Sushil Kumar v. Commissioner Of Income Tax, Karnal

IN THE HIGH COURT FOR THE STATES OF PUNJAB ANDHARYANA AT CHANDIGARH 1. ITA No.86 of 2012 (O&M) Sushil Kumar ... Appellant v. Commissioner of Income Tax, Karnal ... Respondent 2. ITA No.87 of 2012(O&M) Naresh Kumar Jain ... Appellant v. Commissioner of Income Tax, Karnal ... Respondent Date of decision: August 01, 2013. CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLAHON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Shri Pankaj Jain, Advocate for the appellant. , J. Dr. Bharat Bhushan Parsoon These two income tax appeals under Section 260Aof the Income Tax Act, 1961 (for short, the 1961 Act) aredirected against order of the Income Tax Appellate Tribunal,Chandigarh Bench-A, Chandigarh passed in ITA No.718/CHD/2011 dated 28.9.2011 for assessment year 2007-08. Both these appeals are being decided by thiscommon judgment as matter in issue to be adjudicated is thesame. For convenience and clarity, facts have been taken from ITA No.86 of 2012 and decision is being rendered in both thesaid appeals. Facts of the case: The appellant, who is a proprietor of the firm, is acommission agent, engaged in the business of trading infoodgrains. On 19.1.2007, a survey under Section 133-A of the1961 Act was carried out on the business premises of theappellant. During the course of survey proceedings vide letterAnnexure A-1, there was surrender of an amount of Rs.6.00lacs. Later on, the said amount was disclosed by the assesseeby crediting it in profit and loss account vide Annexure A-2.Return of income was filed by the assessee declaring anincome of Rs.87,997/-. Scrutiny proceedings which wereinitiated by way of issuance of notices under Sections 143(2)and 142(1) of the 1961 Act culminated in assessment at anamount of Rs.29,93,210/- vide order dated 30.12.2009(Annexure A-4) . Aggrieved by this assessment order, challenge tothe same was made before the Commissioner of Income Tax(Appeals), Karnal. Accepting some of the pleas of theappellant- assessee, his appeal was partly allowed vide orderdated 28.3.2011 (Annexure A-6). This order wasunsuccessfully challenged by the assessee as also by therevenue. Order of the Income Tax Appellate Tribunal is of28.9.2011 (Annexure A-8) vide which the appeal was dismissedwhile appeal of the assessee was partly allowed. The present Income Tax Appeal has been preferredby the assessee raising the following questions of law:- Questions of law proposed by the Assessee: “1. Whether under the facts and circumstances ofthe case, the Tribunal order is sustainable in lawwhile upholding the action of the Assessing Officerfor rejection of books of accounts u/s 145(3)? 2. Whether under the facts and circumstances of thecase, the Tribunal order is sustainable in law bydismissing the appeal of the assessee for upholdingthe addition of Rs.3,39,954/- out of Rice PermalAccount and Rs.1,97,364/- out of Rice sold out ofState Account, which is contrary to the material onrecord? 3. Whether the decision of CIT vs. Ram Sanehi GianChand, (1972)86 ITR 724 (P&H) is a bindingprecedent for the proposition of law regardinggetting the 'advantage of surrendered amount'against the amount deposited in banks on variousdates after the date of surrender?” When the matter is analyzed in the interface of allthe facts of the case, it transpires that the proposed questionsof law neither concern law nor have legal implications; ratherthe entire dispute in these appeals revolves around only thefactual matrix and in fact have no connection with law.Plea of the Assessee: 3. Whether the decision of CIT vs. Ram Sanehi GianChand, (1972)86 ITR 724 (P&H) is a bindingprecedent for the proposition of law regardinggetting the 'advantage of surrendered amount'against the amount deposited in banks on variousdates after the date of surrender?” When the matter is analyzed in the interface of allthe facts of the case, it transpires that the proposed questionsof law neither concern law nor have legal implications; ratherthe entire dispute in these appeals revolves around only thefactual matrix and in fact have no connection with law.Plea of the Assessee: Contention of the assessee is that his books ofaccounts were wrongly rejected whereas those weremaintained by it in the regular course of business. It is claimedthat corresponding account books of the parties (to whom saleof paddy and rice was made) had also been gone through bythe Assessing Officer and no defect was found therein evenafter cross verification from the delivery and transit challans of form ST-38, as also on verification of payments from the bankaccounts. It is further averred that the method of market valueof the sold rice adopted by the Assessing Officer was wrong asin such a case, rate of parties would generally differ. It iscontended that due to financial constraints andalso the factthat the appellant-firm had suffered losses in the past someyears, the assessee had sold its stock at the price, whatsoeverbecame available in the market so as to clear the stocks.Plea of the Revenue: Whereas plea of the revenue per contra is that theassessee had fudged the accounts and that it had also beenindulging in under-billing. It is explained that neither books ofaccounts of the assessee could be tallied with thecorresponding entries from the traders with whom it had beentransacting business nor from the allied agencies of sales taxDepartment as also from the banks. Appraisal of rival claims – discussion follows: When rival claims of the parties are examined onthe canvass of stark facts, it is found that the assessee duringsurvey operations had declared an additional income of Rs.6.00lacs over and above his normal profits. During the survey,certain books of accounts and other documents of the assesseewere also impounded. It was revealed that the assessee hadnot been maintaining books of accounts. It had also notaccounted for the incriminating documents. Sequelly,correctness and genuineness of the books of accounts of the assessee had rightly come under a question-mark. When no regular books of accounts e.g. cash book,ledger etc. had been produced by the assessee on the date ofsurvey, it is evident that these books were prepared later onso as to derive credit from concealed income and were productof an afterthought. Invoking provisions of Section 145(3) of theAct, the Assessing Officer had come to a firm finding that noreliance could be placed on the entries in the said books ofaccounts of the assessee. Many defects were noticed andpointed out in such books of accounts of the assessee and assuch actual gross profits could not be deduced from thosebooks. As a consequence, the Assessing Officer taking theaverage rate of rice to be Rs.1,063/- per quintal had taken totalsale value of the rice i.e., 1464.44 quintals, to beRs.15,56,700/- as against Rs.9,52,992/- shown by the assesseeand as a result, difference of Rs.6,03,708/- was added to theincome of the assessee on account of low selling rate of riceshown by the assessee towards taxable income. Similarly, on account of rice (O/S), the assessee hadshown the sale of 1954.10 quintals for Rs.16,09,357/- @Rs.824/- per quintal, whereas the assessee itself hadpurchased such rice @ Rs.1,047.20 per quintal. The AssessingOfficer had found that when the assessee had purchased thisquality of rice at a higher rate, it could not have sold the sameat lower rate of Rs.824/- per quintal. Conclusion drawn byAssessing Officer was that the assessee had shown lower Similarly, on account of rice (O/S), the assessee hadshown the sale of 1954.10 quintals for Rs.16,09,357/- @Rs.824/- per quintal, whereas the assessee itself hadpurchased such rice @ Rs.1,047.20 per quintal. The AssessingOfficer had found that when the assessee had purchased thisquality of rice at a higher rate, it could not have sold the sameat lower rate of Rs.824/- per quintal. Conclusion drawn byAssessing Officer was that the assessee had shown lower selling rate with a difference of Rs.101/- per quintal, of 1954.10quintals of rice for which the difference came to Rs.1,97,364/-.The assessee had not been able to explain this difference.Accounts books of the debtors having business with theassessee were found to be divergent with the entries of thebooks of accounts of the assessee. Consequently, finding thatthe assessee had concealed income to the extent ofRs.1,97,364/-, the same was added in its income for thepurpose of tax. Certain incriminating documents had also beenfound in the premises of the appellant-assessee during thecourse of survey proceedings and those were then impounded.Transactions recorded in the said incriminating documentswere found to be worth Rs.12,94,775/-. Reply filed by theassessee was not found to be genuine and acceptable as nodetails of purchase, sale, quantity and rate of such recordedtransactions were given. Sequelly, addition of Rs.12,94,775/-was disallowed under Section 69 of the Act and the saidamount was added towards taxable income. It was also found from certain other incriminatingdocuments that certain transactions had been found recordedtherein, for which there was no corresponding entries availablein the books of accounts of the assessee. Sequelly, differenceof Rs.2,68,504/- was disallowed under Section 69 of the Actand was added to the income of the assessee. On submission of income tax return by the assessee after the survey proceedings, it was noticed that the assesseehad deposited Rs.10.30 lacs in cash, as per details givenhereunder:- Plea of the assessee on this count was that entriesfrom No.1 to 3 pertained to surrendered income, whereas entryNo.4 showed cash received from a trader for consignment senton 15.3.2007. When called upon to explain, the assesseecould not furnish any acceptable explanation as to how thecash shown in the table as above, was generated. It wasexplained by the assessee that receipt of Rs.5.00 lacs on16.3.2007 was on account of advance taken from a trader forwhom goods had been consigned for sale. Sequelly, cash tothe tune of Rs.5.30 lacs remaining unexplained was taken asincome from undisclosed source under Section 68 of the Actand was added to the income account of the assessee. From the incriminating documents impoundedduring the course of survey, certain bills were found in cashpurchase exceeding Rs.20,000/- but those had not been shownby the assessee in its books of accounts, details thereof are asunder:- When the assessee was called upon to explain as towhy 20% of the cash purchase made by it from said partiesshould not be disallowed under Section 40A(3) of the Act, nosatisfactory explanation could be furnished. Thus, a sum ofRs.10,860/-, i.e., 20% of Rs.54,300/- was held to be in violationof the provisions of Section 40A(3) of the Act and wasdisallowed in respect of expenditure incurred in cash onaccount of freight paid. In short, following additions were made in the income of the assessee:- (i) Rs.6,03,708/-(ii) Rs.1,97,364/-(iii) Rs.12,94,775/-(iv) Rs.2,68,504/-(v) Rs.5,30,000/-(vi) Rs.10,860/- Additional income surrendered by the assesseeunder Sections 69 of the 1961 Act was Rs.6.00 lacs. For such additions made in income of the assessee,penalty proceedings under Section 271(1)(c) of the Act hadalso been started against the assessee for furnishinginaccurate particulars of income in its returns. In short, following additions were made in the income of the assessee:- (i) Rs.6,03,708/-(ii) Rs.1,97,364/-(iii) Rs.12,94,775/-(iv) Rs.2,68,504/-(v) Rs.5,30,000/-(vi) Rs.10,860/- Additional income surrendered by the assesseeunder Sections 69 of the 1961 Act was Rs.6.00 lacs. For such additions made in income of the assessee,penalty proceedings under Section 271(1)(c) of the Act hadalso been started against the assessee for furnishinginaccurate particulars of income in its returns. Out of these additions made by the AssessingOfficer, Commissioner of Income Tax (Appeals) had completelyapproved additions only in respect of serial No.(v) and (vi) andhad partly allowed in respect of items at sr. No.(i) and (ii). During the course of appeal proceedings, it wasnoticed by the Commissioner of Income Tax (Appeals) that therice had been sold for more than the purchase price except for sale made on 4.3.2007, i.e., subsequent to the date of survey.In short, there was no justification offered by the assessee forsale of rice @ Rs.630/- per quintal which had been purchasedby it during the year itself for Rs.925/- per quintal. TheAssessing Officer had taken the sale price of the rice to beRs.1,035/- but the CIT(A) had rejected the said price and hadtaken the rice to be sold for Rs.931/- per quintal. Accepting theplea of the assessee to this extent, the Commissioner ofIncome Tax (Appeals) had remitted this matter to the AssessingOfficer for working out the additions on this count. Additionsmade as per details at Sr.No.(iii) and (iv) on the back pagewere deleted. So far as addition of Rs.5.30 lacs mentioned atSr. No.(v) is concerned, it was confirmed. Addition mentionedat Sr. No.(vi) was affirmed. From the totality of facts and circumstances, it is aclear cut case of manipulation of books of accounts. At thetime of survey, books of accounts had not been found to havebeen written and these were prepared later on. Commissionerof Income Tax (Appeals) had been constrained to observe inpara 1.10 of its order as follows:- “1.10. In view of the facts discussed above, theonly inference which can be drawn is that the entireexercise was carried out just to set off the additionalincome declared during survey. Taking the enitretyof facts in consideration, the loss declared on sale ofopening stock of rice is held to be non genuine andhence is disallowed.” Again speaking about ingenuiness of books ofaccounts in para 3.4 of its order, the Commissioner of Income Tax (Appeals) had adversely commented against veracity ofentries in the books of accounts of the assessee, in thefollowing terms:- “3.4 As discussed above, that books of accounts ofthe year under consideration were not found to bewritten on the date of survey i.e. 19.01.2007. Theaccountant in the statement recorded during surveystated that no cash was available on the appellatefirm. Further no surrender was made on account ofunexplained cash. In view of this fact, cashintroduced in the cash book in the month of Marchcannot be said to be covered by the additionalincome of Rs.6 lakh declared during survey. Hadthe unexplained cash been available at the time ofsurvey, the same would have been specified in theletter of surrender of income filed by the appellantafter survey with the department. The plea of theappellant is, therefore, not tenable and hence cashof Rs.5.3 lakh introduced in the cash book in March2007 is held to be income from undisclosed ourcesand hence addition thereof made by the AO is,hereby, confirmed.” Before the Income Tax Appellate Tribunal, the assessee had not been able to put forth any defence, muchless strong enough, to persuade the said authority to return afinding in its favour except with regard to relief of Rs.10,860/-out of freight account. Before the Income Tax Appellate Tribunal, the assessee had not been able to put forth any defence, muchless strong enough, to persuade the said authority to return afinding in its favour except with regard to relief of Rs.10,860/-out of freight account. During the course of appeal proceedings in thisCourt, counsel for the assessee has made a vigorousendeavour to take us through the text of order ofCommissioner of Income Tax (Appeals) as also of Income TaxAppellate Tribunal to persuade us that the books of accountswere genuine and had periodically been got audited from anindependent agency and were also subject to scrutiny by thesales tax authorities as he was also a dealer having sales tax number as a dealer under Haryana VAT Act 2003 and Rulesthereof. The revenue, on the other hand, has asserted validityand legality of the impugned order of the Tribunal while castinggenuineness of books of accounts of the assessee. Notwithstanding some relief having been given byCommissioner of Income Tax (Appeals) to the assessee, itremains a fact that all the authorities right from the AssessingOfficer to the Tribunal have consistently held against thegenuineness of the books of accounts of the appellant.Relevant observations of Commissioner of Income Tax(Appeals) as also of Income Tax Appellate Tribunal havealready been reproduced in earlier part of this judgment. When questions of law framed by the assessee aremapped on the canvass of facts and circumstances of thiscase, it turns out to be clearly a case which has no legalimplications to be resolved and rather is entirely dependentupon fact situations which have adequately been dealt with bythe statutory authorities within the sweep and domain of theirjurisdiction. Conclusion: When the questions proposed by the appellant haveneither legal contours nor have any legal aspect to bediscussed, debated or decided or legal complications to beresolved, these questions framed in this appeal, cannot betermed as questions of law much less substantial questions oflaw. When Assessing Officer had rejected books of accounts of the assessee under Section 145(3) of the Act and this finding offact has been affirmed consecutively by the two statutoryappellate authorities which had then proceeded to deal withthe entries in such books of accounts under different heads andhad rendered their verdicts which have no potential forexposition of any legal theory or concept, the appeal is notmaintainable under Section 260A of the Act. In view of abovediscussion, we find that since no substantial question of lawarises for consideration in this appeal, this appeal is sequellydismissed. [Dr. Bharat Bhushan Parsoon] Judge August 01, 2013. kadyan [ Rajive Bhalla ] Judge