TaxTMI 
TaxTMI 
2025 (8) TMI 1578
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....rregular, opposed to facts and circumstances of the case and opposed to the law. 2. That the Respondent officer erred in making an addition of Rs. 6,34,501/- towards the alleged suppression of sales with complete disregard to the facts of the case and as such the impugned addition is liable to be set aside. 3. That the Respondent Officer erred in adding a sum of Rs. 15,95,091/- to Gross Profit, the same being the difference between the value of stocks falsely declared to Canara Bank as at 31.03.2004 and 31.03.2005 with complete disregard to the facts of the case and as such the impugned addition is liable to be set aside. 4. That the Respondent officer erred in treating the creditors to the extent of Rs. 7,24,000/- as bogus credits in an arbitrary manner with complete disregard to the facts of the case and as such the impugned addition is liable to be set aside. 5. That the Respondent officer erred in treating the creditors to the extent of Rs. 11,88,000/- as bogus credits in an arbitrary manner with complete disregard to the facts of the case and as such the impugned addition is liable to be set aside. 6. That the Learned Commissioner o....
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.... difference amounts to double addition? Whereas the fact is that the closing stock difference is not explained & entire trading transaction was not accounted at all. 3) Whether the CIT(Appeals) is right in deleting the addition made on account of bogus creditors in the light of the fact that the genuineness of the creditors could not be proved by the assessee. 4) Any other grounds that may be urged at the time of hearing. 3. The question of law admitted for consideration by the Hon'ble High Court of Karnataka are as follows: 1. Whether the Tribunal was justified in law in upholding the order of the learned Commissioner of Income-tax (Appeals) by giving a perverse finding that difference between the sales tax annual return and the monthly return of Rs 6,34,501/- will become income and represent unaccounted sales on the facts and circumstances of the case? 2. Whether the Tribunal was justified in law in adding a sum of Rs 15,95,090/- either as Gross profit addition or being difference in closing stock as per books and as given to bank on the facts and circumstance of the case. 3. Without prejudice, whether the Tribunal was justified....
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....w of the above, the following: ORDER i. Appeal is allowed in part; ii. The matter is remitted to the ITAT for re-consideration so far as A.Y. 2005-06 is concerned, in both appeals ITA No. 380/Bang/2012 & ITA No. 382/ Bang/2012 and in Revenue's appeal with regards to grounds No. 1 and 2 at Page No.96 of memorandum of appeal filed by the Revenue before the ITAT; and iii. Questions no. 7 and 8 in this appeal are held in favor of the Assessee and against the Revenue. After remand, ITAT shall consider remaining questions Nos. 1, 2, 3, 4, 5, 6 and 9 No costs." 5. The AR of the assessee has submitted a synopsis stating the list of grounds, the details of how it has been dealt by this Hon'ble Tribunal vide order dated 06.05.2016, whether grounds were challenged and the status of the ground after the judgment of Hon'ble High Court in ITA No. 433/2016 dated 01.08.2016 which is reproduced below for proper appreciation of the matter : (i) ITA No. 380/Bang/2012 for AY 2005-06 [Assessee appeal] Ground of Appeal No. Ground Order of ITAT in its order dated 06-05-2016 Whether challenged before High Court in Section 260....
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....ween the cash deposits and trading activity of the Appellant The Tribunal allowed the ground for Statistical purposes [para no. 19] Yes. Substantial Question of Law No. 9. The Hon'ble High Court Remitted back to Tribunal for a fresh consideration [para no.12(III)] This ground is to be adjudicated by this Tribunal in this HCD proceeding 2 Difference between closing stock and credit balance in OD account The Tribunal allowed the ground for Statistical purposes [para no. 20] Not challenged before High Court Matter remanded back to CIT(A) for fresh decision. Does not survive for consideration before this Tribunal in the present proceedings. 3 Bogus creditors of Rs. 20,74,272 The Tribunal rejected this ground [para no. 21] Not challenged before High Court Addition deleted. Does not survive for consideration before this Tribunal in the present proceedings. 6. At the outset, ld. A.R. of the assessee drawn our attention to the application for admission of additional grounds of appeal and submitted that these grounds were not specifically urged in the original grounds of appeal filed before the ld. CIT(A). Further, ld. A.R. of the assessee submi....
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....mently submitted that when the purchases were already claimed fully, found to be correct and approved by the Assessing Authorities, then the entire difference of sales consideration represents the income only which may only be added. 9.3 We have heard the rival submissions and perused the material on record. It is an undisputed fact that the difference of Rs. 6,34,501/- is on account of sales determined as per sales tax assessment order dated 09.02.2007 amounting to Rs. 13,87,07,613/- and sales as per the sales register / as declared in trading account amounting to Rs. 13,80,73,112/-. Therefore, in our opinion, undisputedly, the difference amount of Rs. 6,34,501/- is on account of Sales only which the assessee is claiming to have declared in the trading account after deducting sales tax collected and paid amounting to Rs. 6,59,932/-. The AR of the assessee by way of additional grounds submitted that only the profit element embedded in sales should be considered as an addition towards alleged suppression of sales. On going through the audited books of accounts for the AY 2005-06, we find that the assessee has declared a gross profit ratio of 1.76%. 9.4 We are also of the opini....
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....nt for the months of March 2003, March 2004 and April 2005 respectively as furnished to the bank re-casted the trading account for AY 2005-06 by treating opening stock amounting to Rs. 35,74,910/- and closing stock as Rs. 51,70,000/- as against NIL opening stock and closing stock declared by the assessee in his audited trading and profit loss account. The difference of opening and closing stock amounting to Rs. 15,95,091/- has been brought to tax under the head GP Additions. 10.4 Considering the facts enumerated above, we are of the considered opinion that the entire addition of Rs. 15,95,091/- is based on the stock statement given to Canara Bank for enhancing the OD limits which in our view has no relevance to the real facts. In the normal course of business, the entities submit stock statements to banks for the purpose of securing loans or credit lines. The stock statements submitted to the banks in order to induce higher credit facilities do not constitute conclusive evidence of actual stock level or income. In our opinion, any income addition must be supported by independent evidence. A stock statement given by the assessee to the bank cannot be the sole basis for any additi....
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....upport of their claim. Therefore, the purchases made from these are not disputed and therefore, the addition on this account is unwarranted. 12.1 The ld. DR on the other hand submitted that these three creditors who appeared before the AO had not confirmed the exact amount shown as payable by the assessee to them. Therefore, the AO has rightly added sum of Rs. 7,24,000/- in respect of these three creditors who appeared before the AO. 12.2 We have heard the rival submissions and perused the material on record. It is an undisputed fact that these three numbers of sundry creditors namely, B. M. Sannappa, B. L. Muttanna and B.M. Duddaiah appeared before the AO and confirmed to have agricultural income as well as agricultural land holdings. Further, Sri. B. M. Sannappa due to his old age could not remember the exact amount payable or receivable. The other two creditors, namely Sri. B. L. Muttanna and Sri. B.M. Duddaiah also could not confirm the exact amount receivable from the assessee although all the three have confirmed to have some receivable from the assessee. 12.3 The AO has alleged that the list of sundry creditors has not been enclosed with the return of income filed o....
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....l evidence were furnished on 12.02.2013. In view of the above, we find no reasons to sustain the addition under head bogus creditor especially when all the purchases were not disputed by the AO. Hence, we are also deleting the addition of Rs. 11,88,000/- under head bogus creditors and accordingly, this ground of appeal is also allowed. 14. Ground No. 9 as reproduced at Para No. 3 with regard to additions amounting to Rs. 3,50,06,130/- treated as unexplained source of income by the AO whereas the ld. CIT(A) directed the AO to work out the peak of credits to arrive at the unaccounted money deposited for these transactions. During the course of assessment proceeding, the AO obtained bank statement from the Canara Bank and found that the outstanding OD balances was not reflected in the liability side of the balance sheet. The assessee explained that, he had borrowed overdraft limit of Rs. 30 lakhs which was used for payment of advance to coffee growers. After the coffee procured was sold, the proceeds realized were used for cash deposits and the deposit of Rs. 3,50,06,130/- represents the same. 14.1 Before CIT(A) also, the assessee explained his business which involves purchase o....
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....e to attribute any other source to cash deposit and therefore it must be treated as business receipts and accordingly brought to tax on the basis of net profit rate accepted by the AO for the undisputed income. 14.4 The ld. DR on the other hand submitted that the ld. CIT (A) erred in deleting the addition made on account of unexplained cash credit on a presumption that such cash credits have resulted from the cash flow generated on account of the trading activity of the assessee and hence the entire addition of Rs. 3,50,06,130/- should be made as unexplained cash credit instead of restricting it to the peak of the same. 14.5 We have heard the rival submission and perused the available materials on record. On verification of information obtained from Canara Bank vide account no. 1147 maintained by the assessee, the AO found that assessee has made cash deposit to the bank on various dates amounting to Rs. 3,50,06,130/- The outstanding OD balance as on 31.03.2005 was Rs. 21,42,611/-. On verification of balance sheet, it was seen that the balance of Rs. 21,42,611/- has not been duly reflected in the liability side of the balance sheet. We are of the opinion that the OD/CC account....
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....deposit of Rs. 3,50,06,130/- represents the same. Further, the ld. CIT(A) is of the view that owing by the nature of the bank account, it looks like a "periodical trading". The CIT(A) also held that it appeared to be a complete set of trading outside the books of account for which the bank OD was used. Therefore, the source of cash deposit is from the activity of trading also confirmed by the ld. CIT (A). Being so, we are of the opinion that the peak credit benefit should not have been applied by the ld. CIT (A). Where the assessee claims that all deposits are from genuine business transactions, then the benefit of peak will not be available. 14.7 In view of the above, we are of the opinion that the deposits into the OD account no. 1147 maintained by the assessee at Canara Bank amounting to Rs. 3,50,06,130/- are nothing but the turnover of the assessee from trading business of coffee. We are also of the opinion that the entire turnover also cannot be added as income of the assessee, but addition can be made only to the extent of estimated gross profits embedded in the turnover as the assessee has already claimed entire business expenses in his profit and loss account and that th....