PCIT Vs Akshit Kumar (Delhi High Court)
ITAT observed that in the impugned AY 2014-15, the audited balance-sheet reflected an opening stock of Rs. 19,53,29,660/- which stood accepted by the Department either under the scrutiny proceedings or by not selecting the return for scrutiny or by not taking any action to disturb such returned income. In these circumstances, it was held that the quantum figure and the opening stock which stood accepted in the earlier years had to be taken as actual stock available with the Respondent-Assessee. In view of these facts, the sales made by the Respondent-Assessee out of its opening stock were not treated as unexplained income, to be taxed as income from other sources.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
C.M.No.15854/2019 (Exemption)
1. Allowed, subject to all just exceptions.
C.M.No.15852/2019 (delay in filing)
2. In view of averments made in the application, the delay of 70 days in filing the present appeal is condoned.
3. Accordingly, the application is allowed.
C.M.No.15853/2019 (delay in re-filing)
4. In view of averments made in the application, the delay of 140 days in re-filing the present appeal is condoned.
5. Accordingly, the application is allowed.
ITA 348/2019
6. The present appeal under Section 260A of the Income Tax Act (‘the Act ’) is directed against the impugned order passed by the Income-tax Appellate Tribunal (‘ITAT’), New Delhi dated 27.04.2018 allowing the appeal being ITA No. 6527/Del/2017 filed by the Assessee relating to the Assessment Year (‘AY’) 2014-15.
7. Briefly stated, the Respondent-Assessee, Shri Akshit Kumar filed his ITR on 31.03.2015 for AY 2014-15 declaring his income of Rs.41,60,010/-. The declared sources of income of the Respondent-Assessee were salary, income from business and profession and other sources. The declared income included an amount of Rs. 3,19,580/- under the head income from business and trading of textiles. The case was selected for scrutiny and notices under Sections 143(2) and 142(1) were issued by the Assessing Officer (‘AO’) from time to time. The AO noticed certain peculiarities which have been summarized by the Appellant-Revenue in the present appeal as under:
“a. In the return of income, the assessee had shown his residential as A-32 Preet Vihar Delhi and was also filing its ITR with AO at New Delhi.
b. It was also noticed that the assessee was having its business at 75A/2 Kon Village Mumbai, Panvel, Raigad.
c. It was further noticed that the assessee was actually residing at Navi Mumbai.
d. It was further observed that the filing address had remained constant for the past several years, when all along the business and residence of the assessee has been based on Navi Mumbai.
e. Not only the assessee, his father Shri Anil Kumar and his mother Smt. Manjusha were also found trading same cloth/fabric under the similar circumstances in different names. Shri Manjusha Anil was working under the name and style of M/s Hitech Trading takes place from 42 & 77, Mumbai – Pune Highway, Khopoli Industrial Estate, Raigaol, Mumbai, On physical enquires at all the business premises it was discovered that there was no fabric/cloth trading business in existence for any of the members.
f. It was quite intriguing that when the assessee was actually residing in Mumbai, earning salary income in Mumbai and had his business also at Mumbai, and there was no business at Delhi, why had it been consistently been filing its ITRs in Delhi with Delhi address.”
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“a. All the sales undertaken by its proprietary concern M/s Loraiya Trading were in cash only.
b. During FY 2013-14, no purchases were made, all the sales were made out of the opening stock available at the beginning of the year.
c. On perusal of the sample voucher of cash sales, they appeared to be fresh, computer printouts, recently signed and back-dated to FY 2013-14.
d. The business of the assessee was trading in fabrics, however as per the balance sheet of M/s Loraiya Trading there is no weighing machine in the fixed asset schedule. It was pertinent to note that as per the stock register, the unit of opening stock of cloth fabric is in Kilogram and not prepackaged units like boxes or crates which may or may not require being weighed.
e. The assessee had neither shown any building in its fixed asset schedule nor any rent expense in his P/L Account. The assessee had shown huge opening stock of 19,85,109.530 kg. valued at over Rs.30 crores which would require considerable storage space. It is pertinent to answer if the assessee was indeed selling goods from the opening stock available with it, then where was this stock stored.”
8. The AO conducted on the spot physical verification, under Section 133B of the Act, of the business premises of the Respondent- Assessee, to ascertain if the claimed business was actually in existence or not. As a result of the said survey, the AO concluded that the premises from where the Respondent-Assessee purportedly conducted his business had been abandoned for several years and there was no built-up area in its vicinity. The AO also gave a categorical finding that there was no weighing machine installed. Thus, on the basis of aforenoted facts, the AO held that it was a case of money laundering and a false impression had been created that the entire cash deposits in the bank account of the Respondent- Assessee were purported sale proceeds. The AO also held that the entire cash deposits found in the bank account of the Respondent-Assessee were, in fact unexplained income and not sale proceeds and accordingly made an addition of Rs.4,20,62,550/- on account of unexplained credits while completing the assessment under Section 143(3) of the Act at a total income of Rs.4,62,22,560/-. Thereafter, a rectification order was passed to delete an addition of Rs.3,19,580/- under the head ‘income from business or profession’ from the assessed additions of Rs.4,20,62,550/-. On appeal, the CIT(A) noted that as per the verification report under Section 133B dated 05.11.2016, there was no weighing machine found at the premises of the Respondent-Assessee. This aspect was further juxtaposed with the fact that the Respondent-Assessee in its return (depreciation schedule) did not show the existence of any weighing machine. The Respondent-Assessee, contested the scrutiny proceedings by relying upon the rule of consistency by referring to the assessment of the earlier years. However, his contention was rejected on the ground that no finding had been given by the AO in AY 2007-08 and the present findings in AY 2014-15 would not be affected by the findings of earlier assessment years as the facts of the present year are entirely different. Accordingly, the order of the AO was upheld. On further appeal, the learned ITAT held that the AO was not justified in law to treat the sales as income from unexplained sources and consequently, addition made by the AO, sustained by the CIT(A) of Rs.4,20,62,550/- was deleted. As a result, the appeal of the Respondent-Assessee was allowed.
9. Mr. Ajit Sharma, learned Senior Standing Counsel for the Appellant-Revenue urged that the learned ITAT was not justified in ignoring the specific findings given by the AO in the assessment order dated 31.12.2016. He submitted that the AO after conducting a detailed enquiry had rightly concluded that Respondent- Assessee’s intention was to get assessed at a remote place in Delhi, rather than before the appropriate authorities in Mumbai. He submitted that the very absence of the business place and even a weighing machine in the balance-sheet, coupled with the fact that there was no expenditure on account of rent, depreciation etc. in the profit and loss account of the Respondent-Assessee, the inferences drawn by the AO were correct. He submitted that maintaining a huge inventory of stock in the range of Rs. 20 to 30 Crores year after year and making comparatively small amount of sales, itself raised serious doubts about the genuineness of the business. He further submitted that the finding of the AO to the effect that the Respondent-Assessee had created a false business with the objective of laundering its unaccounted income is based on the enquiries conducted by the AO under Section 133B and also because the Respondent-Assessee had failed to appear in person even after being summoned under Section 131(1) of the Act to clarify the position. He submitted that learned ITAT had erred by not taking into consideration the findings of the AO raising serious concerns about the genuineness of Respondent-Assessee’s claim of doing business which had been fully endorsed by the CIT(A).
10. We have carefully considered the contentions advanced by Mr. Ajit Sharma and have also perused the findings of the Income-Tax authorities and that of the learned ITAT. The learned ITAT after analysing the contentions urged by the parties and also on the basis of the material placed on record observed as under:
“13. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as the material placed on record. Here in this case we have to analyse various factors and background highlighted by both the parties as to whether the sales of fabric/ cloth bales is to added as unexplained income or sale of existing stocks or not. From the Revenue‘s perspective, it is palpable that AO had made very genuine efforts to carry out a physical inquiry to find out whether such trading of fabric was done by the assessee from the premises mentioned in the audit report or not. But at the same time it is also and admitted fact that on the date of inquiry, i.e., made on 5.11.2016 at 75A/2, Kon Village, Panvel Taluka Raigad, the assessee has stated to have closed its business long back in July 2015 ending 31st March, 2016 the stock has been shown‗NIL‘, which factum has been shown in audit report and return of income for A.Y. 2016-17. This inter-alia means that entire stock alleged to have been kept by the assessee were sold during the financial year 2015-16 and all the business was shut down. In her inquiry report AO had stated that the areas specified in the address, heavy constructions was being done for residential housing society and this was not the area was not well addressed and she also stated the details of certain construction sites. On the plot which has been stated to be near the address was in a complete abandoned state which had dilapidated building and even on enquiry, nobody could confirm running of such business. It has been alleged by the AO that similar inquiry was done in the case of assessee‘s father and mother where again business premises was found to be untraceable at the given addresses. She had also repudiated many evidences as well as explanation given by the assessee which we have already discussed above. Even the Ld.CIT(A) has reiterated and confirmed the said observations of the AO in a very detailed manner. From such finding and observations it does appear that at the time of inspection on 5.11.2016, no trace of assessee‘s business or business premise could be found. The counter of the assessee on this issue had been that it was carried out form the space provided by M/s S.K. Wheels Pvt. Ltd., however, for that also AO observed that no credible evidence has been brought on record. For other evidences also like electricity bill to prove the location of M/s S.K. Wheels Pvt.Ltd. alongwith rental receipts from where M/s S.K. Wheels was functioning has not been accepted by the AO due to lack of any corroborative and independent evidence. On the issue where such a huge stock of fabrics have been alleged to be kept by the assessee, his main contention has been that same was kept in the premise provided by M/s S.K. Wheels which has given huge godown to the assessee without charging any rent as the said Company belonged to his family members. M/s S.K. Wheels was authorised dealer in Maruti Suzuki cars and in support confirmation from the said company has been given that rent free place has been given to the assessee during the financial year 2013-14. Electricity bill has also been produced to show that premises did existed at 75A/2, Kon Village Mumbai, Panvel, Raigad, the copy of electricity bill as well as the letter by M/s. S.K. Wheels have been placed at the paper book at pages 152 and 154 of the paper book. Apart from that, certain rental receipts issued by one RA enterprise has been given to show that M/s. S.K. Wheels Pvt. Ltd. was having premises on rent. However, all these evidences adduced by ht assessee is how far credible and acceptable in wake of inquiry made by the AO and whether it can be conclusively held that the assessee was carrying out any business from the premises made available by M/s. S.K. Wheels or not. The finding recorded by the AO in light of her inquiry prima facie negates most of the assessee‘s claim regarding the premises available to the assessee at a given place for carrying out such a large scale of trading of fabric/cloth bales. Such a detailed finding of the AO and Ld. CIT (A) for the existence of any trading business especially at the time of inspection has not been properly countered by the assessee except for adducing certain evidences which again does not have much credentials in wake of actual inquiry conducted by the AO. But such an inquiry in F.Y.2016-17, i.e. post closure of business how far will affect the past history and the year under consideration, i.e., F.Y. 2013-14 is the moot point for our consideration juxtaposed with entire facts and material on record.
14. The finding of the AO in her inquiry conducted in November, 2016 and past assessment records have to be weighed in light of all probable factors and preponderance of probability of such factors has to be seen qua material on record which we shall discussed herein after. One of the most glaring fact which unfolds from the material placed on record is that, prior to the assessment year 2007-08 assessee had made huge purchases of stock the source of such purchases have been reflected in the books of account and audited accounts; and in the assessment year 2007-08, the opening stock of fabric/cloth was valued at Rs. 31,65,48,236/- and in that year itself there was sales of around Rs. 5.89 crores leaving behind the stock of Rs. 25.83 crores thereof. Again huge purchases have been shown in the A.Y. 2008-09 and sales have also been made. The details of opening stock, purchases, sales and closing stock for various years has already been incorporated above. As on 31st March, 2014 there was a closing stock of R.19,53,79,660/- which was also the opening balance in this year and out of the said opening stock, sales of Rs. 4,20,62,550/- have been made and closing stock of Rs. 15,48,57,470/- has been shown on which gross profit of Rs. 15,40,360/- has been disclosed. The controversy to resolve here is, whether the stock in the books have been sold or not; or the entire deposits claimed out of sales in unaccounted money of the assessee. Going by the history of trading account in the earlier years, viz., opening stock, purchases, sales, closing stock, gross profit and the assessments made by the department, we find that way back in the assessment year 2007-08, assessment was passed u/s 143(3)/147, whereby the entire books of accounts have been scrutinised and assessee‘s income from business have been accepted. This inter-alia means that entire opening stock, sales and closing stock made during that year stands accepted. Again for assessment years 2008-09 to 2011-12, though returns have been accepted u/s 143(1), however the positions of stock were never disturbed and were duly reflected in the audited accounts. In the assessment year 2012-13 again the assessee‘s trading activity and books of accounts were subjected to detailed scrutiny in proceedings u/s 143(3), wherein the AO had noted the trading account figures like, turnover, profit rate, profit ratios vis-à-vis turnover and stock positions and based on his detailed reasoning, AO had rejected the trading result and has even enhanced the GP rate and thereby making an addition at Rs. 42, 51,463/- in the trading account. Thus, in this manner the entire trading activity of the assessee stood accepted and only addition made was on account of higher profit rate, but the sales made during that year; trading/business carried out by the assessee was duly accepted, including opening and closing stock. Again in the assessment year4 2012-13 the opening and closing stock and trading account including sales has not been disturbed, now in the impugned assessment year 2014-15, the audited balance sheet reflected an opening stock of Rs. 19,53,29,660/- which opening stock stood accepted by the department either under the scrutiny proceedings or by not selecting the return for scrutiny proceedings or by taking any action to disturb such returned income. Hence the quantity and valuation of stock stood accepted which had attained finality. Thus, the quantum and figure of the opening stock which stood accepted in the earlier years has to be taken as an actual stock available with the assessee. Out of the said stock purported sales of Rs. 4,20,62,550/-has been made leaving a closing stock of Rs. 15,48,57,470/-. The trading account was thus reflected in the following manner:-
