TMI Blog2009 (6) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is, given to this order with regard to quantum proceedings - Appeal is partly allowed - - - - - Dated:- 11-6-2009 - Member(s) : I. P. BANSAL., HARI OM MARATHA., SANJAY ARORA. ORDER-HARI OM MARATHA, J.M.: December, 2008 Both these appeals were heard together, in which inter-connected issues arising out of almost similar set of facts are involved and both pertain to asst. yr. 2001-02. Therefore, for the sake of convenience and brevity, we proceed to decide them by common order. ITA No. 48/Agra/2005 [under s. 143(3) (2001-02) (Quantum appeal)]: 2. This appeal of the assessee is directed against the order of learned CIT(A), dt. 10th Dec., 2004 for asst. yr. 2001-02. The assessee has raised four grounds in this appeal, out of which ground No. 1 was not pressed at the time of hearing. Therefore, ground No. 1 is treated as dismissed, being not pressed. 3. Ground No. 2 of this appeal pertains to the addition of Rs. 2,95,000 made on the basis of three loose papers which were found during the course of a survey conducted at the business premises of the assessee on 12th Sept., 2000. From the writing on these papers it was inferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his statement was recorded in which in reply to question No. 2, after telling the relation with the owner of the shop Shri Prakash Motwani, he stated that the owner was out of the town due to some work and was not present in the city. Regarding production of books, he stated that he had no knowledge about the books and only Prakash Motwani can give proper reply. The learned Authorised Representative has invited our attention to a copy of this statement enclosed in the paper book along with its English version at p. 4. He also drew our attention towards paper book p. 5, which is a copy of the letter dt. 15th Dec., 2003. in which it is mentioned that the books of accounts, purchase vouchers and sale memos were produced before the AO. In this regard. paras 6 and 11 of this letter were specifically referred to from which it is noted that the assessee had produced before the AO requisite books of accounts etc. To verify whether this letter was really produced before the AO, the file folder of the assessment record was called from the Department. The learned Departmental Representative was fair enough to point out after looking into the records that the copy of this letter dt. 15th Dec., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated the possession of these currency notes by the assessee as sufficient evidence to prove that the assessee had made the payment of the entire amount of Rs. 2,95,000 to Shri Shankar Lal before 12th Sept., 2000. 6. On the other hand, the learned Departmental Representative has placed heavy reliance on the orders of the authorities below. It was stated by the learned Departmental Representative that the entire story built-up by the assessee during the four years after the date of survey, is a sheer concoction and manipulation. According to the learned Departmental Representative the entire advance amount had been paid by the assessee to the seller of the land Shri Shankar Lal even before the date of survey. He further argued on the same lines, which toed the reasoning given by the learned CIT(A). 7. We have circumspected the entire evidences available on record in the light of the oral as well as written submissions of the parties vis-a-vis available materials on the record. It is a fact that three currency notes with three separate slips were found during the course of survey on 12th Sept., 2000 from the possession of the assessee. It is a fact that on that day, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorised Representative with reference to pp. 4, 6 and 19 of his paper book and particularly with the letter dt. 15th Dec., 2003 written by the assessee which was found in the file folder of the assessment records, as discussed above, the suspicion/doubt aroused in the mind of the learned AO is definitely diluted. We may also safely observe that suspicion/doubt of the AO has to dissolve thereafter. At the very first instance, the son of assessee's sister who was sitting on the shop had categorically stated that 'about the books of accounts only his maternal uncle, i.e. the assessee can tell'. The assessee had produced complete books of accounts before the AO which fact is evident from the letter dt. 15th Dec., 2003, as well as para 1 of the assessment order itself. For ready reference para 1 of the assessment order is reproduced below: "The assessee derives income from sale and purchase of medicines. Return of income for the asst. yr. 2001-02 was filed on 31st March, 2002 but no copy of accounts were filed. Therefore, a notice under s. 139(9) was issued to the assessee on 22nd May, 2002. In compliance with which the assessee furnished copies of trading account, P/L a/c and bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Lal narrated the entire story, but still he maintained his earlier version and the required reply could not be extracted from him. On the other hand, he explained and narrated that how and under what circumstances, and for what purpose he sent one person Chintu to Agra to bring money on 10th Sept., 2000. After 8-10 days, he was given Rs. 85,000, thereafter after 2-3 days Rs. 1,00,000 cash and lastly after 4-5 days, thereafter Rs. 1,10,000 were given in cash to his man. He categorically stated that in the month of September, the boy gave him total cash amount of Rs. 2,95,000 in front of father-in-law of Shri Prakash Motwani. The other ancillary questions were also immediately replied by him. The assessee is dealing in wholesale business of medicines. The business was closed on 31st Oct., 2000, i.e., during the asst. yr. 2001-02. He explained as to how the sales increased during that period. He has given ratio between the sales and closing stock in earlier years as under: ------------------------------------------- Asst. year Sales Closing stock Ratio ------------------------------------------- 1998-99 17,40,100 2,64,276 15.1% -------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has shown total withdrawals of Rs. 33,500, which were readily accepted by the Department. These facts could not be controverted by the learned Departmental Representative. In view of the totality of the above facts and circumstances, we do not endorse the action of the learned AO or that of the learned CIT(A) who have made estimation without any reasonable basis. Consequently, we order to delete the entire addition of Rs. 14,500 as sustained by the learned CIT(A) and allow ground No. 3 of the appeal. 10. Ground No. 4 pertains to addition of Rs. 1,00,000 made on account of unexplained stock found during the course of survey. The contention of the assessee is that the stock was not properly valued at the time of survey because the stock was valued at MRP (maximum retail price) whereas according to the assessee in medicine line, around 25 per cent to 30 per cent less rates than MRP are normally charged. The AO has agreed with, the claim of the assessee in principle, but he has given reduction of 15 per cent instead of 25 to 30 per cent as has been claimed and has made the addition of Rs. 1,00,000 on this score, which has been sustained by the learned CIT(A) also. The assessee has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial findings by the Revenue that would decide the sustain ability in law of the assessee's legal challenge thereto. The assessee, an individual, in the business at Kedar Nagar, Agra, of purchase and sale of medicines on proprietorship basis, under the trade name R.B. Sons, was subjected to survey proceedings under s. 133A of the Act on 12th Sept., 2000, i.e., during the relevant previous year. Stock-in-trade, valued at Rs. 7,33,479, was physically found at the assessee's business premises and stood duly inventorised. However, apart from purchase vouchers, aggregating to Rs. 12,94,138. No books of accounts or other records, including stock register, sale bills, etc. were found thereat. Three currency notes, along with three slips attached thereto, were also found in survey. The slips bore the name and address of the assessee, with different amounts, in the total of Rs. 2,95,000, written on the three currency notes, as: Rs. 1,10,000 (Re. 1 note), Rs. 85,000 (again Re. 1 note) and Rs. 1 lakh (Rs. 2 note). The handwriting on each of the three slips was different. Particularly on the Re. 1 note on which the amount of Rs. 1,10,000 stood written. 2.2 One, Shri Dhiraj Variyani, aged ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said payment, i.e., one which should reasonably satisfy a person of ordinary prudence when considered in the factual matrix of the case. In other words, whether the non-satisfaction of the Revenue can be justified as reasonable and, thus, judicious. As held by the apex Court in the recent case of CIT vs. P. Mohanakala (2007) 210 CTR (SC) 20 : (2007) 291 ITR 278 (SC), in the context of explanation under s. 68 a section which is para materia, and identically worded, the explanation must satisfy the test of reasonableness and that the expression "the assessee offers no explanation" means the assessee offers no proper, reasonable or acceptable explanations (as regards the sums found credited in the books maintained by the assessee). And that the opinion of the AO for not accepting the explanation offered by the assessee as satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record; the same is to be formed objectively, with reference to the material on record, and exhibit with application of mind. The findings 3.1 The learned CIT(A) has discussed the same at length, observing several deficiencies in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his friends who was sitting besides him at the relevant time, so that different handwritings on the three slips is not explainable or consistent with the assessee's version/explanation. 3.3 All the evidence, thus, that the assessee has, to prove the advance payment of land for Rs. 2,95,000, and one that flows out of explained or accounted source, is the recording. of the same in its books of account; the payee having admittedly not issued, or the assessee having not even required of him to issue, a receipt for the amount received, which would constitute the basic or the primary document in relation to the payment, which is for a substantial sum, made in cash, not directly, and in relation to a land deal. That is, as by way of an agreement to sell, MoU, receipt towards the advance, etc. Further, even as the absence of the receipt is most un-explicable, even the particulars of the land which is purportedly proposed to be bought are not supplied. The least that the parties, and only reasonably so, under the circumstances, do is to identify the property and settle the amount, defining the time period for the payment as well as the consequences that would flow for non-compliance the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id the assessee, if the payment had to be made only as and when cash was available with him, call the courier on 10th September, i.e., seven days before the first instalment? Rather, the same (payment) could only be collected at his own end, and paid at one go, even if it was necessarily to be paid in cash, which is again un-explicable, instead of requiring a person to come down from Ajmer to Agra and stay there for several days, the time period for which is again not certain. In fact, as aforestated, the payment could have easily been remitted through the banking channel; the banks being ubiquitous. This would also eschew the risk involved in handling cash as well as its conveyance to Ajmer. If these slips and currency notes have been sent through one person and at one time, as is the assessee's case, they would bear the handwriting of one person, which is not so? How could the assessee predicate three different amounts, as one would normally be inclined to pay in equal instalments? Again, how could the assessee foresee that the amount would be actually paid in three instalments only? Further, even if for the sake of argument, considering that a single person had acted as a courie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed/requirement, the sale being only in response to the demand that exists in the market, i.e., to the extent accessed to by the seller through his resources. This, coupled with the fact that the purchases during the post-survey period of September, 2000 are at nil, as against the purchases for the first 12 days at Rs. 2,40,000, and which, in comparison with the purchases during the preceding months, is normative, if not a higher figure, impugns assessee's case most decisively. The correlation between the survey date, and the generation of the cash in the assessee's books, and which led to the abnormal variation in the purchase and sales for the two periods of September, 2000, the month of survey, and reading is clear on the wall. The books stood clearly written for the purpose. Finally, the stock as on 12th Sept., 2000, the survey date, at Rs. 5,48,000, is the highest during the year. In other words, rather than the stock getting reduced, the intent being clear, so as to enable the closure of the business, it increases. That the assessee's purchase and sales are totally in cash, so that they are unverifiable in the main, only completes the picture. Conclusion 4. It is difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 7.33 lacs. As such, the only issue is the discount which needs to be allowed in working out the cost price. All that the assessee would be required to do, in such a case, is to show the purchase bills of the items being valued. Its declared rate of gross profit being at around 7 per cent, rather, the normal reduction it could claim on the listed price is 7 per cent. As such, the Revenue, having allowed it 15 per cent, i.e., over double the disclosed GP rate, the same implies adoption of a price lower than the cost price (or the average cost price), imputed thus, so that there is no question of the assessee being allowed a still higher reduction, whose claim(s), in any case remains unsubstantiated. Besides, it needs to be borne in mind that 126 purchase vouchers were found and inventorised at the time of survey (aggregating to Rs. 12.94 lacs), while the purchases ultimately disclosed by the assessee upto 12th Sept., 2000, the date of survey, are at Rs. 17.84 lacs, again in cash and not verifiable, and the assessee's claim is completely bereft of any claim to reliability of its accounts. It is understandable that a few vouchers, being not placed in the relevant file, could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judication at my end, and shall have to await the majority view. I decide accordingly. I.P. BANSAL, J.M. (AS THIRD MEMBER): 11th June, 2009 There being difference of opinion between the Members, the following questions were referred for the opinion of the Third Member: "1. Whether, in the given facts and circumstances of the case, addition of Rs. 2,95,000 on account of alleged undisclosed advance is justified or not? 2. Whether, in the given facts and circumstances of the case, addition of Rs. 1,00,000 for alleged unexplained stock found during the survey is justified or not? 3. Whether, since learned JM has admitted the quantum addition, the corresponding penalty levied under s. 271(1)(c) is to be cancelled/deleted, or in view of the finding of the learned AM, the same has to be kept in abeyance?" 2. The assessee carries on the business of sale and purchase of medicines under proprietorship, namely, R.B. Sons. A survey under s. 133A was conducted on 12th Sept., 2000. The stock-in-trade was valued at Rs. 7,33,479 as per physical verification which was inventorised. Purchase vouchers aggregating to Rs. 12,94,138 were found. No accounts or other record including stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above-mentioned amounts, but dates of payments were neither mentioned by assessee or by said Shri Shankar Lal. The contention of the assessee that payments are reflected in the books of account was rejected by the AO on the ground that books were not produced during the assessment proceedings. It is in this manner, the AO has held that source of payment of Rs. 2,95,000 remained unverifiable. The same was added to the income of the assessee on account of payments made outside the books of account from income from undisclosed sources under s. 69A of the IT Act. 5. In appeal before the CIT(A), it was submitted that the said amount of Rs. 2,95,000 was given out of cash available in the books of account and reference was made to the books produced before the AO for verification. It was submitted that in the balance sheet also the said amount of Rs. 2,95,000 was reflected. The said amount was advanced against purchase of agricultural land. The assessee offered the production of said Shri Shankar Lal for examination and verification of facts. The learned CIT(A) sought remand report from AO and the AO was asked to examine the claim of the assessee again. The contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also mentioned by the AO in his remand report. Therefore, the observations of the AO at the end of remand report that availability of cash is not supported by cash availability is incorrect and there is apparent contradiction in the stand of AO in the remand report. 7. Considering all these submissions, learned CIT(A) has given his findings in para 3.4 of the impugned order. Learned CIT(A) has not found any force in the contention of the assessee that a person was sent to the assessee at Agra to collect the cash and remained with him for a long period for the reason of non-availability of cash. According to the CIT(A), as per prevalent practice, currency notes are sent for identification of the person to whom the money was to be handed over so as to ensure the safe delivery of the money to a right person. The said currency note also acts as a token/evidence of having paid/received the amount to its bearer. As and when the amount is handed over to the bearer of the note, the note is kept by the bearer and, thus, there was no reason to believe that such practice was not followed in the case of the assessee. Taking clue from the fact that all the three currency notes were found at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the vicinity of Rs. 2,50,000 per month and from July onwards the sales have suddenly increased to more than Rs. 4 lacs. He observed that during first 12 days of September, the sales were only Rs. 61,359 and in the remaining 19 days the sales were Rs. 4,74,322 which increase was quite abnormal. He observed that GP rate of the assessee for the year under consideration was 7.32 per cent as against GP rate of 6.88 per cent in the preceding year and, thus, he observed that it is not a case of closure of business where sales of stock are made at a lower margin. Taking clue from the fact that the assessee did not file relevant documents in the shape of P L a/c, capital account and balance sheet, etc., with the return of income, it is observed by the CIT(A) that the assessee has manipulated the books of account so as to show the availability of cash which could be shown to have been used for making the advance payment and, in this manner, the CIT(A) has upheld the addition of Rs. 2,95,000. 9. So as it relates to another addition of Rs 1 lac made on account of excess stock, it is noted by the CIT(A) that at the time of survey, the value of stock at MRP was found at Rs. 7,33,479. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of above-mentioned three currency notes. Thus, it is observed that the assessee has supported its version with the production of books of account and production of the said Shri Shankar Lal, who admitted before the AO that he had received the said sum on the dates on which the assessee was claiming that the said amount was given. Learned JM has observed that business of the assessee was closed on 31st Oct., 2002 and the assessee was able to explain that what was the reason for increase in the sale during that period which is evident from closure of business and clearance of staff and these facts having not been controverted by the AO proves that increase in sale was consequential to the closure of business. Thus, learned JM has observed that the assessee had submitted substantial evidence against the guess work of AO as well as the CIT(A) which has to be discarded in view of the evidence produced by the assessee. It is in this manner the learned JM has arrived at a conclusion that Rs. 2,95,000 added to the income of the assessee is to be deleted. On the second issue, it is the stand of the learned JM that as against difference of cost price and MRP of 25 per cent, the AO has acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of survey. He contended that to substantiate such contention, the assessee had produced said Shri Shankar Lal who had admitted and confirmed that he had received the said payments in three instalments through Mr. Chintu, who stayed with the assessee for about ten days from the date of survey. It was contended by learned Authorised Representative that the source of these payments are very well recorded in the books of account maintained by the assessee which was not only produced during the course of assessment proceedings, but also during the remand proceedings. He contended that the business of the assessee was to be closed and, therefore, the sales were effected to realize the closing stock lying with the assessee. The increase in sales is supported by this fact which remains uncontroverted. It was contended that addition has been made by the AO only on the basis of presumption and as against that the assessee has submitted the proof which was in the shape of books of account and has also produced the person to whom the payments were made and, thus, there was no justification in making the addition simply on the basis of presumption. Relying on the order of the learned JM, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The source of the said payments have been explained by the availability of cash in the books of account upon realization of sale value of closing stock. To corroborate such explanation the assessee has submitted the books of account. If there was any doubt regarding production of books of account before the AO during the course of assessment proceedings, the said doubt has been removed by the assessee as during the course of remand proceedings the books were produced before the AO. To corroborate the explanation the assessee has further produced Shri Shankar Lal twice who has confirmed to have received those payments as per version of the assessee. No concrete material has been brought on record by the Revenue to suggest that the explanation of the assessee and the statement of Shri Shankar Lal was incorrect. It has not been brought on record that what was claimed to be paid by the assessee on subsequent dates were actually not paid on those dates. Mere possession of currency notes with the assessee cannot prove that payments were actually made by the assessee particularly in the circumstances when the assessee is claiming otherwise and to substantiate such claim the evidence is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue after the finalization of the quantum. Therefore, I am of the opinion that the issue of levy of penalty can be decided by the Division Bench after giving effect to this order with regard to quantum proceedings. The Division Bench, if it thinks proper can dispose of penalty appeal by giving hearing to the parties on the date when the effect is, given to this order with regard to quantum proceedings. With these observations I answer to the third question in the manner aforesaid. 21. Now, the matter will be placed before the Division Bench for passing appropriate orders. DEEPAK R. SHAH, A.M.: 12th Aug., 2009 In ITA No. 48/Agra/2005 the following questions were referred for the opinion of the Third Member on account of difference of opinion between the Division Bench: "1. Whether, in the given facts and circumstances of the case, addition of Rs. 2,95,000 on account of alleged undisclosed advance is justified or not? 2. Whether, in the given facts and circumstances of the case, addition of Rs. 1,00,000 for alleged unexplained stock found during the survey is justified or not?" 2. In ITA No. 4/Agra/2007 the following question was referred for the opinion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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