IT: Where assessee was trading in ghee and Assessing Officer made addition to its income on plea that purchases shown from seller were bogus purchases and profit to this extent had been suppressed, since seller had confirmed making of purchases by assessee, impugned addition was not justified
IT: Where assessee during course of survey conducted under section 133A did not offer explanation in respect of credits appearing in its balance-sheet in names of two parties and voluntarily surrendered same and immediately thereafter it filed revised return and disclosed entire amount of cash credits, addition of said amount to income of assessee under section 68 was justified
IT: Where assessee filed original return of income on 31-10-2006 declaring nil income and Assessing Officer issued on assessee a notice under section 143(2) on 14-9-2007 and thereafter assessee filed revised return on 29-12-2008 and thereupon Assessing Officer on basis of original return of income filed on 30-10-2006 framed assessment of assessee, there was no need to issue any further notice under section 143(2) on revised return filed on 29-12-2008
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[2013] 39 taxmann.com 125 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Assistant Commissioner of Income-tax, Circle -3, Gwalior
v.
Uday Bhagwan Industries*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 131 (AGRA) OF 2010
C.O. NO. 45 (AGRA) OF 2010
[ASSESSMENT YEAR 2006-07]
C.O. NO. 45 (AGRA) OF 2010
[ASSESSMENT YEAR 2006-07]
MAY 31, 2012
Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as [Transactions of purchases] - Assessment year 2006-07 - Assessee-firm was engaged in business of trading of ghee, etc. - For assessment year 2007-08, it filed original return of income on 31-10-2006 declaring nil income - Assessing Officer issued on assessee a notice under section 143(2) on 14-9-2007 - During course of assessment proceedings, assessee produced only purchase bills in respect of transactions with one 'S' - Thereupon competent authority conducted a survey under section 133A on 26-12-2008 at business premises of assessee - During course of survey proceedings, assessee voluntarily surrendered credits of Rs. 28.20 lakhs appearing in balance-sheet in names of 'R' and 'S' - He did not explain same during survey proceedings - Further for assessment year 2006-07, assessee filed revised return on 29-12-2008 and disclosed aforesaid amount of Rs. 28.20 lakhs for purpose of taxation - Revised return had been regularized by issue of notice under section 148 on 30-12-2008 - Subsequently Assessing Officer on basis of original return of income filed on 30-10-2006 completed assessment of assessee under section 143(3)/147 on 31-12-2008 - He made addition of Rs. 36.39 lakhs to income of assessee holding that purchases of Rs. 36.39 lakhs shown from 'S' were bogus purchases and profit to this extent had been suppressed by assessee - He also added aforesaid amount of Rs. 28.20 lakhs to income of assessee as unexplained cash credits under section 68 - Whether since 'S' on enquiries made by Assessing Officer had confirmed making of purchases by assessee and said purchases had been supported by bills and vouchers produced by assessee, impugned addition of Rs. 36.39 lakhs was not justified - Held, yes [Para 6] [In favour of assessee]
Section 68 of the Income-tax Act, 1961 - Cash credit [Voluntarily surrender of cash credits during survey] - Assessment year 2006-07 - Whether in view of facts mentioned under heading 'Business income-Chargeable as' addition of amount of Rs. 28.20 lakhs to income of assessee as unexplained cash credits under section 68 was justified - Held, yes [Para 6.1][In favour of revenue]
Section 143, read with sections 139, 147 and 148, of the Income-tax Act, 1961 - Assessment [Issue of notice under section 143(2)] - Assessment year 2006-07 - Assessee submitted that it filed revised return on 29-12-2008 and since no notice under section 143(2) on revised return filed had been issued by Assessing Officer, assessment order dated 31-12-2008 was null and void - Whether since Assessing Officer framed assessment order on basis of original return of income filed on 30-10-2006, in which notice under section 143(2) had been validly issued, there was no need to issue any further notice under section 143(2) on revised return filed, which was also not taken into consideration - Held, yes - Whether, therefore, assessment order passed was valid one - Held, yes [Para 9] [In favour of revenue]
FACTS
| ■ | The assessee, a partnership firm, was engaged in the business of trading of ghee, etc. For the assessment year 2006-07, it filed the original return of income on 31-10-2006 declaring nil income. | |
| ■ | The Assessing Officer issued on the assessee a notice under section 143(2) on 14-9-2007. During the course of assessment proceedings, the assessee produced before the Assessing Officer only purchase bills in respect of transactions with one 'S' and no books of account, etc. were being produced. Thereupon the competent authority conducted a survey under section 133A on 26-12-2008 at the business premises of the assessee. During the course of survey proceedings, the assessee voluntarily surrendered the credits of Rs. 1.98 lakhs and Rs. 26.21 lakhs appearing in the balance-sheet in the names of 'R' and 'S' respectively. | |
| ■ | Further for the aforesaid assessment year 2006-07, the assessee filed the revised return on 29-12-2008 and disclosed the aforesaid amounts of Rs. 1.98 lakhs and Rs. 26.21 lakhs totalling Rs. 28.20 lakhs for the purpose of taxation. The said return had been regularized by issue of notice under section 148 on 30-12-2008. Subsequently the Assessing Officer completed the assessment of the assessee under section 143(3)/147 on 31-12-2008 by making following additions: |
| (i) Suppression of profit on account of bogus purchases from 'S' | Rs. 36.39 lakhs | |
| (ii) Credits surrendered in the names of | ||
| (a) 'R' | Rs. 1.98 lakhs | |
| (b) 'S' | Rs. 26.21 lakhs | |
| Rs. 28.20 lakhs |
| He held that in order to verify the genuineness of transactions made with 'S' letter under section 133(6) was issued to him on 12-9-2008. In compliance to this letter reply was received on 6-10-2008 enclosing therewith a copy of ledger account of assessee appearing in his books of account for the financial year 2005-06 in which total sales of ghee of Rs. 62.61 lakhs and debit balance of Rs. 26.21 lakhs had been shown as on 31-3-2006. In the report submitted by the Inspector on 19-12-2008, it had been stated that 'S' was a man of no means and was hand to mouth and suffering from cancer. Looking to his economic condition and standard of living he could not make such huge sales to the assessee. In compliance to summons issued in the name of 'S', a written reply was received on 24-12-2008 through his wife in which it had been stated that 'S' was suffering from cancer and diabetes and was mentally sick and had gone to Alwar for treatment. In view of the above facts the entire purchases of Rs. 62.61 lakhs shown from 'S' appeared to be bogus purchases. The credit of Rs. 26.21 lakhs standing in the name of 'S' also appeared to be fictitious liability created by the assessee by introducing his own money. In order to verify the genuineness of bank transactions made with 'S', information under section 133(6) was called for from the bank of 'S'. The Bank Manager in reply to the notice submitted that payment of cheques totalling Rs. 18.40 lakhs had been made in cash and cheques totalling Rs. 17.50 lakhs had been credited in the bank account of 'S'. From the information gathered from bank, it was seen that the assessee had made cash payment of Rs. 18.40 lakhs to 'S' on different dates. From the photocopies of cheques it was seen that the back side of cheques did not contain signature of 'S' and in his place contained signature of a partner of the assessee-firm. From this, it was implied that the cheques were issued by the firm in the name of 'S' and payment of these cheques had been received by the partner of the firm. From the above, it was clear that no actual purchase had been made by the assessee from 'S' and only entries of purchases had been taken from 'S'. In view of above facts out of total purchases of Rs. 62.61 lakhs shown from 'S', purchases of Rs. 36.39 lakhs in respect of which payment had been shown to 'S' were bogus purchases and that profit to this extent had been suppressed. Therefore, profit of Rs. 36.39 lakhs suppressed by the assessee on account of bogus purchases from 'S' was added to the total income of the assessee. The assessee had shown liability of Rs. 26.21 lakhs in the name of 'S' as on 31-3-2006 against purchase of goods. The same was fictitious liability created by the firm by introducing its own money. | ||
| ■ | On appeal, the Commissioner (Appeals) deleted the addition of Rs. 36.39 lakhs. He confirmed the addition of Rs. 28.20 lakhs on account of credits appearing in the names of 'R' and 'S' and disclosed in the revised return. | |
| ■ | On second appeal by revenue and cross objection by assessee: |
HELD
| ■ | As regards the revenue's appeal, on which the Commissioner (Appeals) deleted the addition of Rs. 36.39 lakhs, the Assessing Officer made enquiries from 'S', who has and confirmed the making of the purchases by the assessee. Such facts are supported by bills and vouchers. Therefore, the initial burden stood discharged to prove that the assessee entered into genuine transactions. The Inspector, however, gave a report against the assessee to show that 'S' was not man of means and his report was submitted on 19-12-2008, which pertains to the subsequent year and the same was also not confronted to the assessee. Therefore, such report has rightly been excluded from consideration. Further the assessee has made cash transactions of Rs. 18.40 lakhs only. Therefore, entire addition against the assessee was unjustified. No evidence has been brought on record that even if one of the partners of the assessee-firm signed on the back side of bearer cheques given to 'S' and the amount of cheques has been returned to the assessee. When the sales have been accepted, there is no question of disputing the purchases, because no sales could be made without purchases. Since 'S' has confirmed the purchases and the purchases have been supported by bills and vouchers, the order of the Commissioner (Appeals) in deleting the addition of Rs. 36.39 lakhs deserved to be upheld. In the result, the revenue's appeal had no merit and was liable to be dismissed. [Para 6] | |
| ■ | So far as addition of Rs. 28.20 lakhs in respect of 'S' and 'R' is concerned, at the time of survey the statement of the assessee was recorded in which it has stated that it is unable to explain the transactions with these parties and in order to buy peace it agreed to surrender the amount in question in respect of these parties. It is, therefore, clear that at the time of survey the assessee was not in a position to explain the transactions with these parties of the aforesaid amount and had not produced any sufficient evidence before the Assessing Officer in this regard. Therefore, the assessee voluntarily agreed to surrender the entire amount for the purpose of taxation and it immediately after recording of the statement during the survey also filed revised return on 29-12-2008 and surrendered the entire amount of Rs. 28.20 lakhs for the purpose of taxation and paid taxes also. Considering the totality of the facts and circumstances, the order of the Commissioner (Appeals) in confirming the addition of Rs. 28.20 lakhs deserved to be upheld. [Para 6.1] | |
| ■ | The assessee, on the cross objection, challenged the order of the Commissioner (Appeals) in upholding the assessment proceedings without issue of notice under section 143(2). It submitted that it filed revised return on 29-12-2008 and since no notice under section 143(2) on the revised return filed had been issued, the assessment order was null and void, which was passed under section 143(3)/147. [Para 7] | |
| ■ | It is not in dispute that the assessee filed original return of income on 30-10-2006 declaring nil income. The notice under section 143(2) was issued on 14-9-2007and the assessee also participated the proceedings before the Assessing Officer within the time prescribed. It is, therefore, not in dispute that the Assessing Officer validly issued notice under section 143(2) and validly proceeded to frame the assessment in the case of the assessee. The Assessing Officer conducted assessment proceedings on various dates and ultimately computed income of the assessee by closing the enquiries and investigation on 31-12-2008. The Assessing Officer also passed consequent assessment order on 31-12-2008 and determined the income of assessee at Rs. 63.36 lakhs. He started the computation of income with net profit declared as per profit and loss account at nil and after making additions and after giving set off of brought forward losses for the earlier year, the income is computed. It is, therefore, clear that the Assessing Officer framed the assessment order on the basis of original return of income filed on 30-10-2006 declaring nil income. In fact, the Assessing Officer by issuing notice under section 148 did nothing except regularization of invalid and belated revised return filed by the assessee on 29-12-2008 making surrender of Rs. 28.20 lakhs. It is, therefore, strictly not a case of escapement of income for reopening of assessment. Since the entire order sheet did not contain taking of the cognizance by the Assessing Officer of the invalid revised return, the Assessing Officer rightly computed the income of the assessee as per original return in which notice under section 143(2) has been validly issued and, as such, there was no need to issue any further notice under section 143(2) on the invalid revised return filed on 29-12-2008, which was also not taken into consideration by the Assessing Officer while framing the assessment in the matter. Therefore the notice under section 143(2) has been correctly issued on the original return of income, on the basis of which the assessment order has been framed by the Assessing Officer. May be, the Assessing Officer has wrongly mentioned section 147 in the body of order would not make the assessment order under section 143(3) as invalid. Therefore, the cross-objection was liable to be dismissed. [Para 9] |
CASES REFERRED TO
Kanhaiya Lal (HUF) v. CIT [2001] 247 ITR 686/117 Taxman 113 (All.) (para 5) and Asstt. CIT v. Baikunth Nath Singhal [2004] 89 ITD 109 (Agra) (para 7).
Waseem Arshad for the Appellant. Navin Gargh for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - The departmental appeal and the cross objection by the assessee are directed against the order of ld. CIT(A), Gwalior dated 24.02.2010 for the assessment year 2006-07.
2. We have heard the ld. representatives of both the parties, perused the findings of authorities below and considered the material available on record.
3. The Revenue in its sole ground of appeal challenged the order of the ld. CIT(A) in deleting the addition of Rs.36,39,710/- made on account of suppression of profit of bogus purchases shown from M/s. Satnam Trading Co. The assessee on ground No. 1 of the cross-objection challenged the upholding of the addition of Rs. 28,20,240/- (Rs.1,98,600 and Rs.26,21,640 in the names of M/s. Ridhi Sidhi Containers and M/s. Satnam Trading Company) of credits surrendered during the course of survey mentioning that no penalty shall be levied u/s. 271(1)(c) of the IT Act. Since both the issues are common, therefore, both these grounds of the Revenue and the assessee are taken up together for the purpose of disposal.
4. The brief facts of the case are that the assessee is engaged in the business of trading of Ghee, Vanaspati and Refined oil etc. on wholesale basis. Return declaring Nil income has been filed on 30.10.2006. During the course of assessment proceedings, the assessee was asked to furnish replies to the queries raised and details furnished by it. Since no books of account and purchase/sale bills and bills/vouchers for expenses were being produced except copies of purchase bills in respect of transactions with M/s. Satnam Trading Co., survey u/s. 133A has been carried out on 26.12.2008 at the business and factory premises of the assessee. During the course of survey proceedings, the assessee voluntarily disclosed the credit of Rs.1,98,600/- in the name of M/s. Ridhi Sidhi Containers and Rs.26,21,640/- in the name of M/s. Satnam Trading Co. Similarly, amount of Rs.13,09,283/- shown as outstanding liability in the name of M/s. Kothari & Sons, Vyawar has been surrendered for A.Y. 2003-04. Accordingly, revised returns for A.Y. 2003-04 and for the assessment year under consideration have been filed by the appellant on 29.12.2008 which have been regularized by issue of notice u/s. 148 on 30.12.08. Subsequently, assessment was completed u/s. 143(3)/147 on 31.12.2008 by making following additions :
| (i) | Suppression of profit on account of bogus purchases from M/s. Satnam Trading Co. (para 4.3 of assessment order) | Rs. 36,39,710/- |
| (ii) | Credit surrendered in the name of | |
| (a) M/s. Ridhi Sidhi Containers | Rs. 1,98,600/- | |
| (b) M/s. Satnam Trading Co. | Rs. 26,21,640/- | |
| Rs. 28,20,240/- |
4.1 While making the above additions, the AO has mentioned as under :
"From schedule "B" of balance sheet enclosed with the return of income filed for A.Y. 2006-07 on 30.10.2006 it was noticed that there was a liability of Rs.26,71,640/- in the name of M/s. Satnam Trading Co., as sundry creditor. Vide letter enclosed with the notice u/s. 142(1) dated 10.06.2008 assessee was asked to furnish complete address and copy of account of M/s. Satnam Trading Co. in whose name credit of Rs.26,21,640/- was outstanding as on 31.03.2006. In compliance to this query assessee submitted copy of account of M/s. Satnam Trading Co., appearing in his books of accounts for F.Y. 2005-06 in which total purchases of Ghee of Rs.62,61,350/- has been shown and credit balance of Rs. 26,21,640/- has been shown as on 31.03.2006. In order to verify the genuineness of transactions made with M/s Satnam Trading Co., letter u/s. 133(6) was issued to the above firm on 12.09.2008 by registered post and in compliance to this letter reply was received on 06.10.2008 through speed post enclosing therewith a copy of ledger account of assessee's firm appearing in his books of accounts for F.Y. 2005-06 in which total sales of Ghee of Rs. 62,61,350/- and debit balance of Rs. 26,21,640/- has been shown as on 31.03.2006. Summons u/s 131 were issued in the name of Shri Hukum Chand Ahuja proprietor of M/s. Satnam Trading Co., however the same could only be served on him on 19.12.2008. In the report submitted by the Inspector on 19.12.2008 it has been stated that he is a man of no means and is hand to mouth and suffering from Cancer. Looking to his economic condition and standard of living he can not make such huge sales to M/s Uday Bhagwan Industries. The assessee was confronted with these facts vide this office letter dated 22.12.2008, however, no any explanation has been furnished by him. In compliance to summons a written reply was received on 24.12.2008 by speed post through his wife in which it has been stated that her husband Shri Hukum Chand Ahuja is suffering from Cancer and Diabetes and is mentally sick and has gone to Alwar for treatment. Assessee was also asked to produce Shri Hukum Chand Ahuja for examination on oath but he expressed his inability to produce him since he is suffering from Cancer and has gone out of Gwalior for treatment. In view of above facts the entire purchases of Rs. 62,61,350/- shown from M/s Satnam Trading Co., appears to be bogus purchases since the same are not proved. The credit of Rs. 26,21,640/-standing in the name of M/s Satnam Trading Co., also appears to be fictitious liability created by the firm by introducing his own money.
In order to verify the genuineness of bank transactions made with M/s Satnam Trading Co., information u/s 133(6) was called for from the Branch Manager, Indus Ind Bank, City Centre Gwalior vide letter dated 05.12.2008 asking him to supply copy of bank account of M/s. Satnam Trading Co., Gwalior for the period 01.04.2005 to 31.03.2006 alongwith copy of bank account opening form and photocopies of following cheques encashed/created in his account issued by the assessee in the name of M/s. Satnam Trading Co. :
| S. No. | Date | Particulars | Amount | |
| 1 | 30.11.2005 | Ch. No. 614 | Rs.2,00,000/- | |
| 2 | 17.01.2006 | Ch. No. 624 | Rs.2,00,000/- | |
| 3 | 30.01.2006 | Ch. No. 748251 | Rs.4,00,000/- | |
| 4. | 10.02.2006 | Ch. No. 748253 | Rs.2,00,000/- | |
| 5 | 11.02.2006 | Ch. No. 748254 | Rs.2,00,000/- | |
| 6 | 15.02.2006 | Ch. No. 748255 | Rs.3,00,000/- | |
| 7. | 16.02.2006 | Ch. No. 748257 | Rs.1,40,000/- | |
| 8 | 21.02.2006 | Ch. No. 748258 | Rs.2,00,000/- | |
| 9. | 23.02.2006 | Ch. No. 748259 | Rs.10,00,000/- | |
| 10 | 28.02.2006 | Ch. No. 748261 | Rs.2,50,000/- | |
| 11 | 02.03.2006 | Ch. No. 748262 | Rs.2,00,000/- | |
| 12 | 20.03.2006 | Ch. No. 748264 | Rs.1,00,000/- | |
| 13 | 22.03.2006 | Ch. No. 748266 | Rs.2,00,000/- |
In response to letter dated 05.12.2008 the Branch Manager, Indus Ind Bank Gwalior supplied the required information vide letter dated 12.12.2008. In the said letter it has been mentioned that payment of cheques mentioned at S. No. 1 to 8 totaling Rs. 18,40,000/-has been made in cash and cheques mentioned at S. No. 9 to 13 totaling Rs. 17,50,000/- has been credited in the bank account of M/s Satnam Trading Co.
From the information gathered from bank, it is seen that assessee has made cash payment of Rs.18,40,000/- to M/s. Satnam Trading Co. on different dates as mentioned above. From the photocopies of cheques it is seen that the cheques does not contain signature of Shri Hukum Chand Ahuja, proprietor of M/s. Satnam Trading Co. and in his place contains signature of some other person and also contain signature of Shri Rajesh Agrawal, partner of M/s. Uday Bhagwan Industries. From this, it is implied that the cheques are issued by the firm in the name of M/s. Satnam Trading Co., and payment of these cheques has been received by Shri Rajesh Agrawal one of the partner of the firm. From the above, it is clear that no actual purchase has been made by the assessee firm from M/s. Satnam Trading Co. and only entries of purchases has been taken from the said firm.
In view of above facts out of total purchases of Rs. 62,61,350/-shown from M/s. Satnam Trading Co., purchases of Rs. 36,39,710/- in respect of which payment has been shown to M/s. Satnam Trading Co. are treated as bogus purchases and it is held that profit to this extent has been suppressed. Therefore, profit of Rs. 3639,710/- suppressed by the assessee on account of bogus purchases from M/s. Satnam Trading Co. is added to the total income of the assessee. The assessee has shown liability of Rs. 26,21,640/- in the name of M/s. Satnam Trading Co. as on 31.3.2006 against purchase of goods the same is treated as fictitious liability created by the firm by introducing its own money as discussed above. The same is added to the total income of the assessee u/s 68 of the I.T. Act, 1961."
4.2 The additions were challenged before the ld. CIT(A) and the written submissions of the assessee are reproduced in the impugned order, in which the assessee briefly explained that its books of account are maintained regularly and are audited. The books could not be produced during the course of assessment proceedings because the Accountant was not available and the books were lying with him. The Accountant expired later on. This fact was mentioned during the survey proceedings also. However, the purchase bills in respect of purchase of Ghee from M/s. Satnam Trading Co. were produced during the course of assessment proceedings. The assessee made disclosure of Rs.1,98,600/- and Rs.26,21,640/- of credit appearing in the balance sheet in the names of M/s. Ridhi Sidhi Containers and M/s. Satnam Trading Co. during the course of survey conducted on 26.12.2008 not because of fictitious liability, but to buy mental peace for not producing Shri Hukum Chand Ahuja because of his illness and remained out of station for treatment. This offer was made surrendering the amount subject to no penalty. The assessee had made conditional disclosure and fulfilled it by disclosing this income in revised return and paid taxes but the AO did not follow his offer and initiated penalty proceedings u/s. 271(1)(c) of the IT Act. It was submitted that the query letters u/s. 133(6) were issued to M/s. Satnam Trading Company for verification of the transaction and the said party replied the letter by post and confirmed the total sales and balance amount. The written reply of wife of the concerned party was also received mentioning that Shri Hukum Chand Ahuja is suffering from cancer and diabetes and mentally sick and has gone for treatment. Since the assessee furnished complete details and the party also furnished confirmation, therefore, no addition should be made against the assessee of the entire amount in case of M/s. Satnam Trading Co. It was submitted that the AO was not justified in treating the transactions as bogus for not producing the supplier for examination. Since the sales have been accepted, the purchases should not be treated as bogus. The report of the Inspector was not confronted to the assessee and the same was not supplied to the assessee and the report of the Inspector was submitted on 19.12.2008 giving facts and circumstances of the case which pertains to F.Y. 2008-09 relevant to assessment year 2009-10. Therefore, his report is not relevant for assessment year 2006-07 under appeal. It was also submitted that cheques were issued to M/s. Satnam Trading Co. and cash dealings were made for Rs.18,40,000/- only and no evidence has been brought on record that cheque amounts have been received back by the assessee or no actual purchases have been made. It was submitted that the cheques were signed by one of the partners of the assessee firm for payments of the bearer cheques. No evidence has been brought on record that the bearer cheques when encashed, the amount received thereon have been returned to the assessee. Once the sales have been accepted as genuine, the purchases cannot be held to be bogus. Copies of the accounts were produced in support of the contention. It was, therefore, pleaded that the addition of Rs.36,39,710/- as bogus purchases is not justified and the same may be deleted. The ld. CIT(A) after considering the explanation of the assessee and the material on record, deleted the addition of Rs.36,39,710/-. He, however, maintained the addition of Rs.28,20,240/- on account of surrendered amount in the revised return. His findings in para 6.2 and 6.3 of the appellate order are reproduced as under :
"6.2. Appellant's submissions alongwith the assessment order have been considered carefully. Assessing records and survey folders have also been perused. There is no denying the fact that M/s. Satnam Trading Co with whom the transactions of purchases made by the appellant have been found to be bogus by the AO. is very much in-existence as is evident from the reply in response to summons. Inspector's report and confirmed copy of account given by it to the AO vide letter dt. 4.10.08 in response to AO's letter doted 12.09.08 issued to it. The A.O has made the addition on the ground that some cheques for Rs.18,40,000/- have been encashed, being bearer cheques and the failure of the appellant to produce proprietor of M/s. Satnam Trading Co., viz. Shri Hukum Chand Ahuja. The Inspector's report dated 19.12.2008 has also been made the basis for the addition as Shri Hukum Chand Ahuja is found to be person of inadequate means.
6.3 However, on the basis of submissions of the appellant and perusal of records, I tend to agree with the appellant that first of all, the A.O. could not have trated the entire amount of purchases with Satnam Trading Co. as bogus when the sales of the appellant along with closing stock and other details have been accepted by the A.O.. The appellant has also produced copy of Income tax return of Shri Kukum Chand Ahuja for the asstt. Year under consideration which has been filed on 11.05.2007 declaring income of Rs.94,000/-. As per trading account of M/s. Satnam Trading Co., sales of Rs.73,52,835/-have been declared. Also the Inspector's report which has not been made available to the appellant for cross examination, cannot be relied in toto, as the transactions have taken place during the financial year 2005-06 whereas the Inspector has given his comments in the report on 19.12.08. Further, the mere fact that some bearer cheques contained the signature of the partner of the firm does not automatically mean that the same have been encashed by the appellant, since the same cheques also carry the stamp and signature of M/s. Satnam Trading Co. On bearer cheques signature of the cheque issuing person are normally to facilitate their encashment. It may be at the instances of bank authority or the receiver of the amount also. In the absence of any material on record to indicate that the said cheques have indeed been encashed by the appellant despite extensive survey u/s. 133A being carried out by the A.O. does not justify the treatment of entire purchases as bogus. The fact that the A.O. has accepted the revised return and regularized it and has made the addition of' outstanding liability at Rs.26,21,6401- on the basis of statement of the partner of the appellant firm and subsequent disclosure of it in the revised return, the A.O. was not justified in treating the entire transaction of purchases with M/s. Satnam Trading Co. as bogus and work out the suppression of profit on the same. Accordingly, addition of Rs. 36,39,710/- is deleted. The addition of Rs.28,20,240/- on account of credits surrendered in the name of M/s. Ridhi Sidhi Containers and M/s. Satnam Trading Co. and disclosed in the revised return/ returns filed in response to notice u/s. 148 is confirmed."
5. The ld. DR relied upon the order of the AO and submitted that the assessee made voluntary surrender of Rs.28,20,240/- because the assessee in statement was unable to explain the bogus liabilities and the revised return was also filed surrendering the above amount, on which taxes have also been paid. Therefore, the AO was justified in making the addition. He has submitted that there is no estoppel against the statute. On the other hand, the ld. counsel for the assessee reiterated the submissions mad before the authorities below and referred to page 94 of the paper book, which is Ghee account to show that opening stock was Rs.9,42,425/- and purchases were made of Rs.83,70,850/- and out of the same, sales of Rs.99,14,385/- have been made. He has submitted that the AO called for enquiry from M/s. Satnam Trading Co. u/s. 133(6) in response to which all facts were explained and Inspector's report was not confronted to the assessee. Since the report of the Inspector was not confronted, therefore, it cannot be used against the assessee in evidence and relied upon the decision in the case of Kanhaiya Lal (HUF) v. CIT [2001] 247 ITR 686/117 Taxman 113 (All), in which it was held that "copies of documents proposed to be used against the assessee not supplied - Assessee not given an opportunity to explain or rebut it - order liable to be set aside". He has submitted that since the sale has not been disputed, therefore, purchases cannot be disputed. He has, therefore, submitted that the ld. CIT(A) rightly deleted the addition of Rs.36,39,710/-. As regards the addition of Rs. 28,20,240/-, he has submitted that though the assessee made surrender of these amounts in statement recorded during the course of survey on 26.12.2008 (PB-31), but there was no material against the assessee for making the surrender. He has referred page 44 and 45 of the PB, which is statement of assessee to explain the above issue. He has submitted that though the assessee made surrender of aforesaid amount in the revised return filed on 29.12.2008 (PB-48), but it was conditional surrender that the AO would not levy penalty, but the AO later on initiated penalty proceedings against the assessee. Therefore, the assessee retracted from statement by filing affidavit before the ld. CIT(A) on 07.01.2010. He has, therefore, submitted that further addition made by the AO and confirmed by the ld. CIT(A) should also be deleted.
6. We have considered the rival submissions and the material on record. As regards the departmental appeal, on which the ld. CIT(A) deleted the addition of Rs.36,39,710/-, the AO made enquiries from the concerned party who have replied before the AO directly and confirmed the making of the purchases by assessee. It was also explained by his wife that since Hukum Chand Ahuja was suffering from cancer and diabetes and gone out of station for treatment, therefore, cannot be produced for examination before the AO. Such facts are supported by bills and vouchers. Therefore, the initial burden stood discharged to prove that the assessee entered into genuine transactions. The Inspector, however, gave a report against the assessee to show that M/s. Satnam Trading Co. was not man of means and his report was submitted on 19.12.2008, which pertains to the subsequent year and the same was also not confronted to the assessee. Therefore, such report has rightly been excluded from consideration. Further, the assessee has made cash transactions of Rs.18,40,000/- only. Therefore, entire addition against the assessee was unjustified. Further, no evidence has been brought on record that even if one of the partner of the assessee firm signed on the back side of bearer cheque given to M/s. Satnam Trading Co., the amount of cheques have returned to the assessee. In the absence of any material incriminating in nature against the assessee, the ld. CIT(A) on proper appreciation of facts and evidence on record, rightly deleted the addition of Rs.36,39,710/-. Further when the sales have been accepted, there is no question of disputing the purchases because no sales could be made without purchases. Since the party has confirmed the purchases and the purchases have been supported by bills and vouchers, therefore, the explanation of the assessee has been rightly accepted by the ld. CIT(A) for the purpose of deleting the addition. Considering the totality of facts and circumstances, we do not find any justification to interfere with the order of the ld. CIT(A) in deleting the addition of Rs.36,39,710/-. In the result, the departmental appeal has no merit and is dismissed.
6.1 As regards addition of Rs.28,20,240/- in respect of M/s. Satnam Trading Company and Ridhi Sidhi Containers Pvt. Ltd., at the time of survey the statement of the assessee was recorded in which he has stated that he is unable to explain the transactions with these parties and in order to buy peace, he agreed to surrender the amount in question in respect of these parties. It is, therefore, clear that at the time of survey the assessee was not in a position to explain the transactions with these parties of the aforesaid amount and had not produced any sufficient evidence before the AO in this regard. Further, these amounts were standing against these parties, which are considered as fictitious liabilities created by the assessee firm by introducing his own money. The AO on verification of the accounts of M/s. Ridhi Sidhi Containers Pvt. Ltd. also found that there was a difference in the amounts and therefore, the assessee was asked to explain the amount in question. The assessee has, however, failed to explain the same. Therefore, the liabilities standing the names of these two parties in the books of assessee were treated as fictitious liability. The same were not explained during the statement recorded in the survey proceedings also. Therefore, the assessee voluntarily agreed to surrender the entire amount for the purpose of taxation and the assessee immediately after recording of the statement during the survey also filed revised return on 29.10.2008 and surrendered the entire amount of Rs.28,20,240/- for the purpose of taxation and paid taxes also. The ld. counsel for the assessee, however, submitted that such surrender was conditional so that the AO would not levy penalty u/s. 271(1)(c) of the IT Act, but no such commitment is made by the AO for not levying the penalty. It was only the assessee who stated in his statement that on the surrendered amount, penalty may not be imposed. The ld. counsel is unable to show if any such condition has been accepted by the AO or the Revenue Department. The ld. DR also contended that the penalty is independent proceedings and there is no estoppel against the statute for levy of penalty. In case ingredients of section 271(1)(c) are satisfied, the contention of the ld. counsel for the assessee cannot be accepted. The ld. counsel for the assessee further submitted that the assessee retracted from statement by filing the affidavit before the ld. CIT(A) on 07.01.2010 (PB-95). In the aforesaid affidavit, the assessee stated that the copy of his statement was not given to him and that the assessee made the surrender subject to no penalty. However, we do not agree with the contention of the ld. counsel for the assessee because such an affidavit was filed after completion of assessment. The survey is conducted on 26.12.2008 and statement of assessee was recorded voluntarily at the time of survey, in which the assessee was unable to explain fictitious liability standing in the name of these two parties. Therefore, the assessee made voluntary surrender of the aforesaid amount for the purpose of taxation. Therefore, the contention of the assessee in the affidavit cannot be accepted because the assessee immediately after surrender of amount in the statement also filed revised return on 29.12.2008 without mentioning anything therein and surrendered the amount of Rs.28,20,240/- for the purpose of taxation. There is no mention of any condition in the revised return and no note has been given in the same. The assessee never disputed his voluntary statement either at the time of survey or at the assessment stage. Even before the CIT(A), the affidavit has been filed belatedly because the appeal was instituted before the ld. CIT(A) on 29.01.2009 and affidavit has been filed on 07.01.2010 at the time of fag end of disposal of appeal by the ld. CIT(A). Such a retraction is, therefore, not valid and the assessee cannot be permitted to deny the statement made in the course of survey. Further, the assessee has already made surrender of amount and paid taxes voluntarily and the assessee cannot be allowed to withdraw the amount, on which taxes have already been paid voluntarily. Considering the totality of the facts and circumstances, we do not find any justification to interfere with the order of the ld. CIT(A) in confirming the addition of Rs.28,20,240/-. As a result, ground No. 1 of cross-objection of the assessee is dismissed.
7. The assessee, on ground No. 2 of the cross objection, challenged the order of the ld. CIT(A) in upholding the assessment proceedings without issue of notice u/s. 143(2) of the IT Act. In this case, the return of income has been filed by the assessee on 30.12.2006 and notice u/s. 143(2) was issued on 14.09.2007, which was served upon the assessee on 11.10.2007. Therefore, the notice u/s. 143(2) was validly issued and served on the assessee within the period of limitation. The assessment proceedings were going before the AO since 14.09.2007, which is also noted in the order sheet, copies of the entire order sheets have been filed at pages 100 to 104 of the paper book. In the entire order sheets, the assessee participated the proceedings before the AO and ultimately, the case was finally discussed on 31.12.2008 and on that date the impugned assessment order has been passed. The ld. counsel for the assessee, however, submitted that the assessee filed revised return on 29.10.2008 and the AO recorded reasons for reopening of assessment on 30.12.2008 and since no notice u/s. 143(2) has been issued, therefore, the assessment is null and void. In support of the contention, he has relied upon the order of ITAT, Agra Bench in the case of Asstt. CIT v. Baikunth Nath Singhal [2004] 89 ITD 109 (Agra), in which it was held that once valid return u/s. 148 is filed by the assessee, the provisions of section 143(2) being mandatory in nature, non-issue of notice under this sub-section within time prescribed, will render the order passed u/s. 143(3) invalid. It was, therefore, submitted that in absence of notice u/s. 143(2), the assessment order is null and void, which was passed u/s. 143(3)/147 of the IT Act.
8. On the other hand, the ld. DR submitted that the notice u/s. 143(2) was issued on 14.09.2007 within the period prescribed under law and that when the assessment proceedings were going on before the AO, survey u/s. 133A was conducted in the premises of the assessee on 26.12.2008 in which the assessee made surrender of Rs.28,20,240/- in respect of fictitious liabilities in the names of M/s. Ridhi Sidhi Containers and M/s. Satnam Trading Company. The assessee immediately filed belated invalid return of income on 29.12.2008 surrendering the amount of Rs.28,20,240/- and paid taxes also. The ld. DR submitted that since the revised return was not valid and the assessee made surrender of the amount in question for the purpose of taxation, therefore, in order to regularize the said belated return, the AO recorded reasons for reopening on 30.12.2008. Therefore, it is strictly not a case of reopening of assessment, but a surrender of additional income, which was only regularized through the above modes and means and as such, there was no need to issue further notice u/s. 143(2) in the case of the assessee, which was already validly issued in the case of the assessee and the assessee participated in the proceedings before the AO. The ld. DR, therefore, submitted that the ld. CIT(A) rightly rejected the claim of assessee because there was a distinction in the proceedings u/s. 143 and 147 of the IT Act. In such circumstances, there is no need of any interference.
9. We have considered the rival submissions and the material on record. It is not in dispute that the assessee filed original return of income on 30.10.2006 declaring nil income. The notice u/s. 143(2) was issued on 14.09.2007 which was served upon the assessee on 11.10.2007 and also participated the proceedings before the AO within the time prescribed. It is, therefore, not in dispute that the AO validly issued notice u/s. 143(2) and validly proceeded to frame the assessment in the case of the assessee. Copies of order sheet are filed in the paper book at pages 100 to 104 in which the AO conducted assessment proceedings on various dates and ultimately computed income of the assessee by closing the enquiries and investigation on 31.12.2008. The AO also passed consequent assessment order on 31.12.2008 and determined the income of assessee at Rs.63,36,406/- and started the computation of income with net profit declared as per profit & loss account at nil and after making additions, subject matter in appeal above and after giving set off of brought forward losses for the earlier year, the income is computed. It is, therefore, clear that the AO framed the assessment order on the basis of original return of income filed on 30.10.2006 at nil income. Copies of the order sheets filed on record also support that the AO determined the income of the assessee on the basis of original return filed on 30.10.2006. In fact, the AO by issuing notice u/s. 148 of the IT Act did nothing except regularization of belated revised return filed by the assessee. We clarify that while computing the demand against the assessee, the AO shall take into consideration the taxes paid by the assessee on the surrendered income during the course of survey. If the AO would have considered the revised return for the purpose of making the assessment, he would have taken the figure of 26,96,700/- in the computation of income instead of "Nil" income mentioned in the assessment order. Since the amount of Rs.28,20,240/- has been disclosed in the revised return (PB-48), therefore, if the AO would have acted on the return u/s. 148, the computation of income should have started from this figure instead of nil and there would be no need to make further additions of Rs.28,20,240/- in the computation of income. It is, therefore, clear that the AO acted and framed the assessment order on the basis of original return of income filed on 30.10.2006. This is also supported by the fact that the assessee filed invalid and belated revised return on 29.12.2008 making surrender of Rs.28,20,240/- and the AO in order to regularize such belated return, recorded the reasons for reopening of assessment on 30.12.2008 subsequent to filing of revised return. The AO in the reasons for regularizing the belated return specifically mentioned that since the revised return is filed beyond the period of limitation u/s. 139(5), therefore, in order to regularize the same, notice u/s. 148 has been issued. It is, therefore, strictly not a case of escapement of income for reopening of assessment, but because of the fact that when regular assessment proceedings were going on before the AO and at that stage survey was conducted in the case of assessee on 26.12.2008 and the assessee made surrender of Rs.28,20,240/- in the statement. Therefore, the assessee surrendered the same by filing a invalid return of income on 29.12.2008 and after 29.12.2008, the AO completed the assessment order only on 31st December, 2008. Therefore, the surrender was regularized for the benefit of Revenue Department, as it is well settled law that the proceedings u/s. 148 are for the benefit of the Revenue and not the assessee. Therefore, such surrender of income additionally would have no impact on the original return of income filed by the assessee. Since the entire order sheets did not contain taking of the cognizance by the AO of the invalid return, we are of the view that the AO rightly computed the income of the assessee as per original return in which notice u/s. 143(2) has been validly issued and as such, there was no need to issue any further notice u/s. 143(2) on the invalid revised return filed on 29.12.2008 which was also not taken into consideration by the AO while framing the assessment in the matter. Considering the totality of facts and circumstances, we are of the view that the notice u/s. 143(2) has been correctly issued in this case on the original return of income, on the basis of which the assessment order has been framed by the AO. May be, the AO has wrongly mentioned section 147 in the body of order would not make the assessment order u/s. 143(3) as invalid. Therefore, we do not find any merit in ground No. 2 of the cross-objection. The same is accordingly dismissed. No other point is argued or pressed.
10. In the result, the departmental appeal as well as the cross objection of the assessee are dismissed.
Regards
Prarthana Jalan
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