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Case Number

IT APPEAL NO. 898 (AHD) OF 1999

Advocates

M.K. Patel

Judges

A.L. GEHLOTI.S. VERMA

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Smart Summary

Structured Summary of the Opinion (A.L. Gehlot, A.M.) — Assessment Year 1995-96

Factual and Procedural Background

This is an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-II, Ahmedabad dated 17 February 1999, in respect of the assessment year 1995-96. The dispute arises from multiple additions made by the Assessing Officer (AO) following a survey at the assessee's business premises (the assessee being engaged in trading in gold) conducted on 9 December 1994. Cash and excess gold stock were found during the survey. The AO treated certain amounts as unexplained cash/undisclosed income and made additions on other counts including unexplained investment relating to purchases from two entities and household withdrawals. The CIT(A) confirmed some of the AO's additions. The assessee appealed to the Tribunal. The Tribunal considered the facts, submissions of the parties and the record, sustained a portion of one addition, deleted others, and gave consequential directions on interest provisions.

Legal Issues Presented

Whether the cash amount of Rs. 2,49,261 found during the survey represents unexplained cash/undisclosed income that can be wholly added to the assessee's income, or whether parts of it are satisfactorily explained by reference to contemporaneous bills and bank deposits.
Whether additions of Rs. 7,39,082 on account of alleged non-genuine expenses / unexplained investment (purchases from Prabhu Jewellers and Parth Jewellers) are warranted when purchases are recorded in regular books, supported by bills and paid through account-payee cheques.
Whether an addition of Rs. 30,000 for alleged inadequacy of household withdrawals (household expenses) is sustainable.
Consequentially, determination of interest under sections 234B and 234C (grounds 5 and 6) and whether they should be charged as per the AO's assessment.
General issues relating to burden of proof/evidence on record (grounds 7 and 8), noting whether these grounds were pressed.

Arguments of the Parties

Appellant's (Assessee's / Authorised Representative) Arguments

Regarding the unexplained cash: The assessee contended that four cash-sale bills (Nos. 522–525 dated 19 Dec 1994) had been prepared before the survey and Rs. 2,18,800 in cash sales had been deposited in the bank on that day; these facts were reflected in the statement recorded at the survey. The assessee further explained that remaining stock of 601.031 gms. was sold and corresponding bills (Nos. 526–532) were to be prepared and would account for the rest of the cash found. On this basis the appellant submitted the whole of the cash found during the survey was explained.
Regarding the purchases from Prabhu Jewellers and Parth Jewellers: The assessee submitted that purchases were bona fide business purchases, recorded in regular books and supported by bills containing name, address and sales-tax numbers; payments were made by account-payee cheques (bank certificate produced). The assessee emphasized that corresponding sales were accepted and not disturbed, and the AO had not shown that amounts paid had come back to the assessee. The appellant submitted that mere non-traceability of suppliers should not lead to an addition where documentary evidence of purchases and payment through banking channels exist.
Regarding household withdrawals: The appellant contested the AO's finding that household expenses were inadequate but presented these as part of the broader factual matrix.
In appellate proceedings the appellant relied on the survey statement and documentary evidence to support explanations for cash and purchases.

Departmental Representative's Arguments

The Departmental Representative relied upon the findings and orders of the lower authorities (AO and CIT(A)).
AO's stance (as defended by Department): Cash found at survey exceeded books and sister-concern credits, bills for some sales were issued later and thus the AO doubted genuineness of sale bills; suppliers in purchase transactions could not be traced and were not produced for examination, which justified additions based on peak balance methodology.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs. M.K. Brothers [1986] 52 CTR (Guj) 228 : [1987] 163 ITR 249 (Guj)	Cited by the appellant and described in the order as a decision "in favour of the assessee".	The Tribunal recorded that this decision was cited by the authorised representative and treated it as one of the authorities supportive of the assessee's position that documentary evidence of purchases/payments can defeat an addition. The Tribunal relied on the general line of authorities (including this case) in concluding the addition was not warranted.
Sagar Bose vs. ITO [1996] 56 ITD 561 (Cal)	Cited by the appellant and described as supporting the assessee's case.	The Tribunal noted it among the authorities cited in favour of the assessee and, in the aggregate of reasoning and cited decisions, concluded the addition for unexplained investment should be deleted.
S.F. Wadia vs. ITO [1987] 27 TTJ (All) 437 : [1986] 19 ITD 306 (All)	Cited by the appellant as an authority favourable to the assessee's position.	The Tribunal listed this decision among the precedents relied upon by the authorised representative and relied on the combined force of these decisions in the conclusion to delete the addition.

Court's Reasoning and Analysis

The Tribunal considered each ground on the basis of the record, the survey statement, books of account, bills/vouchers and submissions of both sides. The Tribunal's reasoning, as expressed in the opinion, is as follows:

Unexplained cash / undisclosed income (Rs. 2,49,261):
The CIT(A) had disbelieved the assessee's fuller explanation for the cash found, treating parts of the explanations as afterthoughts and pointing to specific inconsistencies (e.g., the assessee's survey statement did not initially mention certain cash sales, and the assessee could not explain a deficit of about Rs. 33,000). The Tribunal accepted the CIT(A)'s finding that the assessee failed to explain a cash deficit of approximately Rs. 33,000 and held that this portion could be sustained as unexplained/undisclosed income. However, the Tribunal concluded that the remainder of the cash amount was satisfactorily explained on the record (including reference to bills and bank deposits) and therefore deleted the balance of the addition. The AO was directed to restrict the addition to Rs. 33,000.
Non-genuine expenses / unexplained investment (Rs. 7,39,082):
The AO had made an addition equal to the peak balance used for purchases from two suppliers who could not be traced or produced. The Tribunal examined the documentary record and noted that:
- Purchases were recorded in regular books of account;
- Purchases were supported by bills/vouchers containing particulars (name, address, sales-tax number);
- Payments were made through account-payee cheques and bank certificates were produced;
- Corresponding sales were accepted and not disturbed by the Revenue;
- The AO did not allege that amounts paid for purchases had been returned to the assessee.
The Tribunal referred to the statutory ambit of sections 69 and 69A (as set out in the order) and observed that additions under these sections are justifiable only when (i) the assessee has made investments not recorded in books, or (ii) the assessee offers no explanation or an unsatisfactory explanation. Given the documentary evidence and payments through banking channels, the Tribunal concluded the conditions for an addition under sections 69/69A were not met and therefore deleted the addition of Rs. 7,39,082. The Tribunal also noted that cited decisions (listed in the order) were in favour of the assessee and supported deletion.
Household withdrawals (Rs. 30,000):
The AO had made an addition of Rs. 30,000 treating household expenses of Rs. 77,000 for nine family members as inadequate; CIT(A) confirmed this. The Tribunal, after hearing parties and having already sustained Rs. 33,000 in ground no. 1, concluded that the household withdrawals addition was not warranted and therefore deleted the Rs. 30,000 addition.
Interest under sections 234B and 234C (grounds 5 and 6):
The Tribunal treated these grounds as consequential and directed the AO to act accordingly (i.e., to compute/charge interest consequences consistent with the adjustments made by the Tribunal).
Burden of proof / evidence (grounds 7 and 8):
The Tribunal observed that these grounds were general in nature and had not been pressed by the appellant; accordingly they were dismissed as not pressed.

Holding and Implications

Final Disposition: The Tribunal APPEAL PARTLY ALLOWED.

Direct holdings and immediate consequences for the parties (as stated in the opinion):

The Tribunal confirmed an addition of Rs. 33,000 on account of unexplained cash/undisclosed income; the AO is directed to make the addition to this extent.
The remaining portion of the addition claimed by the AO in respect of unexplained cash (out of Rs. 2,49,261) was deleted.
The addition of Rs. 7,39,082 on account of alleged non-genuine purchases / unexplained investment was deleted.
The addition of Rs. 30,000 on account of household withdrawals was deleted.
Interest chargeability under sections 234B and 234C (grounds 5 and 6) was left to be determined consequentially by the AO in accordance with the Tribunal's adjustments.
General grounds regarding burden of proof/evidence (grounds 7 and 8) were dismissed as not pressed.

No broader precedent was stated to be established by this order; the Tribunal's conclusions were expressed as determinations on the facts and law of this specific appeal.

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Rajesh P. Soni v. Assistant Commissioner of Income-tax

A.L. Gehlot, A.M.:

This appeal is filed by the assessee against the order of CIT(A)-II, Ahmedabad, dt. 17th Feb., 1999, for the asst. yr. 1995-96.

2. The first ground is pertaining to Rs. 2,49,261—unexplained cash/undisclosed income. The facts of the case and observations of AO are as under :

"It is mentioned here that the appellant is trading in gold. A survey operation was conducted at the business premises of the appellant on 9th Dec, 1994. At that time excess stock of 500 gms. of gold was found. The appellant agreed to disclose the excess stock found during the survey in the return of income. Subsequently, the appellant filed the return of income in which amount of Rs. 2,35,000 was disclosed on this account. During the course of survey, total cash of Rs. 2,70,000 was found and after allowing credit for the cash as per the books of the appellant and as per the books of another sister-concern, cash of Rs. 2,49,261 was held to be excess of cash for which the appellant was asked to furnish the explanation. The explanation of the appellant was rejected for the reasons given in the assessment order which according to the appellant are not correct. As per the assessment order, the appellant explained that cash of Rs. 2,18,800 pertains to sale of gold under four bills bearing Nos. 522 to 525 all dt. 19th Dec, 1994, and that these bills and the books of the appellant do not contain the address of the party to whom the gold was sold. The AO has mentioned that these bills were issued later on and he, therefore, did not accept the genuineness of the sale under these bills."

3. The CIT(A) confirmed the addition with following observations :

"I have carefully considered the facts of the case and the submissions of the appellant. I have also gone through the English version of the statement of the appellant recorded at the time of survey. It is seen that the appellant in response to question No. 5 was categorical in stating that during the day, i.e., before the arrival of the survey team he had sold gold in cash of Rs. 2,18,800 and that the whole amount had been deposited in the bank. He further stated that cash balance on the day of survey was Rs. 14,362.50. It is pertinent to point out that till this stage the appellant did not mention about any further cash sales. If any other cash sales had really been made on the day of survey before the arrival of the survey team, as is now sought to be explained, it is natural that in response to question No. 4 itself the appellant would have mentioned about further cash sales for which the bills were yet to be prepared and the sale receipts were to be deposited in bank. It is only when the survey team pointed out that there was total cash of Rs. 2,70,000; the appellant stated that the balance gold of Rs. 6,01,030 had also been sold. This is clearly an afterthought on the part of the appellant and cannot be believed. No doubt, the remaining gold stock of 601.031 gms. of gold was not found but there are adverse circumstances to disbelieve the version of the appellant regarding the further cash sales of gold. Apart from what has been mentioned earlier in this order, the fact that the appellant could not explain the deficit of cash of Rs. 33,000 approximately is important. The contention that it is a case of fading memory is only a diversionary tactic as with reference to the books of account, the appellant should have been in a position to explain the deficit of cash of Rs. 33,000. I, therefore, hold that cash of Rs. 2,49,261 represents unexplained cash which represents the undisclosed income of the appellant. I am also not ready to accept the alternative contention of the appellant as this cash in any case represents the undisclosed income of the appellant. By resorting to the alternative contention , the appellant is merely trying to get only gross profit on the so-called sales to be brought to tax and this cannot be accepted."

4. The learned Authorised Representative reiterated the following submissions which were made before CIT(A):

"On the other hand, the facts as pointed out by the appellant are that the aforesaid four bills bearing Nos. 522 to 525 had already been prepared before the time of survey and cash was also deposited in the bank on the same day, i.e., 19th Dec, 1994. In this connection, the learned counsel for the appellant has drawn my attention to the statement of the appellant recorded during the course of survey. English version of this statement has also been provided by the appellant. It is seen from this statement that in response to question No. 4, the appellant had deposed that stock as on the date of survey was 1067.590 gms. and after deducting the sales vide bill Nos. 522 to 525, the stock was 601.030 gms. In response to question No. 5, the appellant had deposed that closing cash balance as on 17th Dec, 1994 was Rs. 14,362.50. On the date of survey he sold gold in cash of Rs. 2,18,800 and the whole amount was deposited in the bank before the arrival of the survey team. He added that there was no expenditure of cash and hence cash balance as on the date of survey was same, i.e., Rs. 14,362.50. Subsequently, in question No. 8, the appellant was told that cash of Rs. 2,70,000 had been found while as per the books of account of the two firms, the cash was approximately Rs. 21,000. At that stage the appellant stated that he had already deposed that there was stock of 601.030 grns. which he had sold in cash and bills for the same were pending to be prepared. Thus, the explanation of the appellant with regard to cash is that remaining stock of 601.030 gms. of gold was sold for Rs. 2,81,938 under bill Nos. 526 to 532 which were to be prepared. On the basis of these submissions, the Authorized Representative for the appellant submitted that the whole of the cash found during the survey is explained."

5. The learned Departmental Representative relied upon the orders of lower authorities.

6. We have considered the rival submissions and perused the record. After considering the facts of the case we notice that as per finding of CIT(A) the assessee failed to explain deficit in cash of Rs. 33,000. In view of the fact that we are of the fact (sic-opinion) that addition to the extent of Rs. 33,000 is sustainable, we accordingly confirm the addition of Rs. 33,000 and balance amount is deleted. The AO is directed accordingly.

7. The second ground is pertaining to Rs. 7,39,082—non-genuine expenses.

7.1. It is seen from the assessment order that appellant had shown certain purchases from Prabhu Jewellers and Parth Jewellers whose addresses have been given in the assessment order. Proprietor of Prabhu Jewellers is father of the proprietor of Parth Jewellers. As per the assessment order, the aforesaid two parties could not be located. Even the appellant was asked to produce the two parties but he was also not able to produce them before the AO. The order further states that the appellant had made purchases of Rs. 24,11,829 and Rs. 11,76,540, respectively from Prabhu Jewellers and Parth Jewellers. On going through the accounts of these two parties it was noticed by the AO that on 21st April, 1994 there was maximum transaction and on the basis of peak investment available on 21st April, 1994 which is Rs. 7,39,082, addition of this amount was made on account of unexplained investment.

8. The CIT(A) confirmed the addition with following observations :

"I have considered the facts of the case and the submissions of the appellant. Though the AO has made addition in respect of peak amount of investment in the purchases made from the two parties on the ground that these are not traceable but simultaneously he has not disbelieved the sales made out of purchases made from these two parties. In fact, the addition made by the AO is on the ground that source of peak of the amount used in these purchases has not been explained. If he had done so, the addition would have been of Rs. 35.88 lakhs approximately. Therefore, the case laws cited by the appellant are not applicable in this case. Coming to the other issues, no doubt, the AO has not made enquiries from the bank and sales-tax authorities but the appellant also cannot wash his hands off by contending that he had made the payments by account-payee cheques and that the bills of those two parties contained their full particulars. Not only the AO himself could not trace these two parties but even when this fact was confronted to the appellant, he also did not give any further particulars. In such circumstances, the appellant cannot claim his innocence. Certain facts can be inferred from the attendant circumstances. Here the circumstances are such that the story of purchases having been made from the two parties cannot be believed. It is also not necessary to prove that the amount paid by account-payee cheques had come back to the appellant. Undoubtedly, in this case purchases were made as there are corresponding sales but the purchases were made apparently from other sources and the amount for making these purchases from the attendant circumstances would have naturally come out of the account-payee cheques which are said to have been given to the two parties. This amount, therefore, really belongs to the appellant and the AO has rightly assessed the peak of the amount used for making purchases from the two parties as his income. Third ground of appeal is, therefore, rejected."

9. The learned Authorised Representative reiterated the following submissions which were made before CIT(A):

"There was no investment made by him and only purchases were made for business purposes which have been recorded in the books of account. As regards the explanation, it has been submitted that the appellant has explained the purchases of goods as the relevant bills are available, the amounts have gone out by account-payee cheques for which certificate from bank is available, the purchases are recorded in the books of account and stock register. It is further submitted that merely because the parties are not available, the addition cannot be made as the purchase bills were produced giving the name, address, sales-tax number, quantity and value of goods purchased, etc. and purchases are entered in the books and were paid by account-payee cheques. Main contention of the appellant during the appellate proceedings was that while corresponding sales have been accepted and not disturbed, the purchases cannot be disbelieved. It was stated that it is not the case of the AO that the amounts paid for purchases had come back to the appellant. According to the appellant, no enquiry was made by the AO of the bank accounts of those two parties when the bank statements mention that the amounts are transferred in their accounts. It was stressed by the learned counsel for the appellant that having accepted the sales corresponding to these purchases, AO cannot treat the purchase amount for addition or in the alternative, the AO should exclude the sales amount corresponding to the said purchases."

10. The learned Departmental Representative relied upon the orders of lower authorities.

11. We have considered the rival submissions and perused the record. The admitted facts of the case are that purchase were recorded in the regular books of account maintained. The purchase are supported by proper bills/vouchers. The assessee filed the necessary details regarding name, address, sales-tax number. The payments were made through banking channels. Thus, the sale against the purchases are not doubted. It is not the case of AO that amounts paid for purchases had come back to the assesse. We noticed that the AO had made addition merely on the ground that the suppliers are not located and they were not produced for examination. After considering the facts of the case we are of the view that when purchases are supported with authenticated purchase bills having sales-tax numbers and payment through cheques, the addition cannot be made under s. 69 or 69A as in this section the addition can be made in following circumstances :

"(i) when assessee has made investment which is not recorded in the books of account, or

(ii) the assessee offers no explanation or the explanation is not satisfactory."

12. The following decisions cited by the learned Authorised Representative are also in favour of the assessee :

(i) CIT vs . M.K. Brothers [1986] 52 CTR (Guj) 228 : [1987] 163 ITR 249 (Guj);

(ii) Sagar Bose vs. ITO [1996] 56 ITD 561 (Cal);

(iii) S.F. Wadia vs. ITO [1987] 27 TTJ (All) 437 : [1986] 19 ITD 306 (All).

13. In the light of the above discussion, we are of the considered view that the addition is not warranted. We accordingly delete the addition of Rs. 7,39,082.

14. The third ground is pertaining to addition of Rs. 30,000 on account of household withdrawals. The AO found that household expenses shown by assessee for Rs. 77,000 for 9 family members is inadequate. Accordingly, he made addition of Rs. 30,000. The CIT(A) confirmed the addition.

15. After hearing both the sides and after considering the addition sustained of Rs. 33,000 in ground No. 1 we are of the view that addition is not warranted. We, accordingly, delete this addition of Rs. 30,000.

16. The other ground Nos. 5 and 6 are pertaining to charging of interest under ss. 234B and 234C are consequential in nature, AO is directed accordingly.

17. The ground Nos. 7 and 8 pertaining to burden of proof/evidence on record are general and have not been pressed and, therefore, same are dismissed as not pressed.

18. In the result, the appeal is partly allowed.

Rajesh P. Soni v. Assistant Commissioner of Income-tax

Structured Summary of the Opinion (A.L. Gehlot, A.M.) — Assessment Year 1995-96

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's / Authorised Representative) Arguments

Departmental Representative's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Rajesh P. Soni v. Assistant Commissioner of Income-tax

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