Case Law Details
Prasanta Kumar Mohapatra Vs PCIT (ITAT Cuttack)
ITAT Cuttack held that difference between the sales declared in the profit and loss account and as per the cash book entire added by PCIT without providing sufficient opportunity to reconcile the same. Thus, AO directed to examine the issue.
Facts- The assessee is an individual and is proprietor of four firms which are engaged in different kind of businesses such as Honda two-wheeler dealership, Fuel Filling station of Reliance, Iron ore crusher and retail sale of IMFL. The return of income for the impugned year was filed on 7.11.2017 declaring total income at Rs.97,74,720/-.
The case was taken up for complete scrutiny and after verification of the records, the assessment was completed vide order passed u/s. 143(3) dated 26.12.2019 wherein an addition / disallowance of Rs.3 lakh was made to the returned income. Thereafter the ld. PCIT Sambalpur had initiated the proceedings u/s 263 and passed the impugned order wherein ld. PCIT has modified the assessment order and added a sum of Rs. 3,44,64,222/- u/s. 68 towards unexplained cash credits against which the assessee is in appeal before us.
Conclusion- Held that we are of the considered view that the assessment order is erroneous and prejudicial to the interest of revenue. However, the action of the ld. PCIT in modifying the assessment order and making the addition of the difference amount of Rs. 3,44,64,222/- is seems to be very harsh on the assessee who was not provided sufficient opportunity to reconcile the same with plausible documentary evidences. Thus, in the interest of justice one more opportunity should be allowed to the assessee to explain and reconcile the difference of Rs.3,44,64,222/-. Therefore, though we are in agreement with the conclusion drawn by the ld. PCIT that the assessment order is erroneous as well as prejudicial in the interest of revenue however, it would not be fair to the assessee if one more opportunity is not provided to the assessee. Accordingly, we modified the directions given in the order of ld. PCIT and instead of directing to make the addition of amount Rs.3,44,64,222/- to the income of the assessee, we direct the AO to examine the issue of difference between the sales declared in the profit and loss account and as per the cash book and decide the same accordingly as per the law.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
This is an appeal filed by the assessee against the order of the ld. Pr.CIT, Sambalpur dated 25.08.2021, passed in DIN & Order No. ITBA/REV/F/REV5/202 1-22/1035100447(1) for the assessment year 2017-2018, on the following grounds of appeal :-
1. That, the ld Principal Commissioner of Income-tax has committed serious error in modify the order of assessment passed by the ld Assessing Officer which is unjust, illegal, arbitrary, without jurisdiction, contrary to the provisions f the Act, Contrary to the facts and circumstances of the case and has been made in gross violation to the principles of natural justice and is liable to be quashed and! or annulled.2.2.
2. That, the ld. Principal Commissioner of Income-tax, Sambalpur has erred both in law and in fact by invoking the section 263 of the Act which is beyond the jurisdiction vested with the ld. Principal Commissioner of Income-tax and for which the order thereof is liable to be quashed and ! or3. 3.
3. That, the ld Principal Commissioner of Income-tax has erred both in law and in fact by invoking the section 263 of the Act which is beyond the scope of power vested with the ld. Principal Commissioner of Income-tax and for which the order there off is liable to be quashed and ! or annulled.4. 4.
4. That, the ld Principal Commissioner of Income-tax has erred both in law and in fact by modifying the assessment under section 263 of the Act which is beyond the scope of power vested with the ld Principal Commissioner of Income-tax and for which the order there off is liable to be quashed and! or annulled.5. 5.
5. That, he ld Principal Commissioner of Income-tax has erred both in law and in fact by modifying the assessment under section 263 of the Act by adding back the unexplained cash credit under section 68 of the Act which is beyond the scope of power vested with the ld Principal Commissioner of Income-tax and for which the order there off is liable to be quashed and! or annulled.6. 6.
6. That, the ld Principal Commissioner of Income tax has erred both in law and in fact by modifying the assessment order under section 68 of the Act which is liable to be deleted.7.7.
7. That, the appellant may add, alter, delete, withdraw or amend any of the grounds at the time of hearing of the matter with the leave of ld Hon’ble ITAT.
2. The assessee is represented by Shri P.C.Sethi, Advocate and department is represented by Shri Sanjay Kumar, CIT-DR.
3. Brief facts of the case are that the assessee is an individual and is proprietor of four firms which are engaged in different kind of businesses such as Honda two-wheeler dealership, Fuel Filling station of Reliance, Iron ore crusher and retail sale of IMFL. The return of income for the impugned year was filed on 7.11.2017 declaring total income at Rs.97,74,720/-. The case was taken up for complete scrutiny and after verification of the records, the assessment was completed vide order passed u/s. 143(3) dated 26.12.2019 wherein an addition / disallowance of Rs.3 lakh was made to the returned income. Thereafter the ld. PCIT Sambalpur had initiated the proceedings u/s 263 and passed the impugned order wherein ld. PCIT has modified the assessment order and added a sum of Rs. 3,44,64,222/- u/s. 68 towards unexplained cash credits against which the assessee is in appeal before us.
4. During the course of hearing ld. AR of the assessee submitted that the case of the assessee was fully examined by AO wherein he has considered all the bank accounts of the assessee in which the cash was deposited during the demonetization period comprising of SBN as well as old and new currency. After considering the submissions and details filed and also after analyzing cash books of all the four business concerns of the assessee, AO was of the opinion that the assessee has sufficient cash balance before making deposit in the bank accounts and thus no adverse inference was called for. For this the ld. AR drew our attention to the office note of the AO which stated to have been supplied alongwith the assessment order and submit that in the said office note, the AO has discussed the issue of bank deposits during the demonetization period in detail thus their remained no scope of any further verification. According to ld. AR, the ld. PCIT has failed to appreciate these facts and also fail to appreciate that the assessee is having retail sale business of IMFL and during the year assessee had taken two shop from his close friend namely Shri Shyam Sunder Sambad who had license from state Excise department, to manage the sale and purchases from these shop of IMFL. The cash received from the sale of IMFL at these shops were also deposits in the bank accounts of the assessee and out of these proceeds amounts were transferred to Odisha State Beverages Corporation for purchase of IMFL. Since these shops pertained to Shri Shyam Sunder Sanbad therefore these transactions were declared by him in his return of income. Ld. AR further submit that the allegation of ld. PCIT that there was difference of Rs. 3,44,64,222/- between the sales declared in the Profit and Loss Account and as recorded on daily basis in the cash book is not correct as the ld. PCIT has taken the figure of cash books as sales and treated the difference as unexplained cash credit. The assessee has categorically submitted that this difference was due to the cash deposited from the cash sale at the shops of his close friend Shyam Sundar Sanbad and therefore no adverse inference called for in this regard in the hands of the assessee. He further submitted that provisions of Section 68 of the Act are not applicable in the instant case and therefore, the action of ld. PCIT in modifying the assessment order by making the addition of Rs.3,44,64,222 u/s.68 deserves to be struck down. In the alternate he prayed that in the interest of justice instead of modifying the assessment order and directing for the addition of the Rs.3,44,64,222/- to the assessed income, one more opportunity be provided to the assessee to explain the so-called difference and for this he prayed for necessary modification be made in the direction given by the ld. PCIT.
5. On the other hand ld. CIT DR supports the order of the ld PCIT and submit that there was a clear cut difference in the sales declared by the assessee in his Profit and loss account and as recorded in the cash book on daily basis. He invited our attention to Annexure No. 1 annexed with the revisionary order of ld. PCIT wherein date wise summery of sales made is tabulated. According to this table total sales as per cash book is arrived at Rs. 24,35,35,807/- as against sales of Rs.20,35,45,807/- declared by the assessee. Ld CIT DR further submit that to explain this difference assessee contend that the said cash deposited by his close friend is nothing but a makeup story and afterthought. Since this amount of sales of Rs.24,35,45,807/- is duly recorded in the cash book of the assessee which was available in the assessment records therefore order passed by AO ignoring these facts is erroneous and prejudicial to the interest of revenue. He further submits that the amount of difference of sales as recorded in cash book and as per P& L account of the assessee remained unexplained and no plausible explanation was tendered by the assessee. He further submits that the State Excise department also prohibits the transfer of license. Therefore, it cannot be a case that the license granted to the friend of the assessee could be used by the assessee for his IMFL trading business. Therefore, ld. CIT DR submits that the ld. PCIT has rightly modified the assessment order and directed to addition of Rs.3,44,64,222/- and prayed for the confirmation of the said order.
6. We have heard the rival submissions and perused the material available on record. In his case, admittedly from the perusal of the assessment order, it is evident that no enquiry was made by the assessing officer to examine the issue of sales declared by the assessee nor any effort was made to reconcile the same with the cash book submitted by the assessee. Ld AR referred the office note prepared by the AO, available in paper book at Pages 67-70, which though is confidential record of the department and not to be supplied to assessee however, it is claimed that the same was supplied by AO along with assessment order.
A bare perusal of the same, nowhere suggests that the issue of verification of cash sale visa-vis sales recorded in the cash book was examined by the AO. At no stage of the proceedings the assessee could be able to support his argument that the Annexure 1 annexed to order of ld PCIT containing date wise detail of sales made as recorded in the cash book is not correct. Before us also ld. AR merely stated that the sales as computed by ld. PCIT is not correct but no evidence was brought before us. The annexure 1 as appended with the order u/s 263, wherein ld. PCIT has tabulated the daily sales as per cash book of the assessee and also having reference of respective voucher number is as under:-
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7. The said table clearly shows the cash sales on daily basis with respective voucher number based on which necessary entry was made in the cash book on each day therefore, non-verification of this fact of difference in sales of Rs.3,44,64,222/- as declared by assessee in P&L A/c and as recorded in cash book is an error leading the assessment order to be erroneous and prejudicial to the interest of revenue. Moreover, before ld. PCIT, it was claimed by the assessee that two shops of his close friend Shyam Sundar Sanbad were taken on lease by the assessee where the sales had been managed by the assessee and this amount of Rs.3,44,64,222/- relates to the transactions carried out through these shops. However, looking to the fact that section 23 of the Bihar and Orissa Excise Act, 1915 prohibits any such arrangement between the licensee and any other person. Therefore, this action of the assessee cannot be validated under the eyes of law even in Income tax proceedings though they are separate proceedings. In this regard, we are in full agreement with the ld. PCIT who had followed the ratio laid down by Hon’ble Supreme Court n the case of Bihari Lal Jaiswal Vs. CIT reported in [1996] 217 ITR 746 (SC), wherein the Hon’ble Court has held as under:-
“A licensee could not be permitted to bring in strangers into he business, which would mean that instead of the licensee carrying on the business, it would be carried on by others, a situation no conducive to effect implementation of the excise law and consequently deleterious to public interest. It is for this very reason that transfer or sub-letting of license is uniformly prohibited by several State excise enactments. It, therefore, follows that any agreement whether under the license is transferred, sub-let or a partnership is entered into with respect to the privilege business under the said license, contrary to the prohibition contained in the relevant excise enactment, is an agreement prohibited by law.”
8. It is pertinent to note here that now the ld. AR claims that the two shops were not taken on lease but was only managed by the assessee. In view of these facts, we are of the considered view that the assessment order is erroneous and prejudicial to the interest of revenue. However, the action of the ld. PCIT in modifying the assessment order and making the addition of the difference amount of Rs. 3,44,64,222/- is seems to be very harsh on the assessee who was not provided sufficient opportunity to reconcile the same with plausible documentary evidences. Thus, in the interest of justice one more opportunity should be allowed to the assessee to explain and reconcile the difference of Rs.3,44,64,222/-. Therefore, though we are in agreement with the conclusion drawn by the ld. PCIT that the assessment order is erroneous as well as prejudicial in the interest of revenue however, it would not be fair to the assessee if one more opportunity is not provided to the assessee. Accordingly, we modified the directions given in the order of ld. PCIT and instead of directing to make the addition of amount Rs.3,44,64,222/- to the income of the assessee, we direct the AO to examine the issue of difference between the sales declared in the profit and loss account and as per the cash book and decide the same accordingly as per the law. Needless to say, assessee be allowed proper opportunity of being heard. It is also directed that while deciding the issue, if the AO found that the assessee has violated any of the provisions of Bihar and Orissa Excise Act, 2015, such action should not be validated under Income tax proceedings as has been held by the Supreme Court in the case of Biharilal Jaiswal Vs. CIT (supra). With the above directions, we uphold the order of ld. PCIT passed in u/s.263 as valid with the modified directions as given herein above.
9. In the result, appeal of the assessee is partly allowed.
Order dictated and pronounced in the open court on 04/09/2024.
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