Commissioner of Income Tax, Agra vs Bhagwan Das and Bros.

The income tax Appellate Tribunal, Allahabad has referred the following two questions of law u/s 256(2) of the income tax Act,1961 for opinion of this Court One being at the Instance of the Revenue and other being at the Instance of the assessee:- 1. Question in IT Appeal No. 47/1992:-

Whether the Hon''ble Tribunal on the facts and circumstances of the case were right in law in deleting the trading addition of Rs. 94,392/- ignoring the fact that the addition made was not on the sale of agarbatties, but was on the sale of other Items of general merchandise?

Question in IT Appeal No. 315/1992:-

Whether on the facts and in the circumstances of the case, the income tax Appellate Tribunal was legally justified in holding that the credit of Rs. 1,02,500/- in the account of Sharee Laxmi Trading Company in the assessee''s books of account and Interest of Rs. 6150/- represented its income liable to tax u/s 68 of the income tax Act, 1961?

The reference relates to the year 1986-87.

So far as the first question is concerned briefly stated the facts giving rise to the present reference are as follows:-

The assessee is a firm consisting of two partners namely Bhagwan Das Khurana and Smt. Rama Devi Khurana. The accounting period of the assessee-firm for the assessment year under consideration commences from 1.4.1985 and ends on 31.3.1986. It derived income from purchase and sale on wholesale basis of Agarbatti and other general merchandise on retail basis. It had distributorship vighti of Agarbatties manufactured by M/s. Arvind Parimala Works, Mysore for the States of U.P, and Madhya Pradesh. The business premises of the firm and the residential premises of the partners were searched by the income tax Department and certain books of account and documents were seized therefrom. While scrutinising the accounts and framing the assessment the following two additions besides other additions were made by the Assessing Officer:

(a) Trading addition to the gross profit of the firm. Rs.94,392/-

(b) Unexplained loan in the name of Laxmi Trading Co. Rs.1,02,500/-

The first addition amounting to Rs. 94,392/- was made by the income tax Officer on the ground that no quantitative tally was filed and stock register was not maintained and because of this correct profit could not be worked out. It was also stated that "the bills and vouchers for various expenses and sales recorded in the books were not produced for examination." The withdrawals made by the partners were also stated by the income tax Officer to be on the lower side. According to the income tax Officer, the gross profit rate of 2.28% shown by the assessee for Ex- U.P. and U.P. Sales in match box account was very low. The allegation of the income tax Officer was that the assessee was not recording all the sales effected by him in its accounts. The income tax Officer, therefore, estimated the sales in the aforesaid account at Rs. 12 lakhs and applying the gross profit rate of 10%, made an addition of Rs.94,392/-. The said addition was also confirmed by the learned C.I.T. (Appeals) in first appeal filed by the assessee. The Tribunal, after hearing the parties, deleted the said amount by giving its finding in paragraph 6 of its order, which runs as under:-

In our opinion, there is merit in the assessee''s submissions. The presumption of the I.T.O. that commission was earned by the assessee @ 8% is patently erroneous. The details of the commission has been given at page 1 of the assessee''s paper book which show commission earnings @ 3% of sales of Rs.8,70,384/- and @ 5% on sales, of Rs. 33,91,050/-. Thus on total sales of Rs. 42,61,434/-, the total commission earned was Rs.1l,95,650A. The basic presumption for making the addition In question was thus factually erroneous. It is also not correct to say that the assessee did not have stock details and that it did not produce before the I.T.O. cash memos and sales vouchers. From the list of the books seized by the Revenue to which reference has been made earlier, it is clear that cash memos, or books etc. were seized by the income tax Department, therefore, It would be factually incorrect to say that evidence of sales was not available the reasons for making the additions thus being non-existent, there was no justification to make the impugned addition. The same accordingly stands deleted.

So far as the second question is concerned the brief facts are that the income tax Officer, after scrutinising the accounts had made an addition on account of unexplained nature of the loan from M/s. Laxmi Trading Company to the extent of Rs. 1,08,650/- having the following break-up:-

Principal amount of the loan Rs. 1,02,500/-

Interest thereon Rs. 6,150/-

The addition has been made by the Income -tax Officer by making inter-alia the following observations:-

During the year under consideration, a loan of Rs. 1,02,500/- as obtained from Laxmi Trading Co. on 29.11.85 was noticed. Vide show cause notice dated 17.11.1988, the assessee required to prove the genuineness of this loan vide para 10 of the said notice. Another notice dated 24.2.1989 was served on the assessee, whereby he was given specific opportunity to prove the credit entry by producing the party for cross examination. He was also required to intimate the GIR/PANQ. of the party, if it was assessed to tax. In his reply dated 7.3.1989, the assessee has not furnished any explanation except for a confirmation from one Jagdish Prasad on behalf of Laxmi Trading Co. The party is not assessed to tax and assessee, despite being given opportunity to produce the party for examination so as to prove the genuineness of the deposit, neither produced the party nor has furnished any additional evidence. The deposit of Rs. 1,02,500/- thus remains unexplained and is added to the income of the assessee u/s 68 of the income tax Act, 1961. Addition: Rs. 1,02,500/-.

The above addition was confirmed by the learned C.I.T.(Appeals) practically adopting the same reasoning.

The Tribunal in second appeal filed by the assessee, gave its finding in para 17 of its order, which runs as under:-

We have given careful consideration to the facts of the case on the rival submissions. The submissions of the learned counsel for the assessee do not have merit. The initial onus was on the assessee to prove the nature and source of the deposit in the name of Laxmi Trading Co. Unless this initial onus Is discharged by the assessee, it could not complain of the inaction on the part of the I.T.O. or lack of enquiry by him. The onus is no doubt ambulatory but it will pass on to the I.T.O. only after the initial onus on the assessee has been properly discharged. In the present case, the assessee has failed to produce the party in question for examination by the I.T.O. and for verification of the genuineness of the loan in question. Production of a copy of account of the assessee firm on the letter head of Laxmi Trading Co., signed by one Jagdish Prasad, without describing his status with reference to the firm, would not, in our opinion, tantamount even to a confirmation letter. The genuineness of the letter has not been proved, much less of the party and it is too vague a description of the party to say that he was well known grain merchant. If he be so, he would also be an income tax payee. Admittedly his G.I.R. number or permanent account number was not furnished to the I.T.O. by the assessee even though he had specifically asked for it. If the Identity of the payer had been established by giving his G.LR. number or permanent account number the onus of the assessee might have been discharged. This having not been done, in the present case, we see little merit in the assessee''s submission that the addition was not justified. The nature and source of the loan in question remained unexplained and so the addition was properly made by the I.T.O. and we refuse to interfere with the order of the learned C.I.T. (Appeals) on this account.

We have heard Sri A.N. Mahajan, learned Standing Counsel and Sri Pawan Shree Agarwal, learned counsel for the respondent.

The learned counsel for the Revenue submits that as the assessee has failed to produce the stock register, cash memos and sales vouchers before the assessing authority, the income tax Officer was perfectly justified in making addition of Rs. 94,392/- towards Income on the suppressed sale of Rs. Twelve lacs. The submission is wholly misconceived. The Tribunal in its finding on perusal of the material on record has come to the conclusion that the presumption on which the income tax Officer has proceeded to make Addition of Rs. 94,393/- is wholly erroneous. The assessee had not submitted the details of cash memos but the same were seized by the Revenue as would be clear from the list of documents. The evidence of sales and purchase of stock were also available in the Department as is apparent from the list of seized documents and, therefore, the reasons for making the additions thus being non-existent, there was no justification to make the impugned addition. We do not find any illegality in the order passed by the Tribunal in this behalf. The Tribunal has rightly deleted the addition of Rs. 94,392/-. The finding does not suffer from any infirmity or illegality. The first question, therefore, is answered in the affirmative, i.e. In favour of the assessee and against the revenue.

So far as the second question is concerned the assessee for the reasons best known to him has not furnished any explanation except for filing of confirmation letter on behalf of the creditor signed by Sri Jagdish Prasad. The assessee did not produce the creditor before the Assessing Authority for owning up the credit amount advanced as loan. Further he has also not enclosed the credit entry. Genuineness of the letter has not been proved. Thus, the Tribunal was justified in holding that the provisions of section 68 of the Act was applicable and the amount of Rs. 1,02,500/- and interest thereon has rightly been held to be taxable. We accordingly answer the second question also in the affirmative i.e., in favour of the revenue and against the assessee. There shall be no order as to costs.