Lalit Kumar Gupta Huf , Baran vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA Nos. 275, 276 & 277/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2003-04, 2004-05 & 2005-06 Income Tax Officer, cuke Lalit Kumar Gupta (HUF) Baran Vs. Prop. M/s Lalit Kumar Trilok Chand, Baran. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABHL 3436 N vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 20/05/2015 mn~?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/07/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

These are the appeals filed by the Revenue against the order

dated 25/1/2012 passed by the learned CIT(A), Kota for A.Ys. 2003-04

to 2005-06. The effective grounds of all the appeals are as under:-

Ground of revenue's appeal ITA No. 275/JP/2012

"On the facts and in the circumstances of the case, the ld CIT(A) has erred in;

2 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

(i) annulling the assessment made by the A.O. U/s 144 r.w.s. 147.

(ii) deleting addition of Rs. 1253500 made u/s 68 of the IT Act.

(iii) deleting disallowance of Rs. 38640/- made on account of interest u/s 40A(2)(b) of I.T. Act, 1961.

(iv) deleting disallowance of Rs. 5511/- made on account of shop expenses.

(v) deleting disallowance of Rs. 500/- made on account of telephone expenses.

(vi) the appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing."

Ground of revenue's appeal ITA No. 276/JP/2012

(i) annulling the assessment made by the A.O. U/s 144 r.w.s. 147.

(ii) deleting addition of Rs. 6146710/- made u/s 68 of the IT Act.

(iii) deleting disallowance of Rs. 30000/- made on account of shop expenses.

(iv) deleting trading addition of Rs. 25000/-

(v) the appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing."

Ground of revenue's appeal ITA No. 277/JP/2012

"On the facts and in the circumstances of the case, the ld CIT(A) has erred in;

3 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

(i) annulling the assessment made by the A.O. U/s 144 r.w.s. 147.

(ii) deleting addition of Rs. 1547500/- made u/s 68 of the IT Act.

(iii) deleting disallowance of Rs. 4273/- made on account of interest u/s 40A(2)(b) of I.T. Act, 1961.

(iv) deleting disallowance of Rs. 1365/- made on account of shop expenses.

(v) deleting disallowance of Rs. 760/- made on account of depreciation on Maruti car.

(vi) the appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing."

2. All the grounds of appeal of the revenue for all the years are

interlinked and against annulling the assessment made by the Assessing

Officer U/s 144 read with Section 147 of the Income Tax Act, 1961. The

ld Assessing Officer observed that the assessee filed its return of

income on 19/2/2004 at Rs. 1,57,955/-. The case was not scrutinized

U/s 143(3) of the Act but only processed U/s 143(1) of the Act. The ld

Assessing Officer recorded the reasons U/s 147 of the act on 17/3/2010

and notice U/s 148 of the Act was issued on 17/3/2010. In response to

notice U/s 148, the assessee replied that the original return filed on

19/4/2004 may be treated in response to notice U/s 148 of the Act. The

ld Assessing Officer issued notice U/s 143(2) and 142 alongwith a 4 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

questionnaire dated 29/3/2010 and the case was fixed for specified

date. On given date, the assessee was non-cooperative in all the years

as the reopening proceedings were taken up by the Assessing Officer

simultaneously in all the years. The AR for the assessee appeared on

25/10/2010 but part information was furnished to the Assessing Officer.

After considering the assessee's reply, the ld Assessing Officer made

various additions particularly U/s 68 to the tune of Rs. 12,53,500/- in

A.Y. 2003-04, Rs. 61,46,710/- in A.Y. 2004-05 and Rs. 15,47,500/- in

A.Y. 2005-06 U/s 68 of the Act. The assessee challenged reopening of

the case as well as additions made under various heads by the

Assessing Officer before the ld CIT(A). The ld CIT(A) considered the

assessee's written reply on reopening U/s 147 on the ground that entire

amount of Rs. 1,35,68,510/- was taxed in the assessment year 2007-08

vide order dated 29/12/2009 and reopening of assessee for taxing part

of this amount is different year was bad in law. The ld CIT(A)

considered the finding given by the Assessing Officer in assessment

order- for A.Y. 2007-08 order dated 29/12/2009, the order of the ld

CIT(A) dated 28/5/2010 (appeal No. 414/2009-10) for A.Y. 2007-08,

case record of the assessee and office note left by the Assessing Officer

in A.Y. 2007-08 and reasons recorded by the Assessing Officer for 5 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

reopening of the assessment. While framing the assessment order for

A.Y. 2007-08, the ld Assessing Officer noticed that as per balance sheet

for the year ending 31/3/2007, the assessee had shown creditors to the

tune of Rs. 1,35,68,510/- in the name of various farmers pertaining to

A.Y. 2002-03 to 2007-08 as per details as under:-

Asstt. Years Amount (Rs.) 2002-03 2090000 2003-04 1253500 2004-05 6146710 2005-06 1547500 2006-07 1758000 2007-08 772800 Total Rs. 13568510

The ld Assessing Officer added in A.Y. 2007-08 the entire amount of Rs.

1,35,68,510/- in the income of the assessee by observing as under:-

"On perusal of balance sheet it is found that the assessee has credited a sum of Rs. 1,35,68,510/- in the names of various farmers. The assessee was therefore asked to submit a details list of farmers with their complete postal address and confirmations of the outstanding amount vide questionnaire dated 27/01/2009.

Since the details were not submitted, the assessee was again required to submit the necessary information vide this office letter dated 15/12/2009. In response thereto the assessee submitted list of farmers with a copy of purchase vouchers (Mandi committee receipts) and stated that the amount remained

6 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

outstanding out of sale proceed of such farmers in each case. On perusal of list, it is found that the balance outstanding relates to the assessment years as under:-

A.Y. 2002-03 Rs. 2090000/- A.Y. 2003-04 Rs. 1253500/- A.Y. 2004-05 Rs. 6146710/- A.Y. 2005-06 Rs. 1547500/- A.Y. 2006-07 Rs. 1758000/- A.Y. 2007-08 Rs. 772800/- ------------------------------ Rs. 13568510/-

As it is seen from the lists provided, the amount in question is outstanding from long back i.e. even from the assessment year 2002-03 onwards, it is a general fact that the farmers are always in needs of funds, rather they always require some advances in spite of leaving sale proceeds with the traders. The circumstances shows that the assessee has already paid the amount in question to the farmers out of sources not disclosed in the books of account and used the name of farmers to introduce the concealed or unaccounted income in the shadow of farmers. Due to furnishing of inaccurate particulars of the case, it cannot be verified the actual date of payment to such creditors against such credits. In these circumstances the theory of the assessee leaving the amount with the trader, which is for number of years cannot be believed. This observation is further strengthen by the act of assessee that he could not produce even a single confirmation from any of the farmer in spite of specific requirement in this regard. Summons u/s 131 were also issued in some of the cases 7 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

however, none of the farmers responded. Hence this exercise also remained futile. In these circumstances I have no option but to treat such credits as bogus in the absence of any satisfactory evidence i.e. the assessee has failed to prove the genuineness of such credits within the meaning of Sec. 68 of the IT Act. Since the year of payment to farmers is not available, in the absence of any specific details the same is considered as to have been paid out of undisclosed sources during the current year and accordingly added to the income of this year as income U/s 68 of the IT Act, 1961".

The ld CIT(A) also considered the finding given by his predecessor for

A.Y. 2007-08 wherein the ld CIT(A) held that from perusal of the

ordersheet of A.Y. 2007-08 in particular, these two entries order dated

18/12/2009 and 29/12/2009, it is evident that at no point of time did

the Assessing Officer required the appellant to produce the farmers,

listed as sundry creditors and to this extent his assertion that the

appellant had failed to produce the farmers is incorrect. Further the ld

CIT(A) for A.Y. 2007-08 held that in all the seven notices U/s 131 of the

Act dated 22/12/2009 were dispatched on 24/12/2009. Out of which,

five were returned unserved. The assessment, as mentioned above,

was framed on 29/12/2009 for A.Y. 2007-08. It was concluded by the ld

CIT(A) for A.Y. 2007-08 that the ld Assessing Officer made a half 8 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

hearted effort to verify just a few sundry creditors by issuing notices

U/s 131 of the Act and that too at a very late stage. Thus, the ld CIT(A)

for A.Y. 2007-08 has further held that the decision of the Assessing

Officer to treat Rs. 1,35,68,510/- as income from undisclosed sources is

also based on his observation, "it is a general fact that farmers are

always in need of funds, rather they always required some advance in

spite of leaving sale proceeds with the traders". He opined further, "the

circumstances shows that the assessee has already paid the amount in

question to the farmers out of sources not disclosed in the books of

account and used the name of the farmers to introduce the concealed

or unaccounted income in the shadow of farmers."

The observation of the Assessing Officer that the farmers are

always in need of funds is redundant to the issue at hand. If some

money is due to them, the appellant is expected to pay, irrespective of

'needs' of the farmer-creditors. But such apparent need of farmers does

not justify inference of the Assessing Officer that the appellant paid

cash to square off these creditors.

The ld CIT(A) for A.Y. 2003-04 has considered the submission of

assessee's letter dated 24/5/2010 that payments to the farmers who 9 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

had sold their farm produce through the appellant could not be made

because, in turn payments for sale proceeds were not received from

Goyanka traders (GT), Baran and Prashant Traders (PT), Baran and that

this 'blockage of funds' continued for a few years. A perusal of the

balance sheet of the appellant confirms the claim, for on that last day of

the accounting period the appellant had to received Rs. 47,05,354/-

from GT and Rs. 1,14,26,470/- from PT, the total amount being Rs.

1,61,31,824/- and this lends credibility to claim that because funds for

sale of crops were not received the farmers could not be paid off. As

per his view, this was a normal business situation and the farmer-

creditors have to wait for money, even if they were in need of funds, as

postulated by the Assessing Officer. He further observed as under:-

The Assessing Officer has not explained "circumstances", which indicated that during the period in question the appellant had paid off, in cash, sundry creditors amounting to Rs. 1,35,68,510/- .The Assessing Officer did not bring on record any evidence of payment of cash to any of the sundry creditors mentioned above. This observation of the Assessing Officer that sundry creditors were paid off in cash, in my considered view, is without any basis, only a conjecture or a surmise.

10 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

It is interesting to note that the Assessing Officer included opening balance of Rs. 1,27,95,710/- (Rs. 1,35,68,510/- less Rs. 7,72,800/-), unmindful of the fact that in this assessment, he was concerned with affairs of the appellant between 01/04/06 to 31/03/07 only. Yet, he left an intriguing office note, which reads:

"In the appellate proceedings the assessee may take the plea that the amount in question was originally credited during the above assessment years and outstanding there from. Therefore, to safeguards the interest of revenue, action U/s 147 may be initiated for the above assessment years also". Was it a case of a late realization that opening balance of Rs. 1,27,95,710/- was not open to question in this assessment year?

While there is no evidence that the appellant was required to produce the farmer- sundry creditors, in course of appeal proceedings the appellant did produce confirmations from 128 of such farmer-sundry creditors outstanding on the opening day of accounting period. This evidence was made available to the present Assessing Officer, who had no objection and no observation whatsoever.

In short, the addition has been made without bringing on record any material and only relying on a 'belief' that because the farmers are always in need of money, the appellant had used his unaccounted cash to pay off these creditors. In my view, the addition is made in a frivolous manner, without finding any fault in books of accounts and supporting documents and ignoring the

11 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

evidence of sale made on behalf of the farmers, the basis for unpaid sundry creditors. He ignored without any reason a plausible explanation of the appellant that these sundry creditors were not paid the sale proceeds for their crops due to non-receipt of funds from Goyanka traders and Prashant traders. His decision is based on a factually incorrect claim that he had asked the appellant to produce the sundry creditors and a half-hearted, last- minute, abortive attempt to investigate matters, invoking section 131 of the IT Act, 1961. The decision of the Assessing Officer borders on the absurd, for in a perfunctory manner he included the huge amount of opening balance of sundry creditors of Rs. 1,27,95,710/- (Rs. 1,35,68,510/- less Rs. 7,72,800/-). Having done so, he left an equally intriguing office note for initiating action under section 148 of the IT Act, 1961 in those years.

Even though, as discussed above, the addition of Rs. 1,35,68,510/- is without basis and justification and further explanation or evidence is redundant. Yet, the confirmations from more than ninety percent creditors furnished before me in course of appeal proceedings were made available to the Assessing Officer, who did not object or make any adverse observation on the evidence.

In given facts and circumstances, the decision of the Assessing Officer to treat sundry creditors as bogus is not confirmed and the addition of Rs. 1,35,68,510/- is deleted. Ground 1 of the appeal is accepted."

12 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

The ld CIT(A) had not given any finding on quantum addition made U/s

40A(2)(b) for Rs. 38,640/-, the addition U/s 68 on account of creditors

at Rs. 12,53,500/- on the ground that reopening of assessment has

been annulled by him, therefore, no need to adjudicate the case on

merit.

3. Now the Revenue is in appeal before us. The learned D.R.

vehemently supported the order of the Assessing Officer and she has

drawn our attention on reasons recorded by the Assessing Officer on

the basis of office note given by the then Assessing Officer for A.Y.

2007-08. It is argued that total outstanding had been shown by the

assessee at Rs. 1,35,68,510/- from A.Y. 2002-03 to 2007-08. The year

wise figure of creditors had been given by the then Assessing Officer.

The then ld Assessing Officer for A.Y. 2007-08 had added entire

creditors to the tune of Rs. 1,35,68,510/- in the income of the assessee.

However, this addition was challenged by the assessee before the

CIT(A) who deleted the addition for A.Y. 2007-08. The revenue

challenged the order of the then CIT(A) for A.Y. 2007-08 before the

ITAT. The Hon'ble ITAT has set aside the order of the ld CIT(A) to the

Assessing Officer to consider the issue afresh. If the credit entries are 13 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

old and finding of Assessing Officer is that the assessee had paid the

amount then addition can be made in the year in which amounts have

been paid to such creditors for A.Y. 2007-08 in ITA No. 1076/JP/2010.

The Assessing Officer has reframed the order after considering the

Hon'ble ITAT decision for A.Y. 2007-08 on 28/12/2012 and he

considered only the creditors for A.Y. 2007-08 in reassessment

proceeding and after verification of the creditors, he made addition of

Rs. 1,46,500/- only. Therefore, similar decision may please be taken for

the year by the Hon'ble ITAT as the facts of the case are similar. The

reopening made by the Assessing Officer on the basis of findings given

by the then Assessing Officer for A.Y. 2007-08, which is an information

for the Assessing Officer for A.Y. 2003-04, 2004-05 and 2005-06. Thus,

the ld CIT(A) was not right in annulling the reopening U/s 148 of the

Act.

4. At the outset, the ld AR of the assessee has supported the order

of the ld CIT(A) and reiterated the arguments made before him that the

ld CIT(A) in A.Y. 2007-08 has deleted the addition of the then ld CIT(A)

by giving a detailed reasons as there was no material before the

Assessing Officer to conclude that the assessee had paid to these 14 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

creditors from undisclosed source as cash. Further all creditors in total

at Rs. 1,35,68,510/- added in the A.Y. 2007-08 in year pending before

the Hon'ble ITAT, the double additions were made by the Assessing

Officer, which is not permitted under the law. The reasons recorded by

the Assessing Officer are not certain. He firstly added these creditors in

A.Y. 2007-08, thereafter from A.Y. 2002-03 to 2006-07. The ld AR also

argued that the ld Assessing Officer had not followed the guidelines

given by the Hon'ble Supreme Court in the case G. K. N. DRIVESHAFTS

(INDIA) LTD. v. INCOME-TAX OFFICER AND OTHERS [2002] 257 ITR

702 (Del), therefore order of the ld CIT(A) may please be confirmed.

5. We have heard the rival contentions of both the parties and

perused the material available on record. The ld CIT(A) considered the

findings of the then ld. CIT(A) for A.Y. 2007-08 to decide the appeal for

A.Y. 2003-04 to 2006-07. The ld Assessing Officer recorded the

satisfaction for reopening U/s 147 of the Act as under:-

During the course of assessment proceedings for assessment year 2007-08, the then Assessing Officer observed that credits of the tune of Rs. 13568510/- appearing in the name of various farmers pertaining the period from assessment year 2002-3 to 2007-08 are bogus as the assessee could not prove the above 15 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

liability as genuine. Out of total liability shown to the tune of Rs.

13568510/-, Rs. 6146710/- is pertaining to assessment year 2004-05.

In view of above facts, it is established that Rs. 6146710/- has been treated as bogus liability which has actually been paid out during the period relevant to assessment year 2004-05 itself out of undisclosed income of the assessee. Therefore, I have reason to believe that Rs. 6146719/- is escaped assessment as per provisions of section 147 of the Income Tax Act, 1961 for the purpose of issuing notice U/s 148 of the IT Act, for the assessment year 2004-05.

The proposal is being submitted to the Addl. CIT, Range-2, Kota in view of provisions of section 151(2) of the I.T. Act, 1961.

Similar reasons were recorded for A.Y. 2004-05 and 2005-06 wherein it

has been reason to believe that the assessee had bogus creditors as the

assessee could not prove the above liability as genuine. Out of total

liability shown to the tune of Rs. 1,35,68,510/-, Rs. 12,53,500/- is

pertained to A.Y. 2003-04, Rs. 61,46,710/- for A.Y. 2004-05 and Rs.

15,47,500/- for A.Y. 2005-06, which has been paid out during the

period relevant to assessment year 2003-04 to 2005-06 out of

undisclosed income of the assessee. In all the years, the cases were

processed u/s 143(1) of the Act. The cases were reopened after four 16 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

years but within six years from the end of the assessment year.

Therefore, the ld Assessing Officer had reason to believe in all the years

that income has been escaped assessment in all the years. The Hon'ble

Bombay High Court in the case of Siemens Information Systems Limited

Vs. ACIT (2012) 343 ITR 188 (Bom) held that an assessment can be

reopened on the basis of an order of assessment U/s 143(3) of the Act

for a subsequent assessment year. The Coordinate Bench in A.Y. 2007-

08 has held as under:-

"For the year under consideration, the amounts outstanding are Rs. 7,72,800/-. The ld CIT(A) has mentioned that the confirmations from more than 90% of the creditors have been furnished before him. However, we are not having the benefit of going through such confirmations. We, therefore, feel that matter is required to be considered afresh by the A.O.. If the credit entries are old and the findings of the A.O. is that the assessee has paid the amount then addition can be made in the year in which the amounts have been paid to such creditors. With these observations, we set aside the order of both the lower authorities and the A.O. is directed to make the assessment de novo as per law."

The facts are identical for the years under consideration, therefore, we

set aside the order of the ld CIT(A) to him for de novo and directed to 17 ITA 275, 276 & 277/JP/2012_ ITO Vs. Lalit Kumar Gupta

decide on merit after providing reasonable opportunity of being heard

to the assessee. The assessee is also directed to submit all the

evidences as required by the ld CIT(A) for disposal of this set aside

proceedings.

6. In the result, all the revenue's appeals for all the three

assessment years are allowed for statistical purposes only.

Order pronounced in the open court on 17/07/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 17th July, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- ITO, Baran.

2. izR;FkhZ@ The Respondent- Lalit Kumar Gupta (HUF), Baran.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 275, 276 & 277/JP/2012) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar