IT : Where assessee failed to explain purchase which were found as undisclosed during search, addition was to be made
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[2013] 37 taxmann.com 392 (Gujarat)
HIGH COURT OF GUJARAT
Rajesh Trade Link (P.) Ltd.
v.
Deputy Commissioner of Income-tax*
M.R. SHAH AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 500 OF 2013†
JUNE 24, 2013
Section 69, read with section 158BC, of the Income-tax Act, 1961 - Unexplained investment [Unexplained purchases] - Search was conducted in which receipts for payment of Rs. 1,01,000 as octroi duty on invoice value of Rs. 45,75,000 were found - Assessee was asked to prove recording of said purchase in books of account - Tribunal held that since assessee failed to show that purchase undisclosed in search, were in fact recorded in books of account or that same was related to pre-block period, same would be liable to be added as unexplained income - Tribunal further held that additions were to be made for corresponding unaccounted sale and income therefrom as well as unrecorded octroi payment - Whether no substantial question of law arose from order of Tribunal - Held, yes [Para 4] [In favour of revenue]
FACTS
| ■ | During a search on 18-11-1999 at business premises of the assessee company at residence of the Director receipts for payment of Rs. 1,01,000 as octroi duty on invoice value of Rs. 45,75,000 were found. | |
| ■ | It was the case on behalf of the assessee that octroi department had carried out a surprise check there and found that the goods were recorded in the books since the receipts of octroi payment could not be produced it was charged octroi duty. | |
| ■ | The considering material on record and the octroi payment of Rs. 1,01,000 paid on goods/purchase of Rs. 45,75,000 which was found to be unrecorded expenditure at the time of search, the Assessing Officer while passing the assessment order passed on order calculating Rs. 48,92,510 as undisclosed income of the assessee. It consisted of unexplained investment in purchase at Rs. 45,75,000, unaccounted income in sales of goods therefrom at Rs. 1,37,250; recorded expenditure for octroi payment at Rs. 1,01,000 and unaccounted sale at Rs. 79,226. | |
| ■ | On appeal, the Commissioner (Appeals) partly allowed the said appeal by directing to delete the addition of Rs. 45,75,000 made on account of unexplained investment in purchases, Rs. 76,888 on account of unaccounted sale of goods and Rs. 1,37,250 on account of unaccounted income on sale of goods. | |
| ■ | On second appeal, the Tribunal by impugned order has partly allowed the said appeal. | |
| ■ | Thereafter, the assessee preferred miscellaneous application seeking recalling of the order of the Tribunal for rectification which was dismissed by the Tribunal. |
On appeal:
HELD
| ■ | The Tribunal observed and held that: | |
| ■ | Since it is the claim of assessee that purchases on which octroi was charged were recorded in the regular books the onus is on the assessee to show that concerned purchases are recorded in the books. No such specific purchase by comparison with the books was shown. Therefore, it is difficult to infer that octroi duty was charged in respect of purchases recorded in the books in respect of which purchase bills were not available. | |
| ■ | The purchases pertained to the block period is not disputed. It was for the assessee to show that these purchases related to pre-block period. Further correctness of books of account for inferring that assessee could not have made purchases outside the books cannot be prima facieaccepted particularly when stock deficiency was found at the time of search by the Income-Tax Department and also irregularities were found by octroi department. | |
| ■ | However, all the purchases could not have been made on one day. Assessee is also making sales outside the books. There would be a turnover and recycling of the purchases and sales, therefore, entire investment of Rs. 45,75,000 could not be said to have been done on a single day. There was also no material to infer that they were done in a single day. Looking to the on stock turnover ratio of 4.1 per cent and GP of 3 per cent accepted by the department for the relevant year, the turnover value of Rs. 45,75,000 would be Rs. 47,12,250. With stock turnover ratio of 4.1 per cent the value of investment in such purchases would be Rs. 1,93,202. Accordingly, an addition to this extent was restored as unaccounted investment in purchases and was upheld. The addition on the ground of unaccounted sales of Rs. 79,266 was also to be upheld as assessee had failed to explain the stock deficiency. [Para 4] | |
| ■ | In view of the aforesaid facts and circumstances of the case, no question of law much less substantial question of law arise in the present appeal. [Para 5] |
K.R. Dixit for the Appellant.
ORDER
1. Present appeal has been preferred by the appellant assessee challenging the impugned order dated 16.4.2010 passed by the Income Tax Appellate Tribunal (ITAT), by which, the ITAT allowed the said appeal preferred by the revenue by quashing and setting aside the order passed by the CIT(A)and consequently restoring, the addition made by the Assessing Officer.
2. The facts leading to the present Tax Appeal in nutshell are as under:
2.1 That the assessee is a private limited company carrying on the business of "Pan Parag". That the appellant assessee filed return of income declaring total undisclosed income at Rs. NIL in response to the notice under Section 158 BC of the Act. Notices under Sections 142(1) and 143(2) of the Act were also issued to the assessee.
2.2 Search under Section 132(1) of the Act was carried out in "Pan Parag" group at Kanpur and in consequent to that search action under Section 132(1) was also carried out on the distribution -cum-agent at Ahmedabad on 18.11.1999 simultaneously. During a search on 18.11.1999 at the business premises of the assessee company at the residence of the Director, receipts for payment of Rs.1,01,000/- as Octroi duty on invoice value of Rs.45,75,000/- were found. The assessee was asked to submit whether the said octroi permit is reflected in the books of account or not and at the same time it was asked whether the goods received are shown in the purchase books of assessee or not and if not then why it should not be considered unexplained investment. It was the case on behalf of the assessee that octroi department had carried out a surprise check there and found that the goods were recorded in the books since the receipts of Octroi payment could not be produced it was charged Octroi duty. That considering the material on record and the octroi payment of Rs.1,01,000/- paid on the goods / purchase of Rs.45,75,000/- which was found to be unrecorded expenditure at the time of search, the Assessing Officer while passing the assessment order passed an order calculating Rs. 48,92,516/- as undisclosed income of the assessee, the particulars which are as under:
| (i) | Unexplained investment in purchase: | Rs.45,75,000/- |
| (ii) | Unaccounted income in sales of the goods: | Rs.1,37,250/- |
| (iii) | Unrecorded expenditure for Octroi payment : | Rs. 1,01,000/- |
| (iv) | Unaccounted sale as para 5.0 | Rs. 79,226/- |
| Rs. 48,92,516/ |
2.3 Being aggrieved and dissatisfied with the order of assessment passed passed by the Assessing Officer, the appellant assessee preferred appeal before the CIT (A) and by order dated 28.6.2002, CIT(A) partly allowed the said appeal by directing to delete the addition of Rs. 45,75,000/- made on account of unexplained investment in purchases, Rs.76,888/- on account of unaccounted sale of goods and Rs.1,37,250/- on account of unaccounted income on sale of goods.
2.4 Being aggrieved and dissatisfied with order passed by the CIT(A) dated 28.6.2002, the revenue preferred appeal before Income Tax Appellate Tribunal, Ahmedabad Bench-ITAT by impugned order has partly allowed the said appeal.
2.5 That thereafter, the appellant assessee preferred Miscellaneous Application seeking recalling of the order of the Tribunal for rectification, which is dismissed by the Tribunal by order dated 25.5.2012. Being aggrieved and dissatisfied with the impugned order passed by the ITAT in allowing the appeal preferred by the revenue and quashing and setting aside the order passed by the CIT(A) in deleting the addition of Rs. 45,75,000/- made on account of unexplained investment in purchases, Rs.76,888/- on account of unaccounted sale of goods and Rs.1,37,250/- on account of unaccounted income on sale of goods, the appellant assessee has preferred the present appeal with the following proposed questions of law.
"1. Whether the Tribunals decision, in view of the facts before it is perverse?
2. Whether the Tribunal rightly interpreted Section 132(4A)(ii) in presuming that the octroi receipts showed the correct valuation of the goods in spite of word 'may' in that provision and the fact that the Octroi department could not justify the valuation made by them ?
3. Whether the decision in the case of Satyapal and M/s. A. Ramanlal & Co. and its own decision in the case of Freedom (Glasses) Eyleaser Centrde Pvt Ltd. are applicable to the facts before it ?
4. Whether the Tribunal was legally justified in introducing a new consideration in its decision which was never before it and without informing the appellant ?
5. Whether the Tribunal was justified in not showing why the order of the C.I.T (Appeals) was wrong ?"
3. Shri Dixit, learned advocate for the appellant assessee has mainly contended that the Tribunal has materially erred in interpreting Section 132(4A)(ii) in presuming that octroi receipts shown is correct valuation of the goods, in spite of word "may" in that provision and the fact that the Octroi department could not justify the valuation made by them. It is submitted that the Tribunal has materially erred in accepting the contents of the Octroi receipts and considering the valuation made by the Octroi department of Rs.45,75,000/- as true and correct value. It is submitted that as such there was no purchase of Rs.45,75,000/- in July and the Octroi paid of Rs.1,01,000/- was not based on the purchase price of stock department. It is submitted that as such at the time of search by the Octroi Department the stock was reconciled with the books of account but Octroi Department in absence of Octroi paid receipt on various purchase bills, charged Rs. 1,01,000/- on the previous purchases amount of Rs.45,75,000/-. It is submitted that as such the assessee never accepted the valuation of the goods on which the octroi was charged / levied and in fact the assessee asked the details of item on which octroi was levied from the octroi department. Therefore, it is submitted that as such the Tribunal has materially erred in relying upon the valuation of Rs.45,75,000/- as purchase, solely relying upon the octroi receipts of Rs. 1,01,000/- on the basis of the valuation put by the octroi department. It is submitted that therefore, ITAT has materially erred in allowing the appeal preferred by the revenue and quashing and setting aside the order passed by the CIT(A).
4. Having heard Shri Dixit, learned advocate for the appellant-assessee and considering the impugned order passed by the ITAT as well as Assessing Officer and even considering the order passed by the CIT(A), it appears that octroi department charged Rs.1,01,000/- towards octroi considering the valuation of the goods at Rs.45,75,000/-. It is required to be noted that the appellant-assessee as such accepted the levy of Rs.1,01,000/- towards octroi considering the valuation of the goods at Rs.45,75,000/-. The appellant assessee never disputed the levy of Rs.1,01,000/- considering the valuation of the goods at Rs.45,75,000/-, which was in the year 1999. Only after notice for assessment came to be issued, the appellant assessee disputed the same and even asked the details from the octroi department. Considering the aforesaid facts and circumstances, it cannot be said that ITAT has committed any error in restoring the order passed by the Assessing Officer of addition of Rs. 45,75,000/- made on account of unexplained investment in purchase. By partly allowing the appeal preferred by the revenue, ITAT has observed and held as under:
"We have considered the rival submissions and perused the material on record. In our considered view, it is not necessary that post search investigation necessarily be done in respect of the evidence found in the search. If documents found in the search are sufficient to fasten the liability then the AO may decide not to make investigation further. The octroi receipts found in the search clearly indicated that there are purchases amounting to Rs.45,75,000/- on which octroi was not paid. There could be two explanations as pointed by the ld. DR. One is that duty related to purchases which are recorded in the books but on which excise duty is not paid and the second is that purchases are not at all recorded in the books. Since it is the claim of assessee that purchases on which octroi was charged were recorded in the regular books the onus is on the assessee to show that concerned purchases are recorded in the books. No such specific purchase by comparision with the books was shown. Therefore, it is difficult to infer that octroi duty was charged in respect of purchases recorded in the books in respect of which purchase bills were not available. We uphold the argument of Ld. DR that onus is on the assessee to explain as to on which purchases, recorded in the books, octroi was charged by octroi department during spot inspection. We also agree with Ld. DR. that date 20.7.1999 mentioned in the Octroi receipt is the date of payment of octroi duty and not the date of alleged purchases without paying of octroi duty. Since spot inspection was carried out on 17.7.1999 and books and documents were examined by the octroi department, this impugned purchase could only be pertained to dates prior to 17.7.1999. Where assessee fails to discharge the onus lying on him then AO will be within his right to infer that the impugned purchases are unexplained and therefore, liable to be taxed under Section 69. It is now well settled that provision of Section 69 can be invoked while making the assessment under Section 158BC. Support is derived from the decisions of Hon'ble Karnataka High Court in Bengatbava v. CIT (2009) 318 ITR 276 (Karnataka), Rajendra Labotia v. DCIT [2004] 266' ITR 621 (Raj) and H. Sahul v. ACIT [2002] 258 ITR 266 (Mad). When the assessee failed to explain and reconcile the purchases on which octroi duty was charged the AO was justified in making the addition. The decision relied on by the ld. AR in M/s. A. Ramanlal & Co. case (supra) is distinguishable on facts. In that case assessee had reconciled the purchases on which Octroi duty was charged at Rs. 90,000/-. There was no independent finding that purchases were made outside the books. Sales reconciliation was made in that case. Therefore, that decision cannot help the assessee when he was unable to reconcile the purchases on which octroi department had charged duty. Further the reliance on the decision of ITAT, Jabalpur Bench in the case of ACIT v. Satyapal Wassan (supra) is also misplaced because in that case entries found recorded in the seized documents could not be construed as either sale or purchase or loan or debt. It was held in that case for affixing additional liability on the basis of seized documents four ingredients are required to be established. They are -(i) name of the assessee, (ii) nature of transaction, (iii) quantum involved and (v) period of transaction. If any of these ingredients are not inferable from the seized documents then onus is on the AO to fulfil the deficiencies by carrying out post search investigation. If any of the ingredients is missing and cannot be reasonably inferred then it would be called a dumb document and no addition can be made on that basis. In the present case, name of the assessee, in respect of whom unaccounted purchases are alleged and octroi duty was charged is not disputed; quantum of transaction is also not disputed which is Rs.45,75,000/- that there are purchases are also not disputed. Further they pertained to the block period is also not disputed. It was for the assessee to show that these purchases related to pre-block period. Further correctness of books of account for inferring that assessee could not have made purchases outside the books cannot be prima facie accepted particularly when stock deficiency was found at the time of search by the Income Tax Department and also irregularities were found by octroi department.
However, we are inclined to accept the alternative submission that all the purchases could not have been made on one day. Assessee is also making sales outside the books. There would be a turnover and recycling of the purchases and sales, therefore, entire investment of Rs.45,75,000/- cannot be said to have been done on a single day. There is also no material to infer that they were done in a single day. Looking to the closing stock as on 31.3.1999 shown at Rs.4,15,728/-and turnover at Rs.1,02,12,528/- as on 20.7.1999 a stock turnover ratio of 4.1% is worked out. As assessee is showing GP 3% which is accepted by the department the turnover value of Rs.45,75,000/- would be Rs.47,12,250/-. With stock turnover ratio of 4.1% the value of investment in such purchases would be Rs. 1,93,202/-. Accordingly, an addition to this extent is restored as unaccounted investment in purchases and is upheld. We also uphold the addition on the ground of unaccounted sales of Rs. 79,266/- as assessee has failed to explain the stock deficiency. Since the purchases related to these sales are not claimed outside the books addition to this extent is called for. Accordingly, addition to the extent of Rs.79,266/- is also upheld."
5. Consequently, the Tribunal has rightly rejected the Miscellaneous Application preferred by the assessee. In view of the aforesaid facts and circumstances of the case, we are of the opinion that no question of law much less substantial question of law arise in the present appeal. Hence, present appeal deserves to be dismissed and is accordingly dismissed.
Regards
Prarthana Jalan
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