Calcutta H.C : intangible additions made in the past against unexplained income of the assessee must be set off

High Court Of Calcutta

Balaram Saha Vs. CIT

Assessment Year : 1997-98

Section : 69

Bhaskar Bhattacharya And Sambuddha Chakrabarti, JJ.

IT Appeal No. 319 Of 2003

Assessment Year 1997-98

April  19, 2011

JUDGMENT

Bhaskar Bhattacharya, J. – This appeal under s. 260A of the IT Act, 1961 is at the instance of an assessee and is directed against an order dt. 21st July, 2003 passed by the Tribunal, ‘D’ Bench, Kolkata, in ITA No. 132/Cal/2001 relating to the asst. yr. 1997-98 thereby confirming the order passed by the CIT(A).

2. Being dissatisfied, the assessee has come up with the present appeal.

3. A Division Bench of this Court, at the time of admission of this appeal, formulated the following substantial questions of law :

“(a)Whether on the facts and in the circumstances of the case the learned Tribunal was justified in law in not obtaining the set off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey.

(b)Whether on the facts and in the circumstances of the case the learned Tribunal was justified in law in holding that there is no infirmity in the offer of the CIT(A) in confirming the discrepancy accounted for through disclosure of unaccounted stock as well as unaccounted sales on the ground that the calculation of stock as well as sales pertaining to the asst. yr. 1997-98 has been worked out in detail.”

4. The facts giving rise to filing of this appeal may be summed up thus :

(a) A survey under s. 133A was conducted in the business premises of the assessee on 9th Jan., 1997 and some books of accounts and documents were impounded under s. 131(3) of the Act. The assessment for the asst. yr. 1995-96 was reopened under s. 148 of the Act and after scrutinizing the impounded books, the AO found that there was suppression of sales to the tune of Rs. 27,36,906. The AO applied the gross profit ratio of 5.25 per cent thereon and made an intangible addition amounting to Rs. 1,43,688.

(b) Being dissatisfied with the said order of the assessment, the assessee preferred an appeal before the CIT(A) objecting to the addition of Rs. 1,43,688 made by the AO as gross profit ratio. The CIT(A), however, confirmed the said order of addition.

(c) Being dissatisfied, the assessee preferred an appeal before the Tribunal and the said Tribunal has dismissed the appeal of confirming the order of the CIT(A). 

(d) Similarly, in respect of the asst. yr. 1996-97, the AO made estimated addition on account of gross profit to the tune of Rs. 8,19,704 and on an appeal being preferred, the appellate authority reduced the gross profit addition of Rs. 8,19,704 made by the AO to Rs. 2,84,699 thereby giving relief of Rs. 5,35,005.

(e) In respect of the assessment year in question, i.e. the asst. yr. 1997-98, the AO found the total suppressed sales at Rs. 1,23,98,705 and applied the gross profit ratio of 7 per cent thereby making an addition of Rs. 8,67,910 as estimated gross profit on suppressed sales.

(f) Being dissatisfied, the assessee preferred an appeal before the CIT(A) and the CIT(A) reduced the addition on suppressed sales from Rs. 8,67,910 to Rs. 7,77,400 and allowed the set off of the same against the unexplained investment in stock.

(g) Being aggrieved by the said order of the CIT(A) for not allowing the full set off of the gross profit additions on suppressed sales sustained in the asst. yrs. 1995-96 and 1996-97 amounting to Rs. 1,43,688 and Rs. 2,84,699 respectively, against the unaccounted stock disclosed or found, the assessee preferred an appeal before the Tribunal and by the order impugned herein, the said Tribunal dismissed the appeal.

(h) Being dissatisfied, the assessee has come up with the present appeal.

5. Mr. Bharaddwaj, the learned advocate appearing on behalf of the appellant, has taken a pure question of law regarding non-consideration of set off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey. According to Mr. Bharaddwaj, in this case, for the survey in the office of the assessee, there being reopening of the assessment for the previous asst. yrs. 1995-96 and 1996-97 and the AO having imposed tax and penalty for the alleged undisclosed income, those undisclosed incomes became lawful property of the assessee in view of payment of tax and as such, it was the duty of the AO and the authorities below to allow deduction of the amount on account of intangible additions made in the past against unexplained cash of the assessee. Mr. Bharaddwaj contends that neither the appellate authority nor the Tribunal below considered the question of set off for those periods. According to Mr. Bharaddwaj once the secret profit had been assessed to tax in respect of two previous assessment years, it would be open to his client to bring those profits into the books and distribute them, or what remained after the payment of tax subject to the provision of the Act. Mr. Bharaddwaj contends that having assessed the assessee on a large sum as its undisclosed income, it could not in the same breath be said that those profits did not, in fact, exist because they did not appear from the assessee’s books of account. Mr. Bharaddwaj contends that there is no escape from the proposition that the secret profit or undisclosed income of the assessee earned in an earlier assessment year may constitute a fund and even though concealed, from the said amount, the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books.

6. Mr. Bhowmick, the learned counsel appearing on behalf of the Revenue, has, on the other hand, opposed the aforesaid contention of Mr. Bharaddwaj and has contended that both the Tribunal below and the CIT(A) rightly turned down the claim of the assessee as in respect of reassessment in the years 1995-96 and 1996-97, the assessee has accepted such reassessment. Therefore, the same cannot be reopened.

7. After hearing the learned counsel for the parties and after going through the materials on record, we find that undisputedly in the previous two assessment years, viz. 1995-96 and 1996-97, there was reassessment and the undisclosed income of the assessee was disclosed and the assessee made payment of tax on those undisclosed incomes. Once such fact is established and is not in dispute, we find substance in the contention of Mr. Bharaddwaj, the learned advocate appearing on behalf of the assessee, that while considering the assessment for the year 1997-98, it was the duty of the AO to consider the question of set off on account of intangible additions made in the past against unexplained income of the assessee over which he paid tax. It appears that the Tribunal did not consider the aforesaid aspect of the matter at all.

8. In such view of the matter, we set aside the order passed by the Tribunal and direct the AO to give effect to the principle of set off on account of intangible additions after considering the final reassessment of the previous two assessment years, viz. 1995-96 and 1996-97. If it appears that the assessee has paid tax on the undisclosed income detected by way of survey for those two assessment years, while considering the assessment of the subsequent assessment year, viz. 1997-98, the AO should consider the question of set off of the amount which has been legalized by payment of tax.

9. We, thus, allow the appeal and set aside the order of the Tribunal and pass the aforesaid direction to the AO.

10. We, thus, answer both the formulated questions in the negative against the Revenue and in favour of the assessee.

11. In the facts and circumstances, there will be, however, no order as to costs.

Sambuddha Chakrabarti, J. – I agree.

[Citation : 334 ITR 383]

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