Conclusion: Tribunal urged State to remove violations of tax laws by new assessees such as part time enterprising housewives, illiterate, semi-skilled men/women or teenagers by highlighting the concepts of agents of economic change; creation of Tax Advisory Cell; and coming out with Policy/Tax Compliance Scheme for the new businesses so as to address their past lack of compliance.
Held: Assessee was carrying on the business of Boutique during the year under consideration. Basically, she was having her own setup of sewing machines in her home and had given the setup on contract to Tailor, She used to received Order from the Customers and the stitching of that Order was to be done by the Tailor. Also all the expenses, such as on needles, on Threads, on Oil & Lubricants, on Button etc. were to be borne by the Tailor. For the above said job, assessee and tailor used to divide the receipt in the ratio of 35:65. AO required assessee to justify the deposits in her HDFC Bank account. Assessee claimed these to be business receipts. AO not convinced with the explanation and the evidence made the addition of Rs. 5 lakh. Assessee contended that AO failed to understand her business model as amounts received were shared with the tailors and herself. It was noted by Tribunal that violations of tax laws by new assessees occurs because of lack of proper advice. Instead of letting these sparks of economic change stifle and die due to fear of compliance s, they should be assisted by the State. Such sparks might be reflected at times in part time enterprising housewives, illiterate, semi-skilled men/women or teenagers. State can help through the tax administration to provide a platform specially created to assist these ventures to remain relevant and tax compliant. Like to set up a Tax Advisory Cell consisting of public spirited Revenue officers with strong ethics, full awareness of tax laws and people skills, to identify new successful businesses as the agents of economic change and assist them, to create a Tax Compliance Scheme specially for the benefits of these new ventures so as to address their past lack of compliance. Thus, AO was directed to verify the stated claim of assessee namely that the sums reflected by her as her income of a specific day was 35% of the sum total of the receipts of the vouchers of the specific date. In case assessee succeeded in demonstrating her claim, the addition was to be deleted. However in case after carrying out the said verification, the claim was found to be not acceptable, it was directed that the AO necessarily should confront the deficiencies noticed to assessee and after giving assessee a reasonable opportunity of being heard in the spirit of the suggestions made should then pass a speaking order in accordance with law.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been filed by the assess ee assailing the correctness of the order dated 16.07.2018 of CIT(A)-1, Ludhiana pertaining to 2014-15 assessment year on the following grounds :
1. That on the facts and the circumstances of the case, the order of ld. CIT(A) is bad in law.
2. That the Worthy CIT(A) has erred in sustaining an addition of Rs. 5,65,000/-in the income of the Assessee under Section 68 of the Act on account of unexplained Cash Credits.
3. That the addition sustained by the Id. CIT(A) are against the facts and circumstances of the case.
4. That the Worthy CIT(A) has erred in concluding that the Source of Rs. 5,65,000/- have not been proved.
5. That the Appellant craves leave to add/amend any ground of appeal during the course of Appellate Proceedings.
2. The relevant facts of the case are that the assessee’s return was picked up for scrutiny under CASS. The AO required the assessee to justify the deposits in her HDFC Bank account. The assessee claimed these to be business receipts. The Assessing Officer not convinced with the explanation and the evidence made the addition of Rs. 5 lakh odd for the reasons set out in paras 5 to 8 of his order. These are reproduced hereunder for the sake of completeness:
5. On 26.12.2016 a written reply has been received. In the reply it is submitted that the assessee was carrying on the business of Boutique during the year under consideration. Basically, the assessee is having her own setup of sewing machines in her home and had given the setup on contract to Tailor, She used to received Order from the Customers and the stitching of that Order was to be done by the Tailor. Also all the expenses, such as on needles, on Threads, on Oil & Lubricants, on Button etc. were to be borne by the Tailor. For the above said job, the assessee and tailor used to divide the receipt in the ratio of 35:65. The Sample Copies of the bills are enclosed herewith as Annexure-1.
6. In the annexure-1, the assessee has produced 16 copies of bills of different dates under the name & Style ‘Asha Boutique, Hargobind Nagar. Near pin Colony, Ward No.74, Back Side Hero Cycle, Giaspura Ludhiana”, starting with Bill No.309 dated 01.04.2013 and ends with Sr No. 1501 dated 21.03.2014. None of the bills amount is tally with the cash book For example the assessee has produced copies of bills No.309 dated 01.04.2014 showing the receipt of cash of Rs.3500/-whereas in the Cash Book shown the amount of 1250 vide voucher No.l. On 25.05.2013 the assessee received cash of Rs. 5500/- vide bill No.495, but in the cash book on 25.05.2013 the assessee has shown the cash receipt of Rs.1920/- vide voucher No.53. On 09.07.2013 assessee has shown cash receipt of Rs.6370 vide bills No.660,661 & 662 whereas in the cash book, the assessee has shown cash receipt of Rs.1530/- vide voucher No. 95.
7. From the above nothing is matching between the copies of bills and copy of cash book produced during the assessment proceedings. The assessee has tried to manage a story to justify the cash deposits of Rs. 5,65,000/- made in her HDFC saving bank account which is recorded in the books of her account which is recorded in the books of her account. It is also visible from the copies of bills produced that to justify her story the assessee has managed the copies of bills according to the ratio of 35:65. The number of voucher entries shown” in the cash book are of 1 to 343 whereas as per copy of bills produced the Serial Number of Bill starts with Sr.No. 309 on 01.04.2013 and ends with Sr. No, 1501 on 21.03.2014. This proves that there must be minimum 1193 (1501 -308} entries in the cash book during the year as against 343 entries shown in the cash book. There is no link with the income shown by the assessee from BOUTIQUE and the Bank Deposits. As the Business is in the name of assessee, she was required to enter the entire cash book.
8. In view of the above findings, the cash deposits of 5,65,000/-is assessed under section 68 of the Income Tax Act, 1961 read with section 115BBE of the Income Tax Act, 1961 being undisclosed cash deposits found credited in the books of account of assessee. The assessee has shown an amount of Rs.4,98,000/- in the profit and loss account. This amount of has been shown as income from boutique. The same is being part of the undisclosed income of Rs.5,65,000/- is being assessed as undisclosed income under section 68 read with section 115BBE Tax Act as the assessee could not give satisfactory reply for the c Rs.5,65,000/- made in HDFC Bank. As the assessee has furnished inaccurate particular of her income, therefore, penalty proceedings u/s 273 Section 274 of the I.T.Act, 1961 are initiated separately.”
3.The assessee carried the issue in appeal before the CIT(A) and relied upon further supporting evidences to justify the claims made on the basis of the audited books of account. Though the CIT(A) remanded the evidences to the AO, however, ultimately the additions made by the AO were confirmed by him. Aggrieved by this, the assessee is in appeal before the ITAT.
4. The ld. AR inviting attention to the written submissions filed before the CIT(A) drew specific attention to page 8 of the same. Reading it alongwith the synopsis filed in the present proceedings he submitted that the attempts of the AO at the assessment stage as well as at the remand stage to link the deposits with the receipts was an exercise which was bound to fail as he had failed to understand the business model of the assessee. Addressing the record, it was submitted that the assessee had repeatedly claimed that the amounts received were shared with the tailors and herself. The assessee’s share was only 35% of the total amounts received for making available her premises, name, contacts and establishment costs etc.
4.1 Inviting attention to the impugned order, it was his submission that the CIT(A) after setting out the facts of the case in para 2 and referring to the provisions of the Act in para 4, extracted the entire remand report of the AO and in the order passed, the claim on facts was again not considered.
4.2 Attention was invited again to the business model of the assessee addressed in para 5 of the assessment order and the written submissions filed before the CIT(A). It was submitted that though they have been extracted in para 5 pages 7 to 1 1 of the order, however have remained unaddressed.
4.3 The ld. AR offered to demonstrate this claim by addressing the vouchers of any specific day on a test check basis stating that he would be able to show that 35% of the sum total of the said date has been reflected in the books.
5. The ld. Sr.DR considering the submissions advanced submitted that though the arguments to this effect are on record, however the offer of the ld. AR to demonstrate his claim on a test check basis at this Forum was objected to. It was his prayer that instead of attempting this exercise of co-relating the amounts on a test check basis with the vouchers, at this stage the issue may be remanded back for carrying out this exercise either to the AO or the CIT(A). The remand to the AO, it was submitted, would be more appropriate.
6. The ld. AR in reply agreed to the remand back for verification to the AO. On query, it was submitted that the assessee in the immediately preceding assessment year as well as in the subsequent assessment year has returned income from a similar activity from Boutique business which has been accepted by the department. It was his submission that the assessee ultimately has stopped her business finally in the next assessment year.
7. I have heard the rival submissions and perused the material available on record. It is seen that the assessee in the facts of the present case relies upon the computerized books of account to justify her return of income. The ld. AR relying upon written submissions filed before the CIT(A) has argued that the assessee has explained the discrepancy in the vouchers, the cash book and deposits by stating that the full amounts reflected in the vouchers have not been entered in the cash book and it is only the 35% of the sum total of all the vouchers issued on a specific date which has been reflected in the cash book. Relying on the consistent arguments before the AO as well as the CIT(A), it has been submitted that from the total amount reflected in the vouchers of the day only 35% belonged to the assessee, consequently, only this amount is reflected in the cash book and is the basis of the deposits made in the Bank account. The remaining 65%, it has been stated belonged to the tailors who took and executed the orders from her premises.
8. A perusal of the written submissions before the CIT(A) shows that the five machines used were stated to be old as such there was no occasion to claim any depreciation which was one of the reasons which prevailed with the CIT(A) to uphold the addition. It has been claimed that the running cost of fans and two tube-lights were borne by her as her premises and contacts were used to attract the customers. For the said expenses, no deduction, it has been stated was claimed. The arrangement that for making her premises and her contacts etc. 35% of the vouched expenses were accepted as her share and the remaining 65% belonged to the tailors for their time, work and material costs like needles, oil lubricants, thread, cloth etc.
9. From an extract of the assessment order in the earlier part of this order it is seen that the sharing ratio of 65:35 with the tailors has been consistently claimed by the assessee.
10. Thus, I find on a perusal of the orders that though the explanation has been offered consistently and it has also been partly extracted in the order however, the exercise to see whether on facts the cashbook reflected 35% of the amounts reflected in the vouchers of the day has never been examined. The arbitrary willful reluctance to look into the facts cannot be upheld.
11. As noted, the ld. AR has offered to demonstrate the assessee’s claim on a test check basis. The said offer has been declined by the ld. Sr.DR at this stage and the parties have agreed that the issue may be remanded back for carrying out the said exercise. Accordingly, considering this factual background, I am of the view that a remand is necessitated.
12. The issue thus could well be concluded by making an appropriate direction to the said effect as it would adequately address the issue in terms of the pronouncement made at the time of hearing. However, such an act would leave those impediments unaddressed which appear to pose serious obstacles and hindrances to the nation’s goal to becoming a 5 trillion dollar economy.
13. Accordingly, encouraged and inspired by the laudable aim and conscious of the nature of the jurisdiction which predicates that the Tribunal shall approach and decide every case in a judicial spirit with irrefutable reasoning and to “pass such order as thinks fit”. In view thereof, I deem it necessary, drawing on my experience as a dispenser of justice to offer certain constructive suggestions consistent with the rendering of justice on the facts of the case which trigger the imperative need for making the following suggestions which I believe shall inject impetus and stimulate growth in the economy by providing a boost to the nation’s enterprise and provide a significant momentum pushing the sluggish economy towards achieving the goal of augmenting the nation’s wealth.
14. With the said aim, I propose that;
Firstly a Tax Advisory Cell be constituted consisting of public spirited officers of the Revenue with strong ethics, full awareness of tax laws and people skills;
Secondly identify the new successful businesses, however small as the agents of economic change. The mechanism and system is already in place, it should be put to use as the deposits in idle/new/unused accounts are routinely red flagged.
Thirdly a Tax Compliance Scheme specially created for the benefits of these new ventures so as to address their past lack of compliances etc.
14.1 These suggestions if implemented, I am confident will result in picking the low hanging fruit already available to us. On these suggestions I propose to deliberate in greater details hereinafter.
15. As suggested first and foremost I am of the view that a Tax Advisory Cell be created for bringing the demonstrably successful businesses from amongst the aspiring milieu from the level of tax free threshold to the level above the said threshold. This is the need of the hour. The creation of such a mechanism I believe is imperative in order to nurture the successful ventures of semi-skilled first time untrained entrepreneurs from a below the tax-free threshold to incomes above this level.
16. These upward movements in incomes, I am aware, are first noticed by the Tax Administrator (Assessing Officer) where deposits in bank accounts or other visible markers of financial success qua a new player in the market are first noticed in the system. These businesses whether engaged in a tailoring activity or boutique owner; restaurateur, dhaba/caterers food outlet; tiffin packer, florist, innovator etc. to my mind should be given a special velvet gloved treatment and encouraged to succeed. No business is too small. I believe that it is only these entrepreneurial fresh ventures appropriately nurtured within the framework of the taxation system which can be the agents of economic change of the nation. Their value to the nation’s economy cannot be over-emphasized. A mechanism to guide these brand new assessees through the tax and the bureaucratic maze must be made available by the State. Their first brush with their financial success must not be so stunning that it poses a seemingly impossible hurdle of compliances that they ultimately crumble and unfortunately vanish in the teeming masses who instead of utilizing the State’s opportunities of growth believe in ridding piggy-back on the enterprise of a few perpetually clamouring for free financial packages and depending only on State affirmative actions. The population needs to be weened away and discouraged from this hopeless life of living on State dependency for all times to come. The State financial assistance and affirmative actions should be encouraged to be seen only as a limited time bound support. The lack of effort and enterprise should not appear to be rewarded. The enterprising should be rewarded. The successful ventures when started should not be allowed to fail at the altar of compliances as failures of such ventures though at a personal level is only an individual loss but these small drops of failures trickling results in a deluge of national failure having huge detrimental consequences for the nation. Pro-active efforts need be made by such Tax Advisory Cell immediately on noticing the success of a venture as the Assessing Officer is too ill equipped and cannot be saddled with the responsibility of assisting them to become tax-compliant as in the environment where he is expected to function he is already hard pressed for time with weekly, monthly targets etc. to be adhered to, he neither has the time and may also lack the skills for providing the assistance.
17. It is the Tax Advisory Cell which can only assist these agents of economic change in becoming tax compliant. It can also make available to these ventures the wealth of the institutional strengths of the State created in the financial; technical and vocational institutions of the country.
18. Carrying these suggestions further considering the provisions of the law and the precedents as available, I believe that in order to ensure the success of the Tax Advisory Cell, it is also necessary to come out with some Scheme which will enable these new businesses who may need assistance to become tax compliant. The ventures, it is noticed generally do not have any advise, experience or knowledge to fall back on and it has been noticed that unknowingly there may be transgressions of the tax laws etc. Even if these are bonafide, they need to be legally addressed. In order to assist these new ventures to come within the fold of the law for their past actions/inactions and carry on their businesses ensuring future compliances past transgressions need to be first addressed through clear concessions under Tax Compliance Scheme/Voluntary Disclosure Scheme for such small enterprises. Introduction of such a scheme becomes necessary. Such an affirmative action will enable these agents of Economic Change to stay alert and live to their civic duty that paying taxes is inevitable and non-negotiable. Such efforts would drive home the point and ensure that these new businesses shall always consciously choose to be on the right side of law and not live in constant fear of being discovered having unknowingly committed some bonafide transgressions. To my mind, without such a scheme the Tax Advisory Cell may be handicapped in performing their role within the confines of law.
19. While on the subject, I would humbly suggest that the work of the Tax Advisory Cell is not outsourced. To my mind, the lack of accountability and commitment in a fly by night operator however competent would be detrimental to these aims and I believe would be at the cost of the State. The outsourced adhoc personnel are bound to lack commitment and accountability as unlike public servants, their ethical values and vision is neither monitored nor has it been tested at any level. Entrusting this important mission to untested personnel may prove a dangerously rash exercise with serious long term negative consequences. The Assessing Officer, I believe, also cannot be expected to hand hold these new assessees towards compliances as in the absence of any system created to nurture these sparks of Indian economic change, the Assessing Officer having his own limitations of meeting his monthly, weekly targets etc. cannot be expected to pause his work and assist these new ventures. However, it is my belief that even in the target oriented mindset, there are government servants available in the tax administration who have joined the services with the aim of nation building and a sense of public service. I would humbly suggest that the Tax Advisory Cell ideally be constituted/populated by the brightest dedicated personnel who have proven records of public service.
20. Having deliberated on ways to assist the agents of Indian economic change i.e. the small business; entrepreneurial self employment generated ventures etc. I believe that it would not be out of place to briefly explain why I consider this class of population deserving of a special treatment. No studies or statistics need be quoted to acknowledge the fact that structured education may not necessarily promote leadership and innovation and may infact at times at the cost of these skills contribute in producing able and competent employees. Equally well acknowledged is the fact that the unique and innovative way with which some people view life can not be taught, it is a gift which at times emerges in challenging situations where formal education may not have been available as an option or may have been consciously been opted out. I believe that I am not in a minority in holding that no amount of skilled workers, qualified persons can force into creation a successful business venture. Similarly the fact that business opportunities can be visualized only by the formally educated is also well accepted to be not a necessity. The oft quoted successful ventures of semi-skilled women (Lijjat Papad); semi skilled family business (Haldiram),(MDH) etc. non-expert-need based venture (Rajah Spice [UK] ) high end tailoring services provided by Tamil Nadu fishermen powering Savile Row tailors (https://timesofindia.indiatimes.com/home/ sunday-times/behind-the-natty-men-in-black-jacket-is-a-tn-fisherman/ articleshow/ 65639243.cms) can b e some of the Indian examples quoted which demonstrate that it is the passion and the vision which is the spark. One may well quote Larry Kim (CFO of Mobile Monkey) while describing an entrepreneur that, “you have to be crazy to start a company.” It may also not be out of context to quote the case study of Subway Sandwiches which is arguably the largest fast food company. The said enterprise was founded by a partnership comprising of a Ph.D Scholar Dr. Peter Buck and a 17 years old aspiring medical school student Mr. Fred Deluca who did not visualize the whopping success, the business would garner. The venture was entered into with the modest aim of funding his studies with the profits so generated. The venture was started by him with a loan of 1000$ from Dr. Buck thus, with virtually no money and industrial knowledge. As a result of this reason, the company was called Doctor’s Associates Incorporation. These references are just a tip of the ice berg. The following instances may as an illustration further drive home the point :
21. I believe there is no dearth in the country of talent, aims and ambitions aspiring to create artificial jewellery; clothing line, cosmetics & beauty; health & welfare; fast food; jam; chutney; seasonal decorations, educational aids, software games; apps for entertaining; learning; skilling etc. However, if the enterprising and innovative who could have started small, out of fears of compliance related responsibilities and instead chose to accept to work for a steady salary for MNC instead of starting small enterprises themselves, then it is in the national interest that the environment is addressed.
22. I believe that technically sound and qualified people can only assist these agents of economic change to become more viable and help them in increasing their scale and profit. However, they cannot provide the spark. On the other hand, these first time assessees because of their successful venture due to their lack of awareness, understanding and existing limitations of their capabilities to adhere to Rules that tax assistance becomes necessary as they are either ignorant or too busy looking at things differently. I believe that ultimately it is such entrepreneurs who can fuel the progress of the Indian economic juggernaut. These sparks of entrepreneurial activity I would suggest consequently should be identified as agents of economic change at the earliest point of time when they come in the radar of the tax administration by virtue of deposits in banks or acquisition of assets etc. As faced with the possibility of probably not being tax compliant, these new ventures should not be allowed to fall in dubious hands where they may be so made aware that whatever they do, they are bound to flout the law. The tax administrator i.e. the Assessing Officer should then immediately pass these new assessees to the Tax Advisory Cell. These agents of economic change should not be left in the lurch trying to address the consequences of their successful ventures as it is on the back of these agents of economic change that the Indian economy can rise and fly. We cannot and should not depend on government spend alone. Wealth has to be created, by the people and a machinery to nurture them should be urgently created within the tax administration department itself. It is in the interests of the State to ensure that relevant information, guidance and advice is made available to these agents of economic change. The Indian economy can be powered by such enterprising people who bravely start their business ventures relying on their vision and passions with no financial nets to fall back on in case of failure of their business venture. These first time businesses lacking the experience and skills are ill equipped even to handle their financial success and need assistance to guide them through the tax requirements and the bureaucratic maze of necessary compliances. It is the Tax Advisory Cell can help them to become tax compliant. The Revenue may consider developing the skills to collect (tax) like honey is collected from flowers by bees and butterflies. The flower does not miss the honey taken. It continues to bloom and remain viable for honey collection again and again till its life time.
23. In my experience as a dispenser of Justice, I have noticed that generally the violations of tax laws by new assessees do not occur because they are so desired but because of sheer lack of proper advice. Instead of letting these sparks of economic change stifle and die due to fear of compliances, I firmly believe for the detailed reasons set out hereinabove that they be urgently assisted in the interests of the State. Such sparks may be reflected at times in part time enterprising housewives, illiterate, semi-skilled men/women or teenagers. I would seriously exhort and urge the State through the tax administration to provide a platform specially created to assist these ventures to remain relevant and tax compliant.
24. I am aware that viable and suitable environments are being created for the success of businesses but due to lack of exposure, education and equally ignorant peer group, these sparks of entrepreneurship belonging not necessarily to the metropolitan cities and the elites many a times die silent deaths with broken dreams and aspirations. These deaths as noted come at the cost of the Indian economy. The minimum tax generated by these dying ventures should not be the aim of the tax administration or the State. The aim should be to help and assist them to become big and remain tax compliant. Therein comes the role of the tax administration. It is the tax administration which as noted earlier is first alerted about successful ventures by way of deposits in bank accounts, acquisition of property, vehicle etc. The change noticed should be responded to with alacrity by the machinery specially created within the tax department which has skilled knowledge in abundance as its resource strength.
25. It is for the said purposes to highlight the concepts of a) agents of economic change; b) creation of Tax Advisory Cell; and coming out with; c) Policy/Tax Compliance Scheme for these new businesses that a copy of this order, it is considered necessary to be marked to the Chairman, CBDT, New Delhi.
26. Reverting back to the facts of the present case considering the submissions advanced on behalf of the parties in the facts which have been brought out in greater detail in paras 2 to 11 of this order, the impugned order is set aside back to the file of the AO with the direction to verify the stated claim of the assessee namely that the sums reflected by her as her income of a specific day is the 35% of the sum total of the receipts of the vouchers of the specific date.
26.1 It is directed that in case the assessee succeeds in demonstrating her claim, the addition is to be deleted.
26.2. However in case after carrying out the said verification, the claim is found to be not acceptable, it is directed that the AO necessarily shall confront the deficiencies noticed to the assessee and after giving the assessee a reasonable opportunity of being heard in the spirit of the suggestions made hereinabove shall then pass a speaking order in accordance with law.
26.3 It is made clear that the assessee in its own interests shall participate fully and fairly in the proceedings before the AO as failing which the AO shall be at liberty to pass an order on the basis of material available on record. Said order was pronounced in the Open Court at the time of hearing itself.
27. The Registry is directed to forward a copy of this order to; (i) The Chairman, CBDT, New Delhi. (specific paras 12 to 25 of this order being referred for information and necessary action, if deemed fit).
28. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 29th August,2019.