Calcutta H.C : Four purchase Bills which had not been entered in the regular books of accounts of the assessee is to be treated as business income of the assessee.

High Court Of Calcutta

CIT, Durgapur vs. Shib Sankar Das

Section 69B

Assessment year 2008-09

Aniruddha Bose And Arindam Sinha, JJ.

G.A. No. 1689 Of 2016

ITAT No. 215 Of 2016

June  29, 2017

JUDGMENT

Arindam Sinha, J. – The Revenue seeks to prefer appeal against order dated 2nd December, 2015 passed by the Income Tax Appellate Tribunal, Bench “B” Kolkata, in ITA no.1436/KOL/2011 pertaining to the assessment year 2008-09.

2. The facts are that the assessee is an individual. He carries on business as wholesaler of grocery items under a trade name. The Revenue had discovered four invoices and delivery notes upon carrying out a survey of the business premises of the assessee. The aggregate value of the goods as per the said invoices amounted to Rs.4,66,300/-. The said aggregate value was added as undisclosed business income by the Assessing Officer, as also percentage profit on such goods presumed to have been sold. Furthermore, during scrutiny proceeding it was noticed that the assessee had submitted a stock statement as on 29th February, 2008 before State Bank of India, Bankura Branch in the matter of obtaining enhanced credit facilities. The said stock statement stood verified and acted upon by the Bank. This stock statement showed value of stock far in excess of the stock in the statement disclosed to the department. The Assessing Officer added the difference of Rs.54,22,619/- also as undisclosed business income. The CIT (A) refused to interfere with the additions. On appeal the Tribunal deleted most of the additions by the impugned order.

3. The Revenue has suggested the following questions for admission ofa appeal.

“(a) Whether the Income tax Appellate Tribunal erred in law in not holding that the amount of Rs.89,59,556/- being the amount disclosed by the assessee to the State Bank of India but the assessee declared the closing stock at Rs.35,59,556/- in his return of income as such the difference between this two is Rs.54,22,619/- which ought to be added with the total income of the assessee for the said Assessment Year, but the Income Tax Appellate Tribunal was not justified in holding otherwise.

(b) Whether the order of the Income Tax Appellate Tribunal is at all sustainable in as much as the closing stock as disclosed by the assessee to the State Bank has been duly verified by the Bank authorities and therefore there is difference of stock disclosed by the assessee to the bank and as disclosed by the assessee in his return is Rs.54,22,619/- which is to be added with the total income of the assessee.

(c) Whether in the absence of any specific finding as regards the difference of stock of Rs.54,22,610/- by the Income tax appellate Tribunal the order impugned is liable to be set aside.

(d) Whether the Income tax Appellate Tribunal was justified in not holding that four purchase Bills amounting to Rs.4,66,300/- which had not been entered in the regular books of accounts of the assessee is to be treated as business income of the assessee.

(e) Whether the order of the Income tax Appellate Tribunal sustainable for the deletions of Rs.4,66,300/- when the assessee admittedly following the mercantile system of accounting and therefore the assessee is liable to be accounted for which he failed.”

4. Mr. Dutta, learned advocate appeared on behalf of the Revenue and submitted that even if all the bills were not received by the parties, that did not prove the purchases were not made. The assessee had issued authorization letter to the truck driver to take delivery of goods from the supplier mentioning truck number. It was a clear case of undisclosed purchases attracting the provision in section 69B of the Income Tax Act, 1961. The explanation of non- receipt of the bills by the supplier is no explanation at all and the Assessing Officer had duly made the addition. He added that in the event this Court required a further enquiry on facts, the issue might be remanded to the Assessing Officer.

5. Regarding discrepancy arising out of value of stocks declared by the assessee to his banker Mr. Dutta submitted, the stock declared to the bank was verified by it. He relied on a decision of the Gauhati High Court in the case of Dhansiram Agarwalla v. CIT [1993] 201 ITR 192. He submitted, the said court had agreed with the view expressed by the Madras High Court in the case of Coimbatore Spg. & Wvg. Co. Ltd. v. CIT [1974] 95 ITR 375. He relied upon the findings, made in that context, in Dhansiram Agarwalla (supra), which findings are extracted below:

“The Commissioner of Income Tax endorsed the argument of the assessee that there was such an immoral practice among the traders, without seeking any material or evidence in support thereof. In our opinion, it is not merely a question of morality; such conduct may involve criminality also. The authority should be wary in accepting the self-serving explanation that the assessee deliberately inflated the stock in the declaration to the bank with a view to obtain higher loan facility. In any event, the mere statement of the assessee in that behalf could never be accepted. The Tribunal has considered all relevant materials in this behalf and its view is reasonable.

There was no material before the Commissioner of Income tax indicating that the bank did not exercise effective control. The assessee did not have any material to show that raw materials could not be obtained from the open market. He produced only a certificate from the Director of Industries given to a sister concern allegedly having similar business. The Commissioner of Income tax did not take into consideration the possibility of the assessee obtaining raw materials from irregular sources. The grounds stated by the Commissioner of Income tax are either not relevant, or if relevant, not based on acceptable materials.”

6. He also relied on a decision of a Co-ordinate Bench of this court in the case of CIT v. Bharat Minerals Sales Corpn. [2002] 253 ITR 419/124 Taxman 201. He submitted, in that case the addition upheld by the Tribunal arising from discrepancy in stock as disclosed to the bank was not interfered with.

7. Mr. Majumdar, learned advocate appeared on behalf of the assessee. He submitted, the Tribunal had made a finding on fact that only one out of the four invoices carrying particulars of goods purchased had actually been taken delivery of by his client. The absence of acknowledgement of delivery on three of the delivery challanas was relied upon as evidence for such finding. There was no perversity and hence no interference was warranted.

8. On the issue of stock statement he relied upon several judgments. He submitted, the Madras High Court in the case of CIT v. N. Swamy [2000] 241 ITR 363/[2002] 125 Taxman 233 had not agreed with the observations made by it earlier in Coimbatore Spg & Wvg. Co. Ltd. (supra). He relied upon the following view expressed therein as is reproduced below:

“We find it a little difficult to agree with those observations. The assessee’s income is to be assessed by the Income tax Officer on the basis of the material which is required to be considered for the purpose of assessment and ordinarily not on the basis of the statement which the assessee may have given to a third party unless there is material to corroborate that statement of the assessee given to a third party, even if it be a bank. The mere fact that the assessee had made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had undisclosed income is on the Revenue. That burden cannot be said to be discharged by merely referring to the statement given by the assessee to a third party in connection with a transaction which was not directly related to the assessment and making that the sole foundation for a finding that the assessee had deliberately suppressed his income.

That the burden is on the Revenue to prove that the income sought to be taxed is within the taxing provisions and there was in fact income, are propositions which are well settled by the Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 which reiterates these propositions.

Be that as it may, it is unnecessary for us to say anything further on that matter, in view of the fact that even by applying the decision in Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad), the result reached by the Tribunal can be sustained. The Division Bench in that case accepted the argument that was advanced by the Revenue that the question whether an explanation offered by the assessee is acceptable or not is a pure question of fact, and that this court is not entitled to examine the correctness of such a finding on a reference. On the facts of that case, the Tribunal had rejected that explanation and this court after examining the facts upheld the rejection. Here the situation is reversed. The Tribunal has accepted the explanation of the assessee and it is the Revenue which wants that order of the Tribunal to be set aside on the ground that the explanation could not have been accepted. The rejection of the explanation was a matter for the Tribunal. The Tribunal has exercised its jurisdiction and the question decided by it is a question of fact. We, therefore, do not see any scope for interference with the order of the Tribunal.”

9. He then relied on a judgment of the Rajasthan High Court in the case of CIT v. Relaxo Footwear [2003] 259 ITR 744/[2002] 123 Taxman 322, to submit that when the Tribunal had on appreciation of evidence found on a question of fact, as in that case, there should be no interference. He next relied on a decision of the High Court of Gujarat in the case of CIT v. Riddhi Steel and Tubes (P.) Ltd. [2013] 40 taxmann.com 177/[2014] 220 Taxman 148, to paragraph 9.2 therein as is reproduced below:

“9.2. It is a settled law, as rightly held by the Tribunal, that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. If, for the purpose of fulfilling the margin requirements of the bank purely on inflated estimate basis, when the stock statement had reflected inflated value of the stock, in wake of otherwise satisfactory explanation, both – for the purpose of value as well as quantity, we find no reason to interfere with the order of the Tribunal.”

10. Lastly he relied on a judgment of the Supreme Court in the case of CIT v. Narendra Doshi [2002] 254 ITR 606/122 Taxman 717 to submit that the decisions rendered by the High Courts as relied upon by him stood accepted by the Revenue since the correctness of those decisions had not been challenged. They must, therefore, be bound by the principles laid down therein as had been held by the Supreme Court.

11. On the first issue the Assessing Officer recorded the submission of the assessee and held as follows:

‘”that all the bills have duly been incorporated in respect of the purchases made by us. Some times the parties sent proforma bills and if the rates are acceptable the offer is accepted and the party send the goods. The assessee has not purchased the goods mentioned in the aforesaid bills. In fact you will observe that the bills are not even receipted by the parties. This proves that no such purchase was made. Therefore, when there is no purchase there is no question of any addition particularly when no evidence of any payment was found”.

The submission of the A.R. is not at all acceptable. The assesssee had issued the authorization letter to the driver to take the delivery of goods from the supplier, Truck no. also mentioned therein. Photo copies of the relevant portion of authorization letter issued to the driver to take delivery of goods, delivery challan and Purchase invoice/bills/cash/credit memos have been placed on record. It is crystal clear that assessee has purchased goods of worth Rs.466300/- during the F.Y. 2007-08. In light of the above discussion it is concluded that the assessee has undisclosed purchase of Rs.466300/- has been made from undisclosed business income during the financial year 2007-08. Therefore, the sum of Rs.466300/- is treated as undisclosed business income of the assessee and is added to his total income under the head ‘Income from Business’ for the assessment year 2008-09.’

12. The CIT (A) having refused to interfere, the Tribunal held that the invoice and delivery challans were in fact proforma invoices. In view of the plea raised by the assessee, the Assessing Officer ought to have examined the suppliers to find out the truth or otherwise of the claim. As such the Tribunal directed 5% of the value of goods, under the delivery challan bearing acknowledgement of receipt, to be added to the gross profit and the additions of the other three purchases, deleted. The Revenue could not dispute that there was no attempt to adduce corroborative evidence to support the Assessing Officer’s rejection of the claim of the assessee. We find that the view taken by the Tribunal is a plausible view.

13. So far as the second issue is concerned the facts found by the Tribunal are that the stock statement given to the bank is dated 29th February, 2008. The survey was conducted soon thereafter on 10th March, 2008. It was undisputed before the Tribunal that at the time of survey physical verification of stock was made and it tallied as per books of account maintained by the assessee. On these facts, we are unable to accept the argument on behalf of the Revenue that the bank having had verified the stock, stated to be there with the assessee, such should be accepted for the purpose of the addition being sustained. The judgments relied upon by the assessee lend credence to our accepting the Tribunal’s finding on fact. When the Revenue itself could not detect a discrepancy in the stock, relying upon a verification made by a person not concerned with the assessment cannot be relevant evidence to lawfully presume undisclosed income. The correctness of the verification made by the bank was not determined. That is not a matter for consideration or adjudication in this appeal.

14. For the reasons aforesaid we do not find any substantial question of law is involved in this case. The application and appeal are accordingly dismissed.

[Citation : 396 ITR 39]