax)ORIGINAL SIDE SRI SANJAY SAHA -Versus- COMMISSIONER OF INCOME TAX,KOLKATA- XII BEFORE :THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIAndTHE HON’BLE JUSTICE RAJARSHI BHARADWAJDate : 12[th] December, 2023 Appearance:Ms. Anupa Banerjee, Adv.…for the appellant. Mr. Amit Sharma, Adv....for the respondent....for the respondent. 1.Supplementary paper book filed today by the assessee istaken on record.2.Heard Ms. Anupa Banerjee, learned counsel for theappellant/assessee and Mr. Amit Sharma, learned standingcounsel for the respondent/Income Tax Department. Facts: 3.Briefly stated facts of the present case are that theassessee is engaged in trading (export and domestic) of various commodities. During the assessment year inquestion i.e., A.Y. 2005-06, the appellant/assesseereceived gift of jewellery valued at Rs.34,68,900/- whichwas introduced as capital in the business. Out of theaforesaid jewellery, the assessee sold jewellery valued atRs.9,00,000/- to M/s. Bhootnath Jewelers (P) Limited andreceived two cheques of State Bank of India, BurrabazarBranch, Kolkata being cheque no.572020 of Rs.5,00,000/-dated 17[th] January, 2005 and another cheque no.572022 ofRs.4,00,000/- dated 4[th] February, 2005. During the courseof assessment proceedings, the assessing officer enquiredthe said sale of jewellery. He also made enquiries fromthe State Bank of India, Burrabazar Branch with respect tobank account No.10461496292 whereas both the aforesaidcheques bear account No.01000060015. However, theassessing officer rejected the contention of the assesseeand added the entire Rs.9,00,000/- in the income of theassessee under Section 68 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act, 1961’).4.The Commissioner of Income Tax (Appeals) [CIT(A)] upheldthe aforesaid addition. 5.The second addition was made by the assessing officer inthe Gross Profit (GP) Rate disclosed by the assessee. Theassessee disclosed GP Rate of 4.6% and export turn-over of Rs.20,96,65,679/- and domestic sales of Rs.58,34,015/-.The assessing officer increased the GP Rate from thedisclosed rate of 4.6% to 6% and thus, made an addition ofRs.30,19,867/- in the income of the assessee. 6. 6.Being aggrieved, the assessee filed first appeal beforethe CIT(A), who determined the GP Rate to 5% and sustainedthe addition under Section 68 of the Act, 1961.7.Aggrieved, the revenue filed ITA No.1809/Kol/2009 and theassessee filed ITA/2002/Kol/2009 before the Income TaxAppellate Tribunal (ITAT), Bench-B, Kolkata which weredecided by the impugned common order dated 23[rd] April,2010. By the impugned common order, the ITAT dismissed theappeal of the revenue and partly allowed the appeal filedby the assessee. The Tribunal made ad hoc addition ofRs.4,00,000/- in the GP rate disclosed by the assessee andsustained the addition of Rs.9,00,000/- under Section 68of the Act, 1961.8.Aggrieved with the order of the ITAT, the assessee filedthe present appeal under Section 260A of the Act, 1961.It is stated by learned counsel for the respondent thatthe Income Tax Department has not filed any appeal againstthe impugned order of the Tribunal. Submission on behalf of the Appellant/Assessee: Submission on behalf of the Appellant/Assessee: 9.Learned counsel for the appellant submits that theaddition on the point of GP Rate is totally baseless andwithout reference to any adverse material on record. Theonly thing which has been made the basis is the earlieryear GP rate whereas each year being an independent unitof assessment, addition solely on account of earlieryear’s GP Rate cannot be made. She submits that it isundisputed that the turn-over of the assessee hassubstantially increased during the assessment year inquestion and, as such, a little reduction in GP rate is anatural outcome. With respect to the addition underSection 68 of the Act, 1961, she submits that there was nobasis to make this addition inasmuch the gift ofjewellery, sale of jewellery and receipt of sale proceedsthrough account payee cheques have neither been disputednor the assessing officer could bring on record anymaterial to disbelieve the transaction. The assessingofficer made enquiries from the bank with respect to abank account which has no relation or concern with thecheque issued by the purchaser to the petitioner asconsideration for sale of jewellery by the assessee. She,therefore, submits that the assessee’s explanation couldnot have been rejected. Consequently, the addition madeby the assessing officer as upheld by the Tribunal under Section 68 of the Act, 1961 is totally arbitrary andillegal. She further submits that the finding recorded bythe Tribunal with respect to the cheques and the bankaccount, is perverse inasmuch as the cheques received bythe assessee in consideration of the jewellery sold are ofa different bank account and not the bank account whichwas enquired by the assessing officer. Therefore, thefinding recorded by the Tribunal is perverse and deservesto be set aside. She submits that both the substantialquestions of law deserve to be answered in favour of theassessee and against the revenue and the appeal deservesto be allowed. Submission on behalf of the Respondent/Revenue: 10.Learned counsel for the respondent/revenue submits thatthe ad hoc addition made by the Tribunal with respect toGP rate disclosed by the assessee is quite genuine and itdoes not suffer from any perversity. Therefore, nointerference in appeal under Section 260A of the Act, 1961can be made and no substantial question of law is, infact, involved. He submits that since the assessee hascompletely failed to establish the transaction of sale ofjewellery of Rs.9,00,000/-, therefore, the addition madeunder Section 68 of the Act, 1961 is quite correct and it does not give rise to any substantial question of law.The finding recorded by the Tribunal in this regard is thefindings of fact. Discussion & Findings: 11.We have carefully considered the submissions of learnedcounsels for the parties and perused the records ofappeal.counsels for the parties and perused the records ofappeal. 12.This appeal was admitted on the following substantialquestions of law;questions of law; (i)Whether in the facts and circumstances of theinstant case, the Tribunal was justified in makingan ad hoc addition of Rs.4,00,000/- to the grossprofit computed by the assessee without assigningany reason, having disagreed with the order ofassessment and appellate authority rejecting thegross profit percentage adopted by the assesseeand the findings of the Tribunal to this extent isarbitrary, unreasonable and perverse ?instant case, the Tribunal was justified in makingan ad hoc addition of Rs.4,00,000/- to the grossprofit computed by the assessee without assigningany reason, having disagreed with the order ofassessment and appellate authority rejecting thegross profit percentage adopted by the assesseeand the findings of the Tribunal to this extent isarbitrary, unreasonable and perverse ? (i)Whether in the facts and circumstances of theinstant case, the Tribunal was justified in makingan ad hoc addition of Rs.4,00,000/- to the grossprofit computed by the assessee without assigningany reason, having disagreed with the order ofassessment and appellate authority rejecting thegross profit percentage adopted by the assesseeand the findings of the Tribunal to this extent isarbitrary, unreasonable and perverse ?instant case, the Tribunal was justified in makingan ad hoc addition of Rs.4,00,000/- to the grossprofit computed by the assessee without assigningany reason, having disagreed with the order ofassessment and appellate authority rejecting thegross profit percentage adopted by the assesseeand the findings of the Tribunal to this extent isarbitrary, unreasonable and perverse ? (ii)Whether in the facts and circumstances of theinstant case, the order of the Tribunal, incomplete disregard of the evidences produced bythe assessee, was justified in making an additionof Rs.9,00,000/- under Section 68 of the Act andthe findings of the Tribunal to this extent isarbitrary, unreasonable and perverse ?instant case, the order of the Tribunal, incomplete disregard of the evidences produced bythe assessee, was justified in making an additionof Rs.9,00,000/- under Section 68 of the Act andthe findings of the Tribunal to this extent isarbitrary, unreasonable and perverse ? Re: Substantial question of law No.(i) 13.We find that the Tribunal itself has recorded a findingthat sale turn-over of the assessee has substantiallyincreased during the assessment year in question. Nomaterial has been produced or brought on record by therevenue which may give rise to disbelieve the GP ratedisclosed by the assessee. The assessing officer hasdetermined the GP rate at 6% as against the disclosed GPrate of 4.6%, which was reduced by the CIT(A) to 5%. TheITAT has further reduced it and made an ad hoc addition ofRs.4,00,000/- to the Gross Profit. The revenue hasaccepted the impugned order of the Tribunal, but theassessee being aggrieved with the ad hoc addition ofRs.4,00,000/- to the GP rate has filed the present appeal.No reason whatsoever has been assigned by the Tribunal tosustain the addition of Rs.4,00,000/- in the GP rate ofthe assessee. Under the circumstances, the finding of theITAT that ad hoc addition of Rs.4,00,000/- to thedisclosed GP rate of the assessee would be reasonable andfair, is based on no material. Even the Tribunal has notrecorded any finding based on any material so as todisbelieve the GP rate disclosed by the assessee. Underthe circumstances, the ad hoc addition made by theTribunal to the GP of the assessee is wholly arbitrary andbased on no evidence, consequently, it cannot be sustained. Therefore, the substantial question of lawno.(i) is answered in favour of the assessee and againstthe revenue. The addition of Rs.4,00,000/- made by theTribunal is hereby set aside. Re: Substantial question of law No.(ii) 14.From the brief facts as noted above, it is evident thatthe revenue has not disputed receipt of gift of jewelleryby the assessee during the assessment year in question tothe tune of Rs.34,68,900/-. Out of the aforesaid giftedjewellery the assessee has sold jewellery valued atRs.9,00,000/- and filed documents in support of sale ofjewellery. The assessee received payment through twoaccount payee cheques as briefly noted above. The sale ofjewellery was made to a private limited company. Nofinding has been recorded by the assessing officer or theTribunal that the purchaser i.e., M/s. Bhootnath Jewellers(P) Ltd. is non-existent or is not a registered company oris a fake company. The enquiries which the assessingofficer made from the bank is with respect to some otherbank account and not the bank account of which theassessee received two cheques in consideration of thejewellery sold. Neither any material was brought onrecord nor any finding based on any material could berecorded by the assessing officer or the Tribunal to dispute the transaction of sale of jewellery. No findinghas been recorded by the assessing officer or the Tribunalthat M/s. Bhootnath Jewellers (P) Ltd. is a fake concernor the transaction of sale is fake. Under thecircumstances, the explanation submitted by the assesseefor receipt of consideration for sale of jewellery throughaccount payee cheques could not be disbelieved. Thefindings recorded by the Tribunal to uphold the additionof Rs.9,00,000/- under Section 68 of the Act, 1961 is,thus, perverse. 15.Bare reading of Section 68 of the Act, 1961 suggests thatthere has to be credit of amount in the books maintainedby the assessee during the assessment year relevant to theprevious year and the assessee could not offer explanationabout the nature and source of such credit found in thebooks or the explanation offered by him is notsatisfactory. It is only then the sum credited may becharged to income tax as income of the assessee of thatprevious year. The phrase “the assessee offers noexplanation about the nature and source or the explanationoffered by him is not satisfactory in the opinion of theAssessing Officer satisfactory” means that the assesseeoffers no proper, reasonable and acceptable explanation asregards the sum found credited in the books maintained by him. But where the assessee had offered explanationsupported by documentary evidences including receipt ofpayment by cheque and the genuineness of the cheque or theparty to whom the jewellery were sold, could not bedisputed by the department based on any evidence oradverse material then Section 68 of the Act, 1961 couldnot be invoked. The opinion of the Assessing Officer fornot accepting the explanation offered by the assessee asnot satisfactory is necessarily required to be based onproper appreciation of material and other attendingcircumstances available on record. The Assessing Officerhas to form his opinion objectively with reference to thematerials available on record and not merely on surmisesand conjecture. Application of mind is a sine qua non forframing the opinion of the Assessing Officer. Since in thepresent set of facts the assessee has offered properexplanation based on documentary evidences and theevidences so filed by the assessee were not found to bein-genuine or fake, therefore, genuineness of the saletransaction of jewellery by the assessee could neither bedisputed nor Section 68 of the Act, 1961 could be invokedto make addition in the income of the assessee. The legalproposition with respect to applicability of Section 68 ofthe Act, 1961 has also been settled by the Hon’ble Supreme Court in Commissioner of Income Tax Vs. P. Mohanakalareported at AIR 2007 SC 2116 (paragraph 15) which alsohelps the assessee in the present set of facts. Therefore,the addition of Rs.9,00,000/- upheld by the Tribunalcannot be sustained and is hereby set aside. Thesubstantial question of law no.(ii) is answered in favourof the assessee and against the revenue.For the reasons afore-stated, the impugned order dated 23[rd]April, 2010 in ITA No.1809/Kol/2009 (A.Y. 2005-06) passedby the Income Tax Appellate Tribunal, Bench- B, Kolkata,is hereby set aside and the appeal of theappellant/assessee is allowed. Both the substantialquestions of law are answered in favour of the assesseeand against the revenue. (SURYA PRAKASH KESARWANI, J.) (RAJARSHI BHARADWAJ, J.) As. A.F.R.