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2018 (5) TMI 251
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....roceedings and on perusal of the various documents furnished by the assessee the AO noted certain facts with regard to the business of the assessee which were as under:- "All the sales undertaken by M's Loraiya Trading have been cash sales. During FY 2013-2014 no purchases were made, all the sales were made through the opening stock available at the beginning of the year. On perusal of the sample voucher of cash sales they appeared to be fresh computer print outs, recently signed and back dated to FY 2013- 2014. The business of the assessee is trading in fabrics, however as per the balance sheet of M/s Loraiya Trading there is no weighing machine in the fixed asset schedule. It is pertinent to note that as per the stock register, the unit of opening stock. of cloth fabric is in kilograms and riot pre-packaged units like boxes or crates which may or may not require being weighed. The assessee has neither shown any building in its fixed asset schedule nor any rent expense in his P/L Account. The assessee has shown an opening stock of 19.85.109.530 kg. This is a significant quantity which would require considerable storage space. It is ....
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.... was a plot of land with wild growth and was in an abandoned state. The plot had a dilapidated building in one portion of the plot. This plot of land had a gate but no board/plate signifying the address or the number of the plot. Further it was apparent that this plot had been abandoned for several years. No one in the near vicinity had any idea about the ownership of this plot there was no built up structure next to this plot of land, i.e., there were just plain fields beyond this plot. 5.3 It is important to keep in mind that while all the other varied survey numbers could be located easily, the address from where the assessee was running his apparent business could not be located, further it is important to note that no one in the near vicinity had ever heard of the assessee, his family members or any fabric trading being undertaken in the locality. At this point it is pertinent to question that if the local people could not locate Survey No 75A/2 how could a trading business be located by customers? 5.4 It is pertinent to note that the father of the assessee, Mr Anil Kumar also has a business of trading in fabrics out of the same plot in the name of M/s Wellho....
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....ng two bale of cloth or one bale of cloth it would be understandable that a weighing machine was not required. However, selling 190 kg or 180 of cloth cannot be done without weighing the cloth precisely. * That each, sample sale bill ranges from Rs. 16,000/- to Rs. 19000/-, i.e. the sales are less than Rs. 20,000 on each bill. It appears this has been done so as to not maintain the records of the end buyers. Further if it is assumed that an average sales bill is of Rs. 16,000/- and an average turnover per day amounts to Rs. 17,00,000/- then there would be at least 106 customers per day. Selling to more than I 00 customers on a daily basis implies that people near the vicinity of the business would have heard of it. However as has been discussed at length in the preceding paragraphs this was not the case." In so far as the address of the assessee is concerned, AO noted that assessee's business as per the audit report is based out of Mumbai and the assessee's residence was of Navi Mumbai. However, the assessees as well as other family members have been filling their Income Tax Returns from Preet Vihar, New Delhi for last several years. She further noted that assessee alon....
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....rding electricity bills produced by the assessee of the premise, AO observed that the address of the business premise has not been mentioned anywhere on the bills which does not conclusively linked to the particular address given and the rental receipts are also in the plain computer print outs. - Lastly, on the objection that inquiry has been done after a long gap, AO held that the inquiry can only be done during the course of assessment proceedings and same has been done on the address given in the audit report from where alleged business was being undertaken by the assessee. It has been noted by the AO that large construction sites were going on over many years near the place the business of the assessee said to have been existed and not a single person could locate the address or place of the business of the assessee. 5. Based on these observations and detailed inquiry, AO held that entire cash deposits appearing in the bank account of the assessee amounting to Rs. 4,20,62,550/- is unexplained income which is to be taxed as 'income from other sources'. 6. Before the Ld. CIT (A) the assessee has made detailed submissions/objections against the finding of the AO wh....
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....ale vouchers issued to the various parties. He further submitted that it is a matter of record that in assessee's own case, wealth tax assessment has been passed u/s 16(3)/17 and also under the Income Tax Act u/s 143(3)/147 in the earlier years, wherein the confirmation was filed to prove that assessee had rent free accommodation for Lorhia Trading alongwith free use of computer and electricity and this fact stood accepted that assessee was carrying on the business for last several years. He also made reference to various replies filed by the assessee before the AO, wherein point wise rebuttal of AO's allegation and observation has been made. Here in this case, he submitted that looking to the past background and the history of income tax assessments, 'rule of consistency' should be followed as the assessee had not only had huge opening stock but also had made huge purchases and sales in the earlier years which has been either accepted u/s 143(3) or u/s 143(1) in various assessment years. The relevant details and chart of the assessment made in various assessment years as submitted by him is reproduced hereunder:- AY Opening stock Purchases Sales &n....
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....75 Salary 8,75,800 Staff Welfare 74,780 Telephone Expenses 38,250 Net Profit 3,19,580 15,40,360 15,40,360 8. He further submitted that subsequent to assessment order, an order u/s 154/143(3) was passed on 03.02.2017, against which assessee had preferred an appeal before the Ld. CIT (A), who has allowed the assessee's appeal and quashed the order passed u/s 154. Now the position that emerges is that the profit shown by the assessee also got accepted which was included in the return of income filed for Rs. 41,60,010/- and making any further addition will be double addition. Further, if action of the AO is to be accepted then income assessed under the business head ignoring the same would result into loss of Rs. 4,17,42,969/- and even if addition of Rs. 4,20,62,550/- is made the same should be set off against the said loss. This has been explained in the following manner:- Sr. No. Particulars Amount (Rs.) i) Income assessed (ignoring sales) (4,17,42,969) ii) Addition: Total d....
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....ng stock which has been sold in this year. It is a matter of record that once in the earlier years, assessments have been made where opening and closing stock has been accepted or at the most the G.P. has been tinkered but the entire business of trading in fabric has been accepted, then this goes to prove that not only the assessee has the business but same has been duly accepted by the department in the scrutiny proceedings whereby assessee's opening and closing stock also stands accepted. Thereafter he pointed out various discrepancies in the assessment order and also assessee's case before the AO with regard to the various evidences countered by the assessee to prove that the business was being carried out. 11. Lastly, he submitted that once the books of accounts have not been rejected and no defect has been pointed out, then no adverse inference can be drawn especially when opening stock, closing stock, direct expenses have been accepted including the gross profit. If the GP has been accepted along with the opening stock and the closing stock then sales cannot be treated as income from undisclosed sources and again in support of this proposition he relied upon various judgme....
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....e has stated to have closed its business long back in July 2015 when all the stock have been claimed to have been sold. For the year ending 31st March, 2016 the stock has been shown at 'NIL', which factum has been shown in audit report and return of income for A.Y. 2016-17. This inter-alia means that entire stock alleged to have been kept by the assessee were sold during the financial year 2015-16 and all the business was shut down. In her inquiry report AO had stated that the areas specified in the address, heavy construction was being done for residential housing society and this was not the area of market place situated in a habituated town /city. Even the area was not well addressed and she also stated the details of certain construction sites. On the plot which has been stated to be near the address was in a complete abandoned state which had dilapidated building and even on enquiry, nobody could confirm running of such business. It has been alleged by the AO that similar inquiry was done in the case of assessee's father and mother where again business premises was found to be untraceable at the given addresses. She had also repudiated many evidences as well as explanation giv....
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....en properly countered by the assessee except for adducing certain evidences which again does not have much credentials in wake of actual inquiry conducted by the AO. But such an inquiry in F.Y. 2016-17, i.e., post closure of business how far will affect the past history and the year under consideration, i.e., F.Y. 2013-14 is the moot point for our consideration juxtaposed with entire facts and material on record. 14. The finding of the AO in her inquiry conducted in November, 2016 and past assessment records have to be weighed in light of all probable factors and preponderance of probability of such factors has to be seen qua material on record which we shall discussed herein after. One of the most glaring fact which unfolds from the material placed on record is that, prior to the assessment year 2007-08 assessee had made huge purchases of stock the source of such purchases have been reflected in the books of account and audited accounts; and in the assessment year 2007-08, the opening stock of fabric/ cloth was valued at Rs. 31,65,48,236/- and in that year itself there was sales of around Rs. 5.89 crores leaving behind the stock of Rs. 25.83 crores thereof. Again huge purchases....
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....the department either under the scrutiny proceedings or by not selecting the return for scrutiny proceedings or by taking any action to disturb such returned income. Hence the quantity and valuation of stock stood accepted which had attained finality. Thus, the quantum and figure of the opening stock which stood accepted in the earlier years has to be taken as an actual stock available with the assessee. Out of the said stock purported sales of Rs. 4,20,62,550/- has been made leaving a closing stock of Rs. 15,48,57,470/-. The trading account was thus reflected in the following manner:- Item Details Unit Opening Qty. Qty. In Qty. Out Closing Qty. Cotton Fabric Kg. 19,85,109.530 0.000 4,11,716.260 15,73,393,270 Grand Total 19,85,109,530 0.000 4,11,716.260 15,73,393.270 15. Ld. AO or Ld. CIT (A) in the impugned orders have neither said anything about the opening stock or the closing stock coming from the earlier years nor they rejected the trading result or gross profit but instead have treated the entire sales on the credit side as income from unexplained sources. Even if the contention of the AO is accepted that assesse....
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....investment shown in the books of account for the purchase of stock which has subjected to examination in scrutiny proceedings, then it cannot be held that on the first day of April of 2013, the entire stock did not exist; and lastly, the AO has neither rejected the books of accounts nor disturbed the opening and closing stock nor the gross profit; and once that is so, then to treat the entire sales as income of the assessee will not hold ground, because either there has been sales or the same stock must be appearing in the closing stock at the year ending 31st March, 2014. This finding of stock available in books has not been dealt at all by the authorities below. Not only that, in the subsequent years also once the assessee's stock which has been sold and said sale and income derived there from has not been disturbed then it quite difficult proposition to hold that the sales made by the assessee out of its opening stock should be treated as income from unexplained sources. 17. Thus, in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as 'income from other sources'; firstly, the stock was available with the as....