TaxTMI 
TaxTMI 
2009 (6) TMI 650
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....sis of three loose papers which were found during the course of a survey conducted at the business premises of the assessee on 12th Sept., 2000. From the writing on these papers it was inferred by the learned AO that the assessee had advanced a sum of Rs. 2,95,000 (Rs. 1,10,000, Rs. 1,00,000 and Rs. 85,000) on three occasions to one Shri Shankar Lal S/o Late Shri Gora Lal Ji R/o 4/3, Om Nagar, Longawal Road, Ajmer (Rajasthan). When explanation was sought from the assessee with regard to these papers, it was replied vide letter dt. 15th Dec., 2003 that the assessee had given advance for the purchase of agricultural land out of cash available in his books of accounts. The assessee is the proprietor of M/s R.B. Sons. During the course of assessment proceedings, Shri Shankar Lal, the vendor, was produced before the AO in person, who had sold agricultural land to the assessee and who had sent three currency notes for collecting the sale consideration. Shri Shanker Lal confirmed the receipt of payment of Rs. 1,10,000, Rs. 1,00,000 and Rs. 85,000. The AO wanted to know the dates of these advances which could not be stated either by Shri Shankar Lal or by the assessee, but it was added tha....
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.... the assessment record was called from the Department. The learned Departmental Representative was fair enough to point out after looking into the records that the copy of this letter dt. 15th Dec., 2003 is on record. To show that the assessee had filed return of income belatedly under s. 139(4), our attention was invited to paper book p. 19 where such a fact is found mentioned that the return of income was also filed belatedly. From page No. 1 of the assessment order, it is gathered that in compliance of notice under s. 139(9) issued on 22nd May, 2002, the assessee had furnished copies of trading account, P&L al c and balance sheet as well as copy of capital account and depreciation chart, etc. The assessee also filed balance sheet which tallied at Rs. 6,55,359 (AO's order para 1 last line). With reference to all the above evidences, it was emphasised that the finding recorded by the AO as well as the learned CIT(A) that the assessee did not maintain proper books of accounts and has manipulated the same is not correct. According to the learned Authorised Representative till the date of survey, no amount was paid towards purchase price of this agricultural land and these amounts we....
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....in the light of the oral as well as written submissions of the parties vis-a-vis available materials on the record. It is a fact that three currency notes with three separate slips were found during the course of survey on 12th Sept., 2000 from the possession of the assessee. It is a fact that on that day, the assessee was not present on the shop and had gone out of town and at the relevant time a young nephew of the assessee was sitting on the shop. What is disputed is the claim of the assessee that he made payment of Rs. 2,95,000 in three parts, as explained above, on different dates, to the same person, who has come with three currency notes to collect the entire amount of sale consideration, which were paid to him as and when the money was available with the assessee upto 30th Sept., 2000. The person who came to collect the money from Ajmer is stated to have reached the assessee's premises on 10th Sept., 2000, who stayed back to the entire period and was given the money as mentioned above on three different dates. The doubt of the Revenue cannot be said to be non-genuine. Anybody and everybody would come to such a reasoning that why the person who came to collect the money from....
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.... from sale and purchase of medicines. Return of income for the asst. yr. 2001-02 was filed on 31st March, 2002 but no copy of accounts were filed. Therefore, a notice under s. 139(9) was issued to the assessee on 22nd May, 2002. In compliance with which the assessee furnished copies of trading account, P/L a/c and balance sheet as well as copy of capital account and depreciation chart, etc. The balance sheet tallies at Rs. 6,55,359." Paras 6 and 11 of the letter dt. 15th Dec., 2003 are also being reproduced for ready reference. "6. That the trading a/c, P&L a/c and balance sheet were prepared on the basis of regular books of accounts maintained in the day to day course of business. These were by mistake left to be submitted in the return of income and these were later on duly filed in compliance to notice under s. 139(9). The books of accounts, purchase vouchers and sales memos are being produced for Your Honour's ready reference. 11. That at the time of survey under s. 133A, dt. 12th Sept., 2000, the alleged amount of stock of Rs. 7,33,478 found as on the date was valued on MRP. The actual rate of the medicine is about 25 to 30 per cent less of the MRP rate. Hence, the actual v....
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....d during that period. He has given ratio between the sales and closing stock in earlier years as under: ------------------------------------------- Asst. year Sales Closing stock Ratio ------------------------------------------- 1998-99 17,40,100 2,64,276 15.1% ------------------------------------------- 1999-2000 17,50,650 1,74,562 9.9% ------------------------------------------- 2000-01 24,95,496 1,58,126 6.3% ------------------------------------------- The fact of close of business and clearance of stock, which was not specifically controverted or refuted by the learned AO, proves that the increase in sales was consequential one. When the assessee has closed his business, he was bound to dispose of the entire stock. When the evidence in black and white are pitted against the guess work, may be based on general observation, the latter has to be discarded. In any case, when from the given set of facts two possible views are available, which are ....
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.... at the time of survey because the stock was valued at MRP (maximum retail price) whereas according to the assessee in medicine line, around 25 per cent to 30 per cent less rates than MRP are normally charged. The AO has agreed with, the claim of the assessee in principle, but he has given reduction of 15 per cent instead of 25 to 30 per cent as has been claimed and has made the addition of Rs. 1,00,000 on this score, which has been sustained by the learned CIT(A) also. The assessee has shown purchases of Rs. 17,84,133 in his books, which were not relied by the learned AO. The purchase vouchers for purchase of Rs. 12,94,138 were found at the time of survey. That is why the learned AO did not accept the sales and stock position as correct. The AO as well as the learned CIT(A) have doubted the books because it tallied even upto the last rupee as per physical verification. Since the learned AO has accepted in principle that there is variation in the MRP rates, but instead of accepting 25 per cent, he has accepted 15 per cent as a variable. We are of the opinion that 25 per cent deduction on account of variable price below MRP should have been given to decide the issue in question. We ....
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....c. were found thereat. Three currency notes, along with three slips attached thereto, were also found in survey. The slips bore the name and address of the assessee, with different amounts, in the total of Rs. 2,95,000, written on the three currency notes, as: Rs. 1,10,000 (Re. 1 note), Rs. 85,000 (again Re. 1 note) and Rs. 1 lakh (Rs. 2 note). The handwriting on each of the three slips was different. Particularly on the Re. 1 note on which the amount of Rs. 1,10,000 stood written. 2.2 One, Shri Dhiraj Variyani, aged about 16 years, was attending the shop at the relevant time, and whose statement stood recorded. Vide the same, he identified himself as the son of Shri Teekam Das Variyani and being the son of the assessee's sister was attending the shop as the latter had gone out of station (Agra). He further disclaimed any knowledge regarding the non-location of the books of accounts and other records, or of the assessee's business, and of which only Shri Prakash Motwani, the proprietor, could tell. The assessee filed his return of income for the relevant year on 31st March, 2002, i.e., belatedly, sans any accounts, and for which notice under s. 139(9), dt. 22nd May, 2002 stood iss....
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.... no proper, reasonable or acceptable explanations (as regards the sums found credited in the books maintained by the assessee). And that the opinion of the AO for not accepting the explanation offered by the assessee as satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record; the same is to be formed objectively, with reference to the material on record, and exhibit with application of mind. The findings 3.1 The learned CIT(A) has discussed the same at length, observing several deficiencies in the assessee's arguments, none of which stands met by the assessee during either the assessment proceedings or the remand proceedings or the appellate proceedings, including before us, and its case continues to be the same. The currency notes are usually employed for identification purposes where some valuable is to be physically delivered so as to ensure it being given to the right person. This is so as the number of every currency note is unique and, thus, operates as a code in itself. A person handing over the valuable, as the sum of money in the instant case, retains the same, and which thus serves as a proof of the d....
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....t, which is for a substantial sum, made in cash, not directly, and in relation to a land deal. That is, as by way of an agreement to sell, MoU, receipt towards the advance, etc. Further, even as the absence of the receipt is most un-explicable, even the particulars of the land which is purportedly proposed to be bought are not supplied. The least that the parties, and only reasonably so, under the circumstances, do is to identify the property and settle the amount, defining the time period for the payment as well as the consequences that would flow for non-compliance therewith. The same, bearing the name of the buyer and the seller, and duly witnessed, evidences the said agreement, with the payments, which are definite in time and amount, are usually recorded, on receipt, on the face or at the back of the instrument in the hand of the parties themselves, and usually also witnessed. No such instrument has been prepared in the instant case. Besides, what prevented the assessee to send the payment through draft or through the banking channel, neither the amount nor the date being defined, arid the payment being proposed to be made only from accounted/explained sources. Quite inexplica....
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....eschew the risk involved in handling cash as well as its conveyance to Ajmer. If these slips and currency notes have been sent through one person and at one time, as is the assessee's case, they would bear the handwriting of one person, which is not so? How could the assessee predicate three different amounts, as one would normally be inclined to pay in equal instalments? Again, how could the assessee foresee that the amount would be actually paid in three instalments only? Further, even if for the sake of argument, considering that a single person had acted as a courier, coming to Agra, carrying currency notes with different amounts written thereon in different hands, and at the same time, i.e., as per the assessee's version, why would he, firstly, hand over the said notes to the assessee, his identification being confirmed through the said notes or otherwise (the seller stating of having conveyed his physique details over phone for the purpose and, secondly, if at all, all the three notes together? This is more so, if the exchange of notes by itself is no proof of payment, then what proof does the assessee retain for having made the cash payment to the said person. Further, even ....
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.... purchase and sales for the two periods of September, 2000, the month of survey, and reading is clear on the wall. The books stood clearly written for the purpose. Finally, the stock as on 12th Sept., 2000, the survey date, at Rs. 5,48,000, is the highest during the year. In other words, rather than the stock getting reduced, the intent being clear, so as to enable the closure of the business, it increases. That the assessee's purchase and sales are totally in cash, so that they are unverifiable in the main, only completes the picture. Conclusion 4. It is difficult to conceive of a more direct evidence of payment of on-money, i.e., even if it is considered as an advance towards the said agricultural land, even as the assessee has not been able to adduce any evidence, direct or circumstantial, for the same, and which is itself most intriguing, leave alone the question of payment, which stands explained by the assessee only months later during the assessment proceedings even as it was aware of the three currency notes having been noticed and impounded by the Revenue. As such, I find no substance in the assessee's case and the Revenue's inferential findings of its books being manipu....
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....llowed a still higher reduction, whose claim(s), in any case remains unsubstantiated. Besides, it needs to be borne in mind that 126 purchase vouchers were found and inventorised at the time of survey (aggregating to Rs. 12.94 lacs), while the purchases ultimately disclosed by the assessee upto 12th Sept., 2000, the date of survey, are at Rs. 17.84 lacs, again in cash and not verifiable, and the assessee's claim is completely bereft of any claim to reliability of its accounts. It is understandable that a few vouchers, being not placed in the relevant file, could not be located, and thus remained to be included (of which again there was no reporting by the assessee to the Revenue after the survey), but the difference in the instant case is about Rs. 5 lacs, and which remains unexplained. That the assessee has not contested the rejection of its accounts by the AO under s. 145(3) of the Act, which stood raised per its ground No. 1, though not pressed at the time of hearing, only defeats the assessee's case. 6. As such, I find no infirmity in the Revenue's finding of the assessee's explanation with regard to the excess stock found at the survey, which stands determined by it at Rs. 1 ....
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....rned JM has admitted the quantum addition, the corresponding penalty levied under s. 271(1)(c) is to be cancelled/deleted, or in view of the finding of the learned AM, the same has to be kept in abeyance?" 2. The assessee carries on the business of sale and purchase of medicines under proprietorship, namely, R.B. Sons. A survey under s. 133A was conducted on 12th Sept., 2000. The stock-in-trade was valued at Rs. 7,33,479 as per physical verification which was inventorised. Purchase vouchers aggregating to Rs. 12,94,138 were found. No accounts or other record including stock register, sale bills, etc. was found at the time of survey. The other documents in the shape of three currency notes along with three slips attached thereto were found in survey. On the slips name and address of the assessee were written with different amounts aggregating to a sum of Rs. 2,95,000. On currency note of Re. 1 amount written was 110. On another note of Re. 1, the amount mentioned was Rs. 85,000. Similarly, on another currency note of Rs. 2, 1M was written. The handwriting on each of the three slips was different. At the time of survey, one Shri Dhiraj Variyani, aged about 16 years was present at th....
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....f the IT Act. 5. In appeal before the CIT(A), it was submitted that the said amount of Rs. 2,95,000 was given out of cash available in the books of account and reference was made to the books produced before the AO for verification. It was submitted that in the balance sheet also the said amount of Rs. 2,95,000 was reflected. The said amount was advanced against purchase of agricultural land. The assessee offered the production of said Shri Shankar Lal for examination and verification of facts. The learned CIT(A) sought remand report from AO and the AO was asked to examine the claim of the assessee again. The contention of the assessee was that not only the advance was shown in the books of account, but books of account were also produced before the AO. The AO submitted the report vide letter dt. 24th Nov., 2004. It is mentioned in the report that said Shri Shankar Lal was presented by assessee himself and his statement on oath was recorded wherein inter alia he deposed that total payments amounting to Rs. 2,95,000 were received. The man named Chintu came down to Agra from Ajmer on 10th Sept., 2000 and after 8-10 days of stay at Agra, he received Rs. 85,000 in cash and after 2-3 d....
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....r the reason of non-availability of cash. According to the CIT(A), as per prevalent practice, currency notes are sent for identification of the person to whom the money was to be handed over so as to ensure the safe delivery of the money to a right person. The said currency note also acts as a token/evidence of having paid/received the amount to its bearer. As and when the amount is handed over to the bearer of the note, the note is kept by the bearer and, thus, there was no reason to believe that such practice was not followed in the case of the assessee. Taking clue from the fact that all the three currency notes were found at the premises of the assessee at the time of survey, the CIT(A) held that by the date of survey the assessee had made the payments of Rs. 2,95,000. The learned CIT(A) has observed that all these currency notes found at the premises of the assessee is very vital and important as the same could not have been in the possession of assessee before making payment and, thus, the possession of these slips/notes by the assessee is a sufficient evidence to hold that payment was already made to said Shri Shankar Lal. 8. Learned CIT(A) further held that the contention ....
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....n. Taking clue from the fact that the assessee did not file relevant documents in the shape of P&L a/c, capital account and balance sheet, etc., with the return of income, it is observed by the CIT(A) that the assessee has manipulated the books of account so as to show the availability of cash which could be shown to have been used for making the advance payment and, in this manner, the CIT(A) has upheld the addition of Rs. 2,95,000. 9. So as it relates to another addition of Rs 1 lac made on account of excess stock, it is noted by the CIT(A) that at the time of survey, the value of stock at MRP was found at Rs. 7,33,479. The books of account and other stock register was not found and only some of the purchase vouchers were found. After giving margin of 15 per cent of MRP, the cost price of stock was determined at Rs. 6,23,458. In this manner, addition of Rs. 1 lac was made on account of excess stock. 10. It was submitted by the assessee that books of account were produced at the time of assessment. It was submitted that if the margin of 25 per cent on MRP is allowed, then there will be no difference in the stock found at the time of survey and as shown in the books of account. I....
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....and clearance of staff and these facts having not been controverted by the AO proves that increase in sale was consequential to the closure of business. Thus, learned JM has observed that the assessee had submitted substantial evidence against the guess work of AO as well as the CIT(A) which has to be discarded in view of the evidence produced by the assessee. It is in this manner the learned JM has arrived at a conclusion that Rs. 2,95,000 added to the income of the assessee is to be deleted. On the second issue, it is the stand of the learned JM that as against difference of cost price and MRP of 25 per cent, the AO has accepted 15 per cent as variable and it is held that 25 per cent variable should be accepted in place of 15 per cent adopted by the AO and the AO has been directed to compute the income of the assessee accordingly. 12. As against that, it is observed by learned AM that it has not been properly explained by the assessee that what was the need according to which the seller of land had sent three currency notes. It is further observed that the possession of three currency notes with the assessee itself is sufficient to establish that assessee had made the payment. L....
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.... He contended that the business of the assessee was to be closed and, therefore, the sales were effected to realize the closing stock lying with the assessee. The increase in sales is supported by this fact which remains uncontroverted. It was contended that addition has been made by the AO only on the basis of presumption and as against that the assessee has submitted the proof which was in the shape of books of account and has also produced the person to whom the payments were made and, thus, there was no justification in making the addition simply on the basis of presumption. Relying on the order of the learned JM, it was pleaded by learned Authorised Representative that the addition has been rightly held to be deleted. 14. With respect to another addition of Rs. 1 lac, it was pleaded that during the remand proceedings the AO himself has accepted that there was variation of 18 to 33 per cent between the MRP and the cost value. Accordingly, the assessee was right in contending that if margin of 25 per cent of MRP is considered, there will be no difference in the stock as alleged by the AO and CIT(A). Thus, relying on the order of the learned JM, it was pleaded that the addition ....
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....ce who has confirmed to have received those payments as per version of the assessee. No concrete material has been brought on record by the Revenue to suggest that the explanation of the assessee and the statement of Shri Shankar Lal was incorrect. It has not been brought on record that what was claimed to be paid by the assessee on subsequent dates were actually not paid on those dates. Mere possession of currency notes with the assessee cannot prove that payments were actually made by the assessee particularly in the circumstances when the assessee is claiming otherwise and to substantiate such claim the evidence is produced. 18. In these circumstances, I am of the opinion that the AO had made the addition of Rs. 2,95,000 to the income of the assessee simply on the basis of presumptions by discarding the evidence produced by the assessee in the shape of books of account and also by producing Shri Shankar Lal before the AO for his examination. Similarly, the CIT(A) has upheld the addition simply on the basis of presumptions. I am in agreement with the findings of learned JM that the addition has been upheld by simply on the basis of presumption and assessee has been able to estab....