These cross appeals of the Assessee and the Revenue are directed against different orders of the C.I.T. (Appeals), Chennai and involves several issues.Scheme Deposit.The facts: The assessee is a partnership firm constituted by the Deed of Partnership dated 22.1.1980 and consisted of two partners, viz., Ms. J. Jayalalitha and Ms. V Sasikala . In terms of the Deed of Partnership, the Assessee carries on the business of all types of printing and publishing of newspapers, magazines, periodicals etc. and such other business or businesses as may be mutually agreed to between the partners. On 30.4.1990, the Assessee purchased a factory shed consisting of ‘ 3650 sq.ft. along with a factory building from Shri K. Viswanathan as per the sale deed dated 30.4.1900. It was the contention of the Counsel that the Assessee had installed a printing press in the factory premises and started its business of printing and publishing the political newspaper titled ‘ Namadu MGR ‘ for circulation among public and various agencies. While completing the original assessments the Assessee ‘ s claim was not fully allowed by the Assessing Officer. The Assessee went in appeal before the C.I.T.(Appeals) and he set aside the same. Since the Assessee failed to produce the contemporaneous primary evidence relating to the issue, he restricted the claim of the Assessee in all these years.
Tribunal’s decision: From the impugned order it is not clear as to on what basis the first appellate authority worked out the percentage 1.5% to give relief to the Assessee. It is pertinent to note that the Assessee had claimed to have collected Scheme Deposits from 2250 persons and filed complete details of the names and addresses of the depositors. C.I.T. (Appeals) accepted these back of the Assessee without giving an opportunity of being heard. Therefore, the matter requires investigation at the level of the Assessing Officer and so the issue is remanded with direction to decide the issue in dispute after re-investigation in respect of 41 persons only and after giving reasonable opportunity of being heard.
Agricultural income – lakhs from water melons?
The facts: The Assessee had taken on lease 7.77 hectares of agricultural land at Poyappakam Village and 6.49 hectares of land bearing trees on licence basis and had earned income from agricultural as per profit & loss account. The Assessing Officer disputed the genuineness of lease on the ground that there was no entry for the sale of the stamp paper No. 4163 utilised for the lease agreements in the office of the District Registrar and the lesser had deposed before the Assessing Officer he did not lease or licence his landholdings. The appeal was to set aside the order of the C.I.T. (Appeals) in sustaining the addition of Rs. 1,83,915/- treating the same as non-agricultural income for the assessment year 1994.
Validity of a retracted statement.
One Mr. TSR vasudevan who had given a statement before the Deputy Commissioner, Income Tax filed an affidavit that the statement was obtained by coercion and harassing his wife and daughters and he had signed the statement around midnight just to get rid of the raiding party.
The Tribunal observed,
On a perusal of affidavit filed by Shri T.S.R. Vasudevan , it is clear that retracted from the statement recorded on the search day. It is pertinent to note that the statements recorded on the search day have evidentiary value and credibility in law, the same should be viewed with great caution, particularly, when the same is denied, retracted or claimed to have been obtained under mental stress coercion or due to any abnormal condition and circumstances when such statements were recorded. Therefore, if a person at a later stage retracts from the statement given on the search day, it is necessary to ascertain the reasons or circumstances from such person for doing so and if satisfied not to place any reliance on such earlier statements which have subsequently been denied or retracted.
On the agricultural income, the Tribunal observed,
The CIT (A) has taken into account the gross receipts and production expenses in respect of cotton, paddy, groundnut etc. However, for want of exact details regarding the number of acres in which each
crop was cultivated the average method is resorted to for arriving at the average income per acre by the C.I.T. (Appeals). He has also taken into account the receipts and expenses in respect of bamboo plantations guava, coconut etc. and arrived at the net agricultural income at Rs. 8,01,961/- without taking into consideration the Assessee ‘ s claim of agricultural incomes from the cultivation of intercrops viz., vegetables and water melon. According to C.I.T. Appeals) if the net incomes from the cultivation of vegetables and water melon to be considered, the net agricultural incomes from the entire lease-hold lands would be Rs. 15 lakhs to Rs. 16 lakhs as stated by Shri T.S.R. Vasudevan. In this year, the Assessing Officer has estimated the Assessee ‘ s claim of agricultural income without taking into consideration from the cultivation of the inter crops in 16.03 acres . Therefore, he held that the Assessee was in receipt of agricultural income to the extent of Rs. 14,00,000/- and the balance amount of Rs. 1,83,915/- should be treated as non-agricultural income which should be taxed under the head `income from other sources in the assessment year 1994-95.
The Tribunal held that the C.I.T. (Appeals) has arrived at average net agricultural income after taking into account the entire spectrum of the case in all the years under consideration and upheld his order and dismissed the appeals of the Assessee and the Revenue.
Inflation of purchases/bogus purchases. The facts: Assessee had purchased totally 6,77,517 kgs. Of newsprint valued at Rs. 1,85,04,927/ -. According to the Assessing Officer, the purchase of newsprint to the extent of Rs. 1,65,65,295/ – are fictitious which approximately works out to 6,06,550 kgs. of newsprint. Therefore, the Assessing Officer held that it is not possible to print 60,000 copies of news paper per day. The Assessee has furnished the quantitative particulars of newsprint purchased and consumed during the year ended 31.3.1995. The Assessee has also furnished the details of the suppliers who were registered with Sales-tax Authorities. When the proprietors of the concerned suppliers of newsprint met the Inspector of Income-tax attached to the office of the Assessing Officer, the Assessing Officer was not available and they handed over copies of the account of NAMADU MGR upto 31.8.99 as appearing in their books of accounts. However, the Assessing officer held that concerned suppliers were not existing and he made addition on account of inflation of purchases. Aggrieved, the Assessee preferred an appeal before the C.I.T. (Appeals) who has sustained an addition calculated at 15% of the total cash purchases of Rs. 1,65,65,925/ -.
Tribunal’s order: It is observed that the Assessee has also furnished the account copies of the Assessee as appearing in their books of accounts as well as the details of their sales-tax registration and bank accounts. It is also observed that the Assessee has produced before the Assessing Officer copies of the purchase bills as well as the copy of the entire stock register.
Even the suppliers of the newsprint appeared before the Inspector of Income-tax attached to the office of the Assessing Officer and in support of their appearance, the Assessee ‘ s Counsel produced copies of confirmation letters addressed to the Assessing Officer by the aforesaid suppliers. From the above it is clear that the purchase transactions from the concerned parties were confirmed through statement of accounts as well as through personal appearance before the above authorities. On a careful consideration of these facts along with the strike orders and the certificates issued by the Registrar of Newspapers of India, the purchase transactions involving the above parties are not bogus. Therefore, the Assessing Officer ‘ s decision to restrict the claim of the purchases to the extent evidenced in the bank statement is not based on legal principles. However, for want of verification of purchase rates or even quantities purchased in substantial cash transactions, the possibility of inflation or excessive claims in purchases cannot be completely ruled out. In this view of the matter, the C.I.T. (Appeals) sustained an addition calculated at 15% of the total cash purchases in all these years. keeping in view the facts and circumstances of the case and in the interest of justice, we are of the view that an addition of 5% of the total cash purchases should be sustained. Therefore, the Assessing Officer is directed to sustain the addition of 5% of the total cash purchases in the respective assessment years. Accordingly, the Assessee ‘ s appeal is partly allowed on this issue and the Revenue ‘ s appeal is dismissed.
unaccounted receivables. The Assessing Officer found that as per the sales ledger of M/s. Namadhu MGR, amounts of Rs. 18,19,321/- and Rs. 52,60,601/- were receivable on account of sales and advertisement respectively. However, these amounts were not shown in the balance sheet. The Assessee was asked to explain. But no explanation was given nor the books of accounts were produced by the Assessee. Therefore, he made the addition on this count. Aggrieved, the Assessee went in appeal before the C.I.T. (Appeals) who deleted the addition.
Tribunal’s order: Assessee has produced photostat copies of the Sales Ledger and Advertisement Ledger before the C.I.T. (Appeals) and he found that the Sales Ledger consisted of 761 pages and each page was allotted to a particular party. Each page of the party ‘ s accounts consisted of two columns i.e. sales/advertisement debited and amount collected. The Assessee ‘ s Counsel explained that the aggregate amount collected each day from various parties are straightway taken to the credit side of the profit and loss account as income and since the accounts are kept on cash basis, the amount receivable is not taken to the balance sheet. According to the Assessing Officer, the sundry liabilities are shown in the balance sheet which indicated that the Assessee was following mercantile system of accounting. It is clear that the sundry liabilities, even though shown in the balance sheet do not affect the cash system of accounting followed by the Assessee. Therefore, the C.I.T. (Appeals) was justified in deleting the addition and it is upheld.
Unexplained credits in bank accounts. The facts of the case are that the Assessee has maintained and operated two bank accounts during the year namely A/c No. 2552 in the name of M/s. Jaya Publications and A/c No. 2554 in the name of M/s. Namadu MGR with Canara Bank, Mylapore Branch. The Assessing Officer noticed from the copies of the account statements obtained from the Bank that the credits other than contra entries in A/c No. 2552 were to the tune of Rs. 93,05,753/-. Out of these, credits of Rs. 80,27,506/- were receipts from AIADMK and Rs. 1,07,580/- was by way of cash. The total credits other than contra entries in A/c No. 2554 were Rs. 2,24,39,364/ -. Out of these, credits to the tune of Rs. 35,33,216/- was by way of cash and Rs. 76,64,432/- was by way of receipts from AIADMK. The Assessee was called upon to explain the nature and source of these credits including the cash credits. However, the Assessee failed to furnish any evidence in this regard. The Assessee has claimed in its profit and loss account Rs. 2,59,20,488/ – on account of sales, job work charges and advertisement receipts. The credits in the ban accounts by way of Cheque were Rs. 2,81,04,321/ – and the difference of Rs. 21,83,833/- was not explained. Even no explanation or evidence was furnished in respect of cash credits to the tune of Rs. 36,40,796/- noticed in the above two bank accounts. Therefore, the Assessing Officer treating the receipts as income ‘ from other sources ‘ made addition of Rs. 58,24,629/- towards unexplained deposits in bank accounts. Aggrieved, the Assessee went in appeal before the C.I.T. (Appeals) who has restricted the addition.
Tribunal’s order: remitted back to the file of the Assessing Officer to decide the issue afresh after verifying the extracts of the receipt register and after providing adequate opportunity of being heard to the Assessee.
Expenditure incurred in cash. The Assessee has claimed expenditure in the profit and loss account filed along with the return of income, under various heads to the tune of Rs.2,69,80,435/ -. The Assessee has not substantiated with any evidence that the expenditure claimed was incurred and it was incurred wholly and exclusively for the Assessee ‘ s business purposes. Therefore, he treated the bank transactions to be genuine and rejected all the cash transactions. The C.I.T. (Appeals) sustained an addition of 15% of the total expenditure incurred in cash of Rs.1,30,53,401/ – which works out to Rs. 19,58,010/-.
Tribunal’s order: In the interest of justice and keeping in view the facts and circumstances of the case, 5% of the expenditure incurred in cash should be disallowed.