Dadasaheb Haribhau Gondkar, ... vs Assessee

Dadasaheb Haribhau Gondkar C/o K D Bhandari, Tax Practitioners, B-3, Anand Park, Sarasnagar Road, Ahmednagar. ... Appellant

PAN: AENPG8229A

Vs.

The Income Tax Officer, Ward 1, Ahmednagar ... Respondent

Appellant by : B.B. Mane Respondent by : Santosh Kumar

Date of hearing : 04-02-2015 Date of pronouncement : 20-02-2015

ORDER

PER SUSHMA CHOWLA, J.M:

This appeal filed by the assessee is against the order of CIT(A)-I,

Pune, dated 31.01.2013 relating to assessment year 2009-10 against

order passed under section 143(3) of the Income-tax Act, 1961.

2. The assessee has raised the following grounds of appeal:-

1. The Learned Commissioner of Income Tax Appeal (Ld. CIT (A) and Learned Assessing Officer (Ld. AO) erred under circumstances and facts of the case and in law by upholding and making addition of Rs.1,81,819/- to the trading results by rejecting books of accounts of appellant and adopting net profit @ 2.50% of sales.

Addition of Rs.21,30,000/- as Income from Undisclosed source representing unexplained investment.:

2 ITA No.824/PN/2013

Dadasaheb Harinhau Gondkar

2. The Ld. CIT (A) and Ld. AO erred under circumstances and facts of the case and in law not appreciating that appellant audited balance sheet as on 31st March 2009 discloses under the head Investment, Plot advance of Rs.39,00,500/-.

3. The Ld. CIT (A) and Ld. AO erred under circumstances and facts of the case and in law without appreciating that appellant being agriculturalist he has invested accumulated cash agricultural income to purchase agricultural land at Nadurkhi Bk Tal Rahata, Dist. Ahmadanagar.

4. Without prejudice to Ground No.1 the Ld. CIT (A) erred on facts of the case and in law by not appreciating that the Ld, AO has worked out appellant's income for AY 2009-10 is of Rs.

4,82,573/- only and not unearth any other taxable source of income.

5. The Ld. CIT(A) under circumstances and facts of the case and in law not provided reasonable and sufficient opportunity to explain his case.

6. Relief claimed: The appellant request that addition effected by Ld. AO and confirmed by Hon'ble CIT (A) be directed to be deleted and allow appellant's appeal.

7. The appellant craves leave to Add/modify /delete/amend all/ any of ground of appeal.

3. The issue raised in the present appeal is against the addition

made on account of unexplained investment in purchase of land at

Nandurkhi, Tal-Rahata, Dist. Ahmadanagar, amounting to

Rs.21,30,000/- and also against rejection of books of account and

estimation of profit in the hands of the assessee.

4. The brief facts of the case are that, the assessee was engaged in

the business of trading empty liquor bottles on wholesale basis. The

assessee purchased empty bottles from un-registered dealers in the

scrap market and sold the same to the liquor manufacturers. From the

examination of the books of account, the Assessing Officer noted that

the entire purchases were supported only with self made vouchers.

Further, the assessee had not kept any quantitative details and also

major items of expenditure were supported only with self made

vouchers. The assessee also failed to furnish the preliminary details 3 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

i.e. full name and address of the employee and the date/s since when

he was working, in respect of the claim of expenditure under the head

'salaries'. The plea of the assessee was that, it was procuring empty

bottles from un-registered scrap dealers, who in turn made their

purchases from hawkers and had no other record. The assessee

however, agreed with the other defects in the books of account, but

pointed out that all the sales were properly supported and book results

be accepted.

5. The second issue considered by the Assessing Officer was the

investment in purchase of land at Gut Nos.176 and 177, at Nandurkhi,

Tal. Rahata. The Assessing Officer noted that the assessee had

declared the figure at lower than the actual amount reflected in the

purchase deed and also showing liability to a Patsanstha of an amount

greater than what actually it was. As per the Purchase Deed, dated

20.08.2008, the assessee had paid consideration of Rs.50,00,000/- in

the preceding and the current year as detailed at page 4 of the

assessment order. The assessee explained that the source of

investment was withdrawal from the business books only. However, he

pointed out that books reflected the investment under the head 'plot

advance' at Rs.39,00,500/-. The claim of the assessee in this regard

was that, it was because of wrong accounting entry. However, the

assessee was unable to substantiate the claim by producing supporting

evidences. Another issue noted by the Assessing Officer was that as

per the accounts extract appearing in the books of account of Shri Sai

Nagari Sahakari Patpurvartha Sanstha, the debit balance as on

31.03.2009 was Rs.5,30,168/-. However, the ledger account of the

Sanshta in the assessee's book showed credit balance of Rs.5,49,995/-. 4 ITA No.824/PN/2013

Dadasaheb Harinhau Gondkar

When confronted, the learned Authorized Representative for the

assessee conceded that the liability was wrongly shown.

6. In the above said background, the assessee was show caused as

to why the books of account should not be rejected under section

145(3) of the Act and the net income be computed by adopting the net

profit rate of 2.5% on the disclosed turnover. Rejecting the explanation

of the assessee vis-à-vis nature of business, the Assessing Officer

computed the income from business by estimating the net profit @

2.5% on the disclosed turnover of Rs.1.93 crores and the net profit was

worked out at Rs.4,82,573/- as against the net profit disclosed in the

books of account at Rs.3,00,754/-. With regard to the investment in

the land at Nandurkhi, the assessee was called upon to explain the

source for the differential amount of investment of Rs.21,30,000/- i.e.

investment + stamp duty + registration charges paid on 20.08.2008. In

reply, the assessee maintained that there was in fact, difference of

Rs.13,29,500/- i.e. the cost of plot at Rs.52,30,000/- less balance

figure of Rs.39,00,500/-. The contention of the assessee was that the

balance figure of Rs.13,29,500/- was paid out of his accumulated

agricultural income, which was not disclosed in the books of account.

The Assessing Officer noted that the assessee had never disclosed any

agricultural income in his return of income. Further, the copy of 7/12

extract reflects that the assessee owns only 0.30 R of agricultural land

at S.No.64 of Shirdi. In the absence of any conclusive evidence, the

differential amount of Rs.21,30,000/- was held to be the assessee's

income from undisclosed sources.

7. The CIT(A) upheld the rejection of books of account and

estimation of income from business in the hands of the assessee.

Further, the CIT(A) in respect of second addition of unaccounted 5 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

investment in land at Nandurkhi noted that as per the books of

account, the assessee had shown the investment of Rs.39,00,500/-.

However, the total investment in the preceding and the current year as

per the Purchase Deed dated 20.08.2008 was Rs.51,30,000/- i.e.

Rs.28,00,000/- during the assessment year 2008-09 and

Rs.23,30,000/- during the year under appeal. The assessee was

unable to explain the source of investment of Rs.21,30,000/- paid in

cash during the year, except for the statement that it was out of

withdrawal from the books of account. The Assessing Officer noted

that there were no cash withdrawals on or about the date of purchase.

The objection of the assessee was that there was only a difference of

Rs.13,29,500/- was rejected by the Assessing Officer since the assessee

had never disclosed any agricultural income and even landholding of

the assessee was on the lower side. In respect of the explanation of

investment of Rs.21,30,000/-, the plea of the assessee was rejected by

the CIT(A) and it was held as under:-

"4.2 These submissions are duly considered. It seen that the factual position submitted with reference to cheque totaling Rs.15,00,000/- which are made from appellant's Andhra Bank Account, actually pertain to A.Y. 2008-09. No addition has been made by the Assessing Officer on this account. As regards addition of Rs.21,30,000/- during the year, it is simply stated to be paid from books of account. Further, it is submitted that assessee has paid balance amount out of his saving from agriculture & business. The extract of Andhra Bank statement provided has been examined which gives account statement for the period 25.03.2008 to 31.03.2008, which is not relevant to the impugned A.Y. No other evidences are filed to substantiate the appellant's claim that the investments in land made in cash are out of unaccounted income as per books. Therefore, I have no hesitation, in confirming the addition of Rs.21,30,000/- under this head."

8. The assessee is in appeal against both the above said additions.

9. The learned Authorized Representative for the assessee took us

through the facts of the case and pointed out that the estimation of 6 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

income from business was not correct in view of the facts of the case. It

was pointed out by the learned Authorized Representative for the

assessee that as per the registered sale deed dated 20.08.2008, the

total consideration was Rs.50,00,000/- and further, sum of

Rs.2,30,000/- was paid as stamp duty. The next plea of the assessee

was that, in addition to the payments in assessment year 2008-09

totaling Rs.28,00,000/- which was out of withdrawal from the bank

account and the balance consideration of Rs.23,30,000/- was paid in

the current year. The source of investment was out of business and

out of accumulated agricultural income. As per the assessee, sum of

Rs.39,00,500/- was recorded in the books of account and balance sum

of Rs.13,29,500/- was paid out of accumulated agricultural income.

The learned Authorized Representative for the assessee stressed that

the Assessing Officer had not allowed the credit for what was shown in

the books of account. Another alternate plea was made before us that

in case, the addition on account of business income is upheld, then the

set off of addition to the extent of Rs.1,81,819/- be allowed to the

assessee.

10. The learned Departmental Representative for the Revenue placed

reliance on the orders of authorities below.

11. We have heard the rival contentions and perused the record. The

assessee was engaged in the business of trading empty liquor bottles on

wholesale basis. The purchases were being made from un-registered

dealers in the scrap market and the sales were made to the liquor

manufacturers. On the examination of books of account, the Assessing

Officer noted certain defects. The first defect noted by the Assessing

Officer was that the entire purchases were supported by only self made

vouchers. The plea of the assessee in this regard was that since it was 7 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

procuring the empty bottles from un-registered scrap dealers, who in

turn, were making the purchases from hawkers, did not have any sales

tax number and as such, the assessee was unable to obtain bills from

the suppliers. The other defects noted by the Assessing Officer was

that non-maintenance of quantitative details and even various expenses

being incurred on self made vouchers. The assessee had incurred

expenditure of Rs.7,65,575/- on account of sorting expenses, implying

that the assessee after making purchases, sorted out the bottles and

supplied to different liquor manufacturers. Once the bottles were being

sorted out, the quantitative details could have been maintained by the

assessee. Further, the assessee did not furnish any details in respect

of the expenditure booked under the head 'salaries'. During the course

of assessment proceedings, the assessee admitted that even if there

were any defects in the books of account, the sales made by him were

fully supported. In the entirety of the above facts and circumstances,

where the assessee had failed to maintain proper record and the

expenses not being backed by proper details, we hold that the

provisions of section 145(3) of the Act are attracted and the book

results declared by the assessee cannot be relied upon. After

dismissing books of account, next resort was to estimation of income.

The assessee during the year under consideration had disclosed

turnover of Rs.1,93,02,933/- on which, it had declared net profit of

Rs.3,00,754/-. The Assessing Officer however, applied NP rate at 2.5%

on total sales and computed the income at Rs.4,82,573/-. We uphold

the order of Assessing Officer in this regard and dismiss the ground of

appeal No.1 raised by the assessee.

12. The second issue raised by the assessee was against the addition

of Rs.21,30,000/- as income from other sources. The assessee had 8 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

made investment in the purchase of property in Nandurkhi. On the

examination of books of account, it was noted that there were no

withdrawals on or about the date of purchase of land. The assessee

had made the said investment in the property in two financial years i.e.

in 2007-08 and 2008-09. The assessee had placed the copy of

Purchase Deed at pages 7 to 18 of the Paper Book. The perusal of the

said Purchase Deed reflects that the assessee had made the under-

mentioned payments in financial year 2007-08:-

Sr. Cheque No. Cheque date Name of Amount No. Bank (Rs.) i Cash deposited 22nd Jan. 2008 3,00,000 in Andhra Bank ii Cash deposited 14th Mar. 2008 3,00,000 in Andhra Bank iii 405368 17th Mar. 2008 Andhra 5,00,000 Bank iv 407601 28th Mar. 2008 Andhra 5,00,000 Bank v 407602 28th Mar. 2008 Andhra 5,00,000 Bank vi 407603 28th Mar. 2008 Andhra 4,00,000 Bank vii 407604 28th Mar. 2008 Andhra 4,00,000 Bank Total 29,00,000

13. A sum of Rs.2,00,000/- was paid by cheque No.407611, dated

04.04.2008 drawn on Andhra Bank. The balance sum of

Rs.19,00,000/- was paid in cash on 20.08.2008 as mentioned in the

Purchase Deed. The said payments in cash were made on the date of

registration. In addition, the assessee had incurred the expenditure of

stamp duty and registration charges totaling Rs.2,30,000/-. The total

investment made by the assessee was Rs.21,00,000 + 2,30,000/- i.e.

Rs.23,30,000/-. The Assessing Officer while computing the details of

investment year-wise at page 4 of the assessment order, has committed

an error in totaling the payment for financial year 2007-08 at Rs.28 9 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

lakhs as against the total payment of Rs.29 lakhs made by the

assessee, which recognized in the second column, but in the first

column by mistake, the figure of Rs.17 lakhs was picked up.

14. Now, coming to the investment for the year under consideration,

the plea of the assessee was that sum of Rs.39,00,500/- had been paid

by cheques or by way of deposits in cash in the sellers bank account

maintained with Andhra Bank branch at Shirdi. The source of the said

sum of Rs.39,00,500/- was out of the business income of the assessee.

The balance consideration and stamp duty expenses were claimed by

the assessee to have been paid by the other family members as well the

assessee out of accumulated agricultural income. The balance of such

payment was Rs.13,29,500/-. The first grievance of assessee was that

the Assessing Officer had erred in adding Rs.21,30,000/- as income

from undisclosed sources representing un-explained investment in the

purchase of land at Nandurkhi, which has been confirmed by the

CIT(A). We find merit in the plea of the assessee that out of total

investment of Rs.21,30,000/- made during the year under

consideration, a sum of Rs.2,00,000/- has been paid by way of cheque

dated 04.04.2008 drawn on Andhra Bank. The balance cheques in the

preceding year were also drawn on Andhra Bank which is the business

bank account of the assessee, hence, there is no merit in making any

addition on account of said payment of Rs.2,00,000/-.

15. Now, coming to balance payment of Rs.19,00,000/- in cash and

the expenditure incurred on stamp duty and registration charges

totaling Rs.2,30,000/-. Though the assessee claims that the same was

out of its agricultural income and that of his family, some portion was

also claimed to be invested out of the business income of the assessee.

The perusal of audited financial statements relating to the financial 10 ITA No.824/PN/2013 Dadasaheb Harinhau Gondkar

year 2008-09 at pages 22 to 32 of the Paper Book reflects that the

assessee had declared the investment in plot at Rs.39,00,500/- in its

balance sheet as on 31.03.2009. Once the amount has been declared

by the assessee in the balance sheet as on 31.03.2009 as investment in

the purchase of plot, then investment to that extent merits to be

accepted in the hands of the assessee. One point also be clarified

herein that the sum of Rs.2,00,000/- paid by cheque drawn on Andhra

Bank, dated 04.04.2008 stands covered in the investment of

Rs.39,00,500/-. The assessee had declared the investment upto

Rs.29,00,000/- in the financial year 2007-08 and the balance of

Rs.10,00,500/- was declared as the investment made during the year

under consideration. Accordingly, investment to the extent of

Rs.39,00,500/- merits to be accepted in the hands of the assessee as

being made out of declared source of income.

16. Now, coming to the balance investment of Rs.13,29,500/-.

Though the assessee claims that the said investment had been made by

his family members and himself out of agricultural income, but except

to filing the evidence of 7/12 extract of agricultural land at Shirdi, the

assessee has not furnished any evidence as to the quantum of

agricultural proceeds received by the assessee in the preceding year or

in the year under consideration. In the absence of the same, we find no

merit in the claim of the assessee in this regard. The perusal of the

assessment order reflects that the assessee had only declared income of

Rs.2,91,150/- and no agricultural income had been offered to tax. In

the absence of the same, we find no merit in the plea of the assessee

that the balance investment totaling Rs.13,29,500/- was made out of

agricultural income.

11 ITA No.824/PN/2013

Dadasaheb Harinhau Gondkar

17. Now, coming to the alternate plea raised by the assessee that the

additional income assessed in the hands of the assessee under the

head 'income from business' i.e. Rs.1,81,819/- being set off against the

balance addition made in the hands of the assessee i.e. Rs.13,29,500/-.

We find merit in the plea of the assessee in this regard. Accordingly, we

direct the Assessing Officer to give the benefit of set off of the additional

income against the source of investment in the purchase of plot.

Accordingly, the addition in the hands of the assessee on account of

undisclosed investment in the purchase of plot of land is restricted to

Rs.13,29,500/- - 1,81,819/- = 11,47,681/-. The ground of appeal No.2

raised by the assessee is thus, partly allowed.

18. In the result, the appeal of the assessee is partly allowed.

Order pronounced on 20th day of February 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 20th February, 2015

GCVSR

Copy of the order is forwarded to: -

1. The Department; 2. The Assessee; 3. The CIT(A)-I, Pune; 4. The CIT-I, Pune; 5. The DR "B" Bench, I.T.A.T., Pune; 6. Guard File. By Order //True Copy//

Assistant Registrar I.T.A.T., Pune