Kesarwani Sheetalaya Sahson Vs DCIT (ITAT Allahabad)
Conclusion: Where there was difference of amount in question somewhere as per cash in hand as per books of account and lesser cash as per seized documents, it would also not suffice to make addition under section 68 or 69A because every person is at liberty to spend their own amount anywhere as per his choice and assessee had not claimed any deduction in this case. Examining the case of assessee from every possible angle, addition of Rs.37,30,710/- was wholly unjustified.
Held: Assessee was a partnership firm engaged in cold storage business with its head office at Sahson AO found that actual cash with the concerns of assessee was Rs.27,39,932.86/- whereas assessee had shown the cash at hand at Rs. 64,70,642.65/-, meaning thereby the cash amounting to Rs.37,30,709.79/- was unexplained. AO had observed that the excess cash shown in the balance sheet may either relate to bogus liability or unexplained cash from undisclosed source introduced by the partners. AO further remarked that assessee had not maintained regular books of a/c in the shape of cash book, ledger etc. The search & seizure action did not result in recovering any books of a/c from the business premises of the firm or from the residential premises of the partners of the firm. AO had treated Rs. 37,30,710/- as bogus liability and had made the additions u/s 68. It was held that it was not a case where money was not recorded in the books of account of assessee. Assessee maintained regular books of account in past, on which regular assessments had been framed, had not been disputed during the course of arguments. Merely because the books of account maintained by assessee were not found during the course of search was no ground to reject the books of account produced by assessee before AO. Since the balances were coming up from the earlier years, therefore, it was the duty of AO to have scanned the entire cash book in order to say that the cash balance shown in the books of account in hand at Rs.64.70 lacs was correct or not, but AO did not do any exercise and merely comparing the seized paper from the audit report made the addition. AO was not definite in his finding while making the addition because he was of the view that either the bogus liability had been created or unexplained cash had been introduced by the partners and for both the propositions, AO had not brought any evidence on record to substantiate his allegations. On the one hand, AO relied upon the balance sheet and the audit report prepared by assessee showing excessive cash in books and on other side considered the seized paper which had shown lesser cash in hand for the purpose of making addition. It was clear that AO had done only artificial working of lesser cash as against higher cash shown in the books of account of assessee. Therefore, it was neither a case of addition u/s. 68 nor section 69A. Examining the case of assessee from every possible angle, addition of Rs.37,30,710/- was wholly unjustified.
FULL TEXT OF THE ORDER OF ITAT ALLAHABAD
This appeal by the assessee is directed against the order of ld. CIT(A), Allahabad dated 06.08.2012 for the assessment year 2008-09 on the following grounds :
1. That in any view of the matter assessment order dated 28.12.2011 passed under Section 153A(b) of the Income Tax Act’ 1961 by the Assessing Officer and which is confirmed by the Commissioner of Income Tax (Appeal) vide order dated 06.05.2012 is highly unjustified and incorrect because both the lower authorities failed to consider real facts of the case and evidences brought on record and also failed to consider books of accounts, past records and cited cases.
2. That in any view of the matter the assessee maintained the books of account in the same manner and same fashion as adopted from the year of inception of the appellant firm which is a well recognized method of accounting and also accepted by the department year after year, therefore both the lower authorities while framing and confirming the orders/additions ignored the principles of consistency, hence the addition/ disallowances made are confirmed and unwarranted.
3. That in any view of the matter order dated 28.12.2011 passed under Section 153A(b) of the Income Tax Act vide which income as determined at Rs. 24,27,32,281/- is at all not correct as the same is not based on any incriminating material found in the course of search but based on presumption and surmises and wrong inferences drawn by ignoring all the Seized annexures which includes subsidiary books though entries were co-related with each book, hence the two lower authorities are wrong in making and maintaining the addition.
4. That in any view of the matter the undisclosed income was not determined on the basis of any search material and the Assessing officer simply proceeded as if it is a normal assessment and not on the basis of any search material, therefore section 153A of the Income Tax Act had no application to the facts of the case, hence the assessment is liable to be declared illegal.
5. That in any view of the matter addition of Rs. 37,30,710/- made based on Annexure A-3/1 which is a dumb and Waste document by working out an artificial figures which do not have relevancy to the working made by the assessing officer and her actions as confirmed by the Commissioner of Income Tax (Appeal) is unjustified and hence the addition is highly unwarranted.
6. That in any view of the matter observation of the assessing officer in para 7.2 of her order are totally incorrect and baseless as she failed to consider the true facts of the case. The Commissioner of Income Tax (Appeal) also recorded his observations with set-mind to confirm the addition of 37,30,710/- relying only upon assessment order which is wrong. Therefore the addition is unjustified.
7. That in any view of the matter addition of Rs. 23,31,28,321/- was made in arbitrary manner without any valid reason and by ignoring the explanations, and charts filed before the two lower authorities, hence the action of two lower authorities are not judicious in eyes of law. In making and confirming the addition the allegation of the two lower authorities that the partners of the appellant firm did potatoes business is totally wrong as no incriminating document or any additional evidence indicating any such potatoes business by the partners of the firm was found in the course of search nor the assessing officer brought any evidence on record that the partners were indulged in such potatoes business. Therefore in absence of any evidence two lower authorities were wrong in making and confirming the addition.
8. That in any view of the matter addition of Rs. 23,31,28,321/- was made by the assessing officer on flimsy and vague manner as the basis of the said addition was annexure P-11 & P-13 which are called BHANDARANNIKA SI-REGIS TER of which columns were filled in at the time of delivery of potatoes to the concerned constituents and the entries of such registers dully tallied with the entries of Annexure A-2/22, A-2/9 and A-1/1 to A-2/5 respectively which are the initial register written at the time of entry of the same potatoes in the cold storages having details in similar columns as the Annexure P-11 & P-13. Though the lower authorities verified the facts but ignored the truth of the verification and even no finding was recorded in their orders, hence the addition is unjustified and illegal in facts and circumstances of the case.
9. That in any view of the matter after submission of two sets of voluminous paper books before the Commissioner of Income Tax (Appeal) which contain written submission and chart explaining details of the facts of all the columns of all the aforesaid annexures, based on which a remand report was also called from the assessing officer. Even before submitting the remand report the concerned Assessing Officer examined and verified all the annexure together at a time in presence of appellant on 0 7.2012 and he found that the entries of the annexures correlate with each other and he admitted this fact in his order sheet also but the learned Commissioner of Income Tax (Appeal) failed to consider the same and even failed to make any finding in this regard in his order, hence the addition is wrong and unwarranted.
10. That in any view of the matter allegation made by the assessing officer that the partners were indulged in potatoes business by twisting the facts of Annexure P-11 & P-13 IS absolutely wrong and the so called investment and profit as worked out by the assessing officer is simply based on her own imagination and whims to justify the addition and also to mislead the higher authorities. The learned Commissioner of Income Tax (Appeal) also examined and verified all the above mentioned relevant annexures and found that entries/details of each annexure are tallying and the respective gate passes and rent receipts were also examined and he was fully satisfied. But in Commissioner of Income Tax (Appeal) ‘s order no reference of such examination and verification was given and by ignoring the facts the addition was confirmed which is highly unjustified and against the judicious approach, therefore the addition is incorrect.
11. That in any view of the matter the learned Commissioner of Income Tax (Appeal) is highly unjustified and incorrect in observing at page 61 of his order that the appellant could not substantiate the claim whenever the opportunity was given. Such observation of the Commissioner of Income Tax (Appeal) is totally false specially when in the Assessing Officer’s order sheet entry dated 23.07.2012, the Assessing Officer himself has admitted that the relevant annexures were verified and test checked. Therefore such observation of Learned Commissioner of Income Tax (Appeal) is nothing but only an attempt to give strength to his order by confirming the unjustified addition.
12. That in any view of the matter the learned Commissioner of Income Tax (Appeal) is totally wrong and incorrect in observing that on the basis of fresh queries raised by the assessing officer in the course of remand report the appellant failed to give explanation when the explanation was offered and is still available on Assessing Officer’s record, hence the addition is unwarranted. The entire addition is based on presumption of the two lower authorities by ignoring the facts and entries recorded in the books.
13. That in any view of the matter at page 6 of the assessment order the alleged investment of Rs. 21,08,69,838/- as worked out by the assessing officer is simply on the basis of seized papers which belongs to third party Mukhtar Ahmed who is neither employee of the firm nor has any connection any manner with the appellant firm nor the appellant was given any chance at any time to confront him nor his statement was recorded in presence of the appellant, therefore the entire concocted theory for making and confirming the addition is illegal and actions of the assessing officer as confirmed by the CIT(A) is also incorrect and unwarranted.
14. That in any view of the matter the alleged profit of Rs. 2,22,58,483/- as worked out by the assessing officer at page 6 & 7 of the assessment order is only an artificial and imaginary figure which has no value in the eyes of law specially when declared rental receipts from cold storage business have been accepted, therefore the two lower authorities were wrong in making and confirming the addition.
15. That in any view of the matter the learned Commissioner of Income Tax (Appeals) failed to give cognizance to the contents of the affidavit of the partner, past record of the appellant and failed to consider principle of consistency, disclosed rental receipts has been accepted year after year, no verification was done by the constituents kept their potatoes in cold storage, no discussion by the Commissioner of Income Tax (Appeals) on the explanation dated 22.08.2012, non consideration of paper book no. 2 hence the entire addition made and confirmed in first appeal is unwarranted.
16. That in any view of the matter disallowances of Rs. 3,01,703/- under the head diesel expenses made by the assessing officer and confirmed by the CIT (A) is highly unjustified specially when each and every item of purchases of diesel was recorded in books duly supported by the vouchers hence the disallowances is unwarranted.
17. That in any view of the matter disallowance of disallowances of diesel expense @ 10 % of the total purchase of Rs. 30,17,037/- is highly unjustified and incorrect specially when 90 % of the purchase was accepted, in past no such type of disallowances was made, no material about outside purchase of diesel was found in the course of search. Therefore the two lower authorities are wrong in making and confirming the additions.
18. That in any view of the matter disallowances of petrol expenses of Rs. 77,099/- out of petrol expenses by saying on account of personal use of car is highly unjustified in the facts and circumstances of the case.
19. That in any view of the matter disallowance of Rs. 1,17,246/- under the head depreciation on car for personal use is highly unjustified in the facts and circumstances of the case.
20. That in any view of the matter addition of Rs. 5,47,928/- on account of addition under the head building is highly unjustified and the addition has been made simply on the basis of DVO’s report only which is not a gospel truth especially when expenditures are recorded in regular books and without rejecting the books the addition is unwarranted.
21. That in any view of the matter reference to DVO is not correct in so for as in the course of search operation no incriminating material! document what so ever was found, hence the reference is unwarranted and unjustified.
22. That in any view of the matter the penal interest under Section 234A, 234B, and 234C of the Income Tax Act is incorrect and before charging interest no opportunity of being heard was allowed to the appellant nor any working of charging of interest was provided to the appellant and the penalty notice under Section 271 (1)(C) has also been wrongly issued as no income concealed.
23. That in any view of the matter the appellant reserves its right to take any fresh ground of appeal or modify! amend or withdraw before the hearing or at the time of hearing of appeal.
2. The early hearing was granted in the matter while disposing of the stay application No. 01/Alld./2012 filed by the assessee.
3. We have heard the ld. Representatives of both the parties, perused the findings of authorities below and considered the material on record.
4. Briefly, the facts of the case are that the assessee is a partnership firm engaged in cold storage business with its head office at Sahson. The branches of the assessee are M/s. Bhola Sheet Grah at Sahson and M/s. Kesarwani Sheetalaya at Soraon. Action u/s. 132(1) was taken on 27.08.2009 in group cases of Keserwani Zarda Bhandar, Sahson, Allahabad and its partners. The AO framed the assessment u/s. 153A vide order dated 28.12.2011 for assessment year under appeal, i.e., 2008- 09 and made several additions, which were challenged before the ld. CIT(A). The assessee raised the additional grounds of appeals as well as sought admission of additional evidences before the ld. CIT(A), which were admitted by the ld. CIT(A) for hearing of appeal.
5. Though several grounds have been raised in the appeal of the assessee, but mainly the assessee challenged two major additions on merits apart from disallowances of expenses.
6. The ld. Counsel for the assessee submitted that ground No. 1 & 2 of appeal of the assessee are general in nature and on ground No. 3 to 15, the assessee challenged the addition of Rs.37,30,710/- and addition of Rs.23,31,28,321/-.
7. The first addition under challenge is Rs.37,30,710/-. In the assessment order, the AO has remarked that a bunch of loose papers marked as Annexure A-3/1 was found and seized. At page no. 107 of the above bunch of loose papers, there is description of consolidated details of cash in hand pertaining to M/s Kesarwani Sheetalaya, Sahson, Soroan and Bhola Sheetgrih, Sahson. These descriptions are relating to F.Y.2007-08. On this particular loose paper, it is mentioned the total cash in hand of both the concerns namely M/s Kesarwani Sheetalaya, Sahson, Soroan and Bhola Sheetgrih, Sahson in the F.Y. 2007-08 is 27,39,932-86. The narration is as under:-
dt 15.03.08
F.Y. 2007-08
A.Y.2008-09
Kesarwani Sheetalaya
Bhola Sheetgrih
Sohson.
Cash received –
Bhola Sheetgrih (1) Total rent 9472171.10
Kesarwani Sheetalaya (2) Total rent 8969700.55
Kesarwani Sheetalaya Cash withdraw 1200000.00
from bank
19641871.65
Bhola – Expenditure – 929662.95
K.S. – Expenditure – 954275.84
K.S. – Cash deposit – 15018000.00 16901938.79
to bank 2739932.86
Cash balance – dt. 11.03.08 – cr. 4813470.70 (Kesarwani Sheetalaya)
Cash balance – dt. 03.03.08 – dr. 8790921.62 (Bhola Sheetgrih)
3977450.92
Opening balance Dr. 248413.47 (Bhola)
Opening balance Dr. 989104.59 (K.S.)
1237518.06
Net cash for F.Y. 07-08 = (3977450.92 – 1237518.06 = 2739932.86)
The A.O. has further compared cash in hand with different branches of the concern as per the audit report for the F.Y. 2007-08 relevant to A.Y. 2008-09.
Bhola Sheet Grih K.S. Soraon K.S.Sahson Total
27,95,969.71 22,97,647.48 13,77,025.46 64,70,642.65
7.1 On the above comparison, the A.O. found that actual cash with the above concerns of the assessee was Rs.27,39,932.86/- whereas the assessee has shown the cash at hand at Rs.64,70,642.65/-, meaning thereby the cash amounting to Rs.37,30,709.79/- is unexplained. The A.O. has observed that the excess cash shown in the balance sheet may either relate to bogus liability or unexplained cash from undisclosed source introduced by the partners. The A.O. further remarked that the assessee has not maintained regular books of a/c in the shape of cash book, ledger etc. The search & seizure action did not result in recovering any books of a/c from the business premises of the firm or from the residential premises of the partners of the firm. The said regular books of a/c were not found even in the premises of Shri Sanjay Gupta, FCA whose places were covered u/s 133A of the I.T. Act. On the strength of above discussion, the A.O. has treated Rs.37,30,710/- as bogus liability and has made the additions u/s 68 of the I.T. Act.
7.2 The assessee challenged the addition before the ld. CIT(A) and the submissions of the assessee are reproduced in the appellate order as under :
“That the assessing officer has discussed the facts in para-3 of the assessment order. The manner and basis of making the addition is highly objectionable in so far as the loose paper marked as annexure A-3/1 page 107 is nothing but a rough, waste and dumb document hence liable to be discarded. The assessing officer while computing the income left this amount to included in the total assessed income of the appellant as he was satisfied with the explanation.
That Sir, the first objection of the appellant is that the Assessing Officer’s observation in the order that no regular books of account in the shape of Cash-Book & ledger etc. have been found for any financial year either from the business premises of the firm or from residential premises of the partners of the firm during the course of search. Even in the office of the Chartered Accountant Sri Sanjay Gupta, FCA during the course of a Survey under Section 133A of the Income Tax Act the books were not found. Therefore the Assessing Officer observed/ held that it is clear that regular books of account are not maintained by the appellant firm, such observation is absolutely incorrect vague and irrelevant which can be called as unhealthy observation when the facts is that regular books of accounts are being maintained by the appellant and produced and examined by assessing officer hence allegation liable to be sponged and even or the date of search also the books of account were lying in the business premises.
That Sir, the appellant firm came into existence in the year 1978 and till date regular assessments have been framed by the department under Section 143(3) of the Income Tax Act for number of years and in those assessments the assessing officer admitted that the books of account were produced and examined. In the present case till date no ex-parte decision was made on the allegation that books were not produced nor maintained. Likewise in the present block period, regular original assessments were framed after examination of the books of accounts for Assessment Year 2004-05, 2005-06 & 2007-08. In this way at one point the department is accepting and admitting that books of accounts are maintained and produced by the appellant but for making the addition of Rs. 37,30,710/- the assessing officer has taken a shelter by saying that “no books of accounts are maintained”. Sir, even in earlier years also a matter was referred by the department for a special audit in only Kesarwani Zarda Bhandar cases and during that audit books of accounts of the appellant firm were examined and found in order. In the appellant’s case the department has allowed auditor’s fee and accounting expenses year after year. Thus simply because in the course of search operation since the books were not taken by the search party although available in the business premises of the appellant that does not mean that the Assessing Officer is free to make any kind of allegation according to her own test.
That the assessing officer vide notice dated 28.02.2011 u/s 142 (1) a query no. 06 was made which is reproduced as under :
“No books of account of firm have been found and seized during the course of search/ survey operation of the group, in the absence of books of account you are required to justify the books result shown in the audit final account”
That in compliance to the query no. 06 reply was given in following manner :
That thus is the light of addition made above reply was given on the basis of query hence there is no justification to draw a different view.
That in this case a search was conducted on 2 7.08.2009 and before the date of search income tax return for the assessment year in question was already on record of the department along with the audit report. Likewise advance tax was also paid earlier. From the date of search i.e. 2 7.08.2009 till the start of the assessment proceeding books of accounts were not required by the assessing officer though produced on various date. Sir our auditor appeared before the assessing officer from time to time alongwith books of accounts and other details. During the course of search also statements of various persons were recorded but no query about existence of the book was put to any party. The rent receipt to the extent of Rs. 1,50,60,423/- was accepted by the department and likewise the expenditures as claimed were also allowed. Likewise partner’s salary and remunerations were also allowed. In these background the basis of the addition of Rs. 37,30,710/- by making biased observation that books of accounts were not there is not correct and vague considering the volume and nature of business. Sir, it is an admitted fact on record that some of the books such as cash book, ledger and other subsidiary books were seized and still lying with the department as admitted in the letter dated 05.07.2011 and 19.10.2011. Copy enclosed at page . Even no
penalty for non-maintenance of books of accounts were ever imposed till dated.
That regarding source of cash, the cash which was generated from rent receipt is appearing everyday in the cash books which is true and correct cash balance. Likewise opening and closing balance are also based on the regular books of account, hence it is not judicious on the part of the assessing officer to discard cash balance based on regular books of account and to give undue weightage to a dumb document only for creating bogus tax liability on old tax payer. The assessing officer in the order has stated that reply filed by the assessee is a ‘SIMPLE’ reply, so what is wrong in that reply? Sir, in the balance-sheet cash in hand disclosed at Rs. 64,70,642.65 is true cash balance because it is a settled law that the balance-sheet is prepared by taking facts and figures of last date of the concerned financial year. The allegation of the assessing officer that a bogus liability of an amount of Rs. 37,40,710/- has been created is totally incorrect.
That sir the amount of Rs. 37,40,710/- is based on artificial working done by assessing officer and for this purpose the assessing officer took/ considered the closing balance of cash in hand as on 31.03.2008 as appearing in audit report which is as under :
