Case Law Details
Saket M. Jain (HUF) Vs PCIT (ITAT Ahmedabad)
In the assessment framed in the case of M/s Greenwell Orchard under section 143(3) read with section 147 of the Act has been set aside by the learned Pr. CIT under section 263 on the reasoning that the entire amount of sale proceeds is unaccounted income of the assessee. From all these above details, it is revealed that it was the Greenwell Orchard which was engaged in generating/converting its unaccounted income into agriculture income wherein the assessee was only one of the conduit. Thus, in our considered view the entire amount of sales cannot be taxed in the hands of the assessee as unexplained cash credit. At the most, the amount of income generated by the assessee, in the capacity of acting as a conduit, i.e. commission on such entries provided by it which may be brought to tax. Thus the entire amount of sales cannot be treated as income of the assessee. Hence, the order of the l d. CIT under section 263 of the Act is not sustainable in the given facts and circumstances. Accordingly, we quash the same. Hence, the ground of appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Assessee against the order of the Principal Commissioner of Income Tax, Ahmeedabad-5, dated 20/03/2019 arising in the matter of order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2009-2010.
2. The assessee has raised the following grounds of appeal:
1. The Learned Commissioner of Income – Tax, Ahmedabad -5 has erred in passing an order u/s.263 of the I.T. Act,1961 cancelling the Assessment Order passed u/s.!43(3) r.w.s. 147 of the I.T. Act,1961 dtd.26. 12.2016 holding the same as erroneous and prejudicial to the interest of the Revenue.
2. The Learned Comm. of Income Tax, Ahmedabad -5 has erred in treating the purchase of standing teakwood timber of Rs.3,92,59,500/- as bogus only on the basis of statement of one of the partners Shri Sunilkumar Raghuvirprasad Agarwal of M/s. Greenwel l Orchard during the course of survey proceedings in the case of M/s. Raghuvir Synthetics Ltd. He further erred in holding that if the purchases are bogus sales are also bogus.
3. The Learned Comm. of Income Tax, Ahmedabad -5 has erred in holding that as the A.O. treated the purchases as bogus, the source of credits shown in the books o f account/bank account utilized for the purchase should have been treated unexplained credits u/s. 68 of the Act as the source was not explained and substantiated by the assessee and hence there is underassessment of income of Rs.3,92,59,500/-.
4. The Learned Comm. of Income Tax, Ahmedabad -5 has erred in holding that the failure to conduct necessary enquiry in this respect has rendered the assessment fframed being made without application of mind and erroneous so far that it is also prejudicial to the interest of the revenue.
5. The Learned Comm. of Income Tax, Ahmedabad -5 has erred in passing an order u/s.263 of the I.T. Act, 1961 in spite of the fact that the A.O. has accepted the genuineness o f the trading transactions after conducting inquiries and evaluating evidences which had been furnished before him and completed the assessment making addition by estimating the G.P. at 8% and not 100%.
6. The Learned Comm. Of Income Tax, Ahmedabad-5 ought to have considered that fact that in the case of seller Greenwell Orchard assessment has been completed u/s. 143(3) of the Act and therefore, when the sales made by them have been accepted question o f disputing the purchase made by the appellant can not arise.
7. The Learned Comm. Of Income Tax, Ahmedabad-5 has erred in not appreciating the fact that the order sought to be revised u/s.263 of the Act has been reopened on the same earlier reasons and therefore there is only substitution of opinion which cannot be considered as erroneous for invoking revision proceedings.
8. The Learned Comm. of Income Tax, Ahmedabad-5, has erred in making as observation that Shri Sunil Agarwal Partner of M/s.Greenwell Orchard has due to his inability to explain the impugned sale transaction voluntarily included as income from alleged sale as a part of unaccounted income for A. Y. 2013-14.
9. The appellant craves leave to add, amend or modify any of the grounds of appeal on or before the date of hearing of appeal.
3. The only issue raised by the assessee is that the ld. CIT under section 263 of the Act erred in holding the assessment framed by the AO as erroneous in so far prejudicial to the interest of Revenue.
4. The necessary facts to adjudicate the issue on hand are that the assessee is HUF and engaged in the business of cutting, falling & Forwarding standing tree. The income of the assessee was assessed at Rs. 5,62,340/- under section 143(3) of the vide order dated 08-11-2011.
4.1 Subsequently, the AO received information from I.T.O ward-6(5) Ahmedabad that a survey proceeding dated 11/02/2013 was carried out in case of M/s Raghuvir Synthetic Ltd. where books of account of M/s Greenwell Orchard was found. From such books it was revealed that M/s Greenwell Orchard has shown sale of standing trees for Rs. 12,07,73,250/- to three different parties related to Shri Saket M Jain in which assessee’s share of purchase was at Rs. 3,92,59,500/-. But on question to the partner of M/s Greenwell Orchard, it was denied to have any link with Shri Saket M Jain and also failed to establish the sale of standing trees as genuine.
4.2 Based on above information, the assessment of the assessee was reopened under section 147 of the Act. During the escapement proceeding the AO proposed to reject the book result of the assessee and enhance the GP @ 8% on following ground.
(1) Low GP i.e. 2.34 % against the sale of Rs. 4,02,01,178/-
(2) Sale is not genuine and proper for the reason that both the parties are i.e. Assessee and buyer were not paying sales tax. Similarly, the invoice does not contain sale tax details or registration detail.
(3) Purchase against the sale is also bogus on the basis of information received from the I.T.O ward-6(5) of Ahmadabad.
4.3 However the Assessee in reply to the proposed rejection claimed that both the sale & purchase are genuine and the necessary details were filed before the AO during the original proceedings. The assessee also claimed that information received from the ITO ward-6(5) Ahmedabad pertains to the A.Y. 2013-14 which does not to the year under consideration. The assessee further claimed that the sales amount declared by the supplier M/s Greenwell Orchard for the year under consideration was accepted as genuine by the Revenue in the assessment framed under section 143(3) of the Act.
4.4 But the AO finally enhanced the GP from 2.34% to 8% and made addition of Rs. 22,73,910/- only on the ground that the assessee has not furnished the reason for the lower Gross Profit.
5. Subsequently the Pr. CIT from the assessment records observed that the assessment framed under section 147 is erroneous insofar prejudicial to the interest of Revenue for the reason that once it was held by the AO that the purchase of standing tree from M/s Greenwell Orchard was bogus based on the information received from survey team, the AO should have held the amount credited in the books of the assessee for the payment made to M/s Greenwell Orchard against bogus purchase as unexplained cash credit under section 68 of the Act. Instead the AO only enhanced the GP which is erroneous insofar prejudicial to the interest of the Revenue. Accordingly the learned Pr. CIT issued show cause notice to the assessee.
6. The assessee in reply besides reiterating the submission made during the income escapement proceeding under section 147 of the Act claimed that it has sold the goods to Shri Mohanbhai Gaganbhai Rathod which has been accepted by the Revenue in the assessment framed under section 143(3) of the Act vide order dated 23.12.16. Hence once the sale of the supplier to the assessee and purchase of the customer from the assessee has been accepted as genuine, then the same cannot be held as bogus in assessee’s case. Based on the above submission assessee contended that the order passed by the AO is neither erroneous nor prejudicial to the interest of Revenue. Furthermore, the AO has passed the order after making detailed enquiry.
7. However the learned Pr. CIT rejected the contention of the assessee by observing as under:
(a) M/s Greenwell Orchard in A.Y. 2013-14 voluntary offered unaccounted income as it was unable to explain the sale of teakwood. Further M/s Greenwell Orchard for A.Y. 2009-10 has shown agriculture income from the sale of same teakwood to same purchaser including the assessee. Based on these finding assessment order under section 143(3) of the Act of M/s Greenwell Orchard was set aside by the ld. CIT under section 263 of the Act.
(b) At one stage the AO held that the purchases of teakwood from M/s Greenwell Orchard is bogus and accordingly, the AO rejected the book result of the assessee. Thus the AO estimated the profit @ 8% of the turnover. But the AO in such situation instead of estimating the profit should have held the corresponding sales as bogus. Thus he should have examined the genuineness of amount credited in assessee books for payment to supplier i.e. M/s Greenwell Orchard. As such the AO has given a contrary finding i.e. on one hand holding the purchases as bogus and on other hand estimating the profit instead of treating the sales made by the assessee as unexplained cash credit under section 68 of the Act.
7.1 In view of the above the Learned Pr. CIT held the assessment order framed under section 143(3) read with section 147 of the Act vide order dated 26/12/2016as erroneous insofar prejudicial to the interest of Revenue and directed the AO for De-novo assessment.
8. Being aggrieved by the order of the learned Pr. CIT the assessee is in appeal before us.
9. The learned AR for the assessee before us filed a paper book running from pages 1 to 96 and submitted that the transactions of purchase and sales of teakwood from whom the assessee purchased viz a viz to whom the assessee sold was accepted in their respective assessment. Therefore, there cannot be a doubt on the transaction of purchase and sales carried out by the assessee. The learned AR in support of his contention drew our attention on the assessment orders under section 143(3) read with section 147 of the Act in the case of M/s Greenwell Orchard and Shri Mohanbhai Gandabhai Ratod which are placed on pages 76 to 96 of the paper book. The learned AR further contended that the AO has taken one of the possible view by working out the income after rejecting the books of accounts on estimated basis. Therefore, there cannot be fault with the order of the AO.
10. On the other hand, the learned DR contended that the assessment was framed by the AO without conducting the necessary enquiries. The learned DR supported the order of the learned CIT.
11. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that there was a survey operation carried out under section 133A of the Act at the business premises of M/s Raghuvir Synthetic Ltd. However, during survey operation certain documents relating to the party namely M/s Greenwell Orchard were also found from the premises. During survey the statement of Shri Sunil Kumar Aggarwal was recorded under section 133A of the Act who was also a partner in M/s Greenwell Orchard.
11.1 M/s Greenwell Orchard is a firm from whom the assessee has shown purchases of the teakwood amounting to Rs. 3,92,59,500/- in the year under consideration. However, the partner of M/s Greenwell Orchard in the statement furnished under section 133A of the Act during survey proceedings was unable to supply any details of the parties to whom the firm has sold the teakwood. Furthermore, the partner in the statement also failed to identify the assessee.
11.2 On the basis of above, the proceedings under section 147 of the Act were initiated against the assessee on the reasoning that the purchases made by the assessee from M/s Greenwell Orchard was bogus. However, the AO in the assessment framed under section 143(3) read with section 147 of the Act has made addition after estimating the GP at the rate of 8% on the turnover shown by the assessee vide order dated 26/12/2016.
11.3 However subsequently the learned Pr. CIT found that the proceedings were initiated under section 147 of the Act on the reasoning that the purchases made by the assessee from the party namely M/s Greenwell Orchard amounting to Rs. 3,92,59,500/- is bogus. Thus once purchases are bogus then the sales shown by the assessee against such purchases are also bogus. But the AO in the assessment framed under section 143(3) read with section 147 of the Act has admitted the transaction of purchase and sales as genuine and estimated profit at the rate of 8% of the turnover.
11.4 In view of the above the learned CIT held that once purchases are bogus then it is implied that sales are also bogus. Therefore the amount of sale shown by the assessee in the books of accounts amounting to Rs. 4,02,01,728/- should have been treated as unexplained cash credit under section 68 of the Act. The learned Pr. CIT also referred to the judgment of Delhi High Court in the case of Pr. CIT vs. Wadhwa Designs ITA No 66/2018 in support of his view. Accordingly, the learned Pr. CIT was of the opinion that the finding of the AO in the assessment framed under section 143(3) read with section 147 of the Act is contrary and against thelegal position. Finally, the learned Pr. CIT held the order passed by the AO under section 143(3) read with section 147 of the Act as erroneous insofar prejudicial to the interest of revenue and set aside the matter to the AO for de novo assessment after making necessary enquiries/ investigations of fresh.
11.5 Now the question arises for our adjudication whether the AO has taken a view in the case on hand which was contrary to his own finding as well as against the provisions of law. Admittedly, the proceedings initiated under section 147 of the Act after obtaining the details of the survey conducted at the premises of M/s Raghuvir Synthetic Ltd. under section 133A of the Act. In the details, it was doubted that the purchases made by the assessee were bogus. But, the AO after conducting necessary enquiries has reached to the conclusion that the gross profit declared by the assessee was very low. In other words the AO admitted the purchases and sales as genuine. The enquiries conducted by the AO from the assessee are summarized as under:
(a) There was no VAT paid either on purchase or on subsequent sales of teakwood. There was also no TIN number mentioned of any party on sales and purchase bills which lead to conclusion that purchases and subsequent sales are not genuine. Further, the gross profit disclosed on subsequent sale is very low. Hence why the books result should not be rejected under section 145(3) and GP enhanced.
(b) Why the sales amount of 4,02,00,055/- be not treated as unexplained cash credit in view of the finding of survey team that purchases are bogus.
11.6 The assessee in response to the query raised by the AO has made the submissions which are detailed as under:
(a) The assessee filed balance sheet, tax audit report, bank statement, purchase register, stock register, sales and purchase invoice and confirmation from parties to justify that the transactions are genuine.
(b) The assessee also filed copies of ledger, bank statement, audit report, stock register, sales invoices etc of buyers namely M/s Mayur Electro and M/s JK Industries.
11.7 From the above we find that the assessee has furnished necessary documents with respect to parties from whom it has realized the amount against the sales made to them. In other words the burden imposed i.e. identity, genuineness of transactions and parties credit worthiness upon the assessee, for invoking the provision of section 68 of the Act were duly complied with. Accordingly, the AO has not treated the amount of sales as unexplained cash credit under section 68 of the Act. Thus it is transpired that the AO has taken a conscious view which was one of the possible view by accepting the purchases and sales as genuine. Thus in our considered view the learned Pr. CIT cannot substitute the possible view taken by the AO by his (ld. CIT-A) own view. In holding so we draw support and guidance from the order of Hon’ble Supreme Court in case of Malabar Industries Co. Ltd. vs. CIT reported 243 ITR 83 where the Hon’ble apex court has held as under:
Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by the Supreme Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue.
11.8 Moving further, the case law as relied by the ld. CIT i.e. M/s wadhawan Design (supra) is distinguishable from the facts of the case on hand as in that case the identity of the supplier was not established whereas in the present case it is not so. Accordingly, in our humble understanding, the principles laid down by the Hon’ble Delhi High Court in the case of M/s wadhawan Design (supra) are not applicable in the present case.
11.9 In addition to the above, we also note that even for the sake of adjudication, we assume that the purchases viz a viz sales are bogus in the given facts and circumstances, then also the entire amount of sales cannot be treated as unexplained cash credit of the assessee. It is because the assessee has not shown the gross amount of sales as agricultural income rather it has shown only the difference between the purchase and sales whereas the original party namely M/s Greenwell Orchard has shown the entire amount of sale as agriculture income without showing any expenses. Accordingly the AO in the assessment of M/s Greenwell Orchard has allocated 20% of the sales value as expenses which was subsequently reduced by the learned CIT (A) to the tune of 5% of the sales value.
11.10 Furthermore, the assessment framed in the case of M/s Greenwell Orchard under section 143(3) read with section 147 of the Act has been set aside by the learned Pr. CIT under section 263 on the reasoning that the entire amount of sale proceeds is unaccounted income of the assessee. From all these above details, it is revealed that it was the Greenwell Orchard which was engaged in generating/converting its unaccounted income into agriculture income wherein the assessee was only one of the conduit. Thus, in our considered view the entire amount of sales cannot be taxed in the hands of the assessee as unexplained cash credit. At the most, the amount of income generated by the assessee, in the capacity of acting as a conduit, i.e. commission on such entries provided by it which may be brought to tax. Thus the entire amount of sales cannot be treated as income of the assessee. Hence, the order of the l d. CIT under section 263 of the Act is not sustainable in the given facts and circumstances. Accordingly, we quash the same. Hence, the ground of appeal of the assessee is allowed.
12. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 04/03/2021 at Ahmedabad.
