Sri Pavan Kumar Agarwal vs Dy. Cit, Nizamabad.
2023 Latest Caselaw 882 Tel

       THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                                         AND
              THE HON'BLE SRI JUSTICE N.TUKARAMJI
                               I.T.T.A.No.83 of 2006
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)

        Heard Mr. A.V.A.Siva Kartikeya, learned counsel for

the appellant and Ms. Sapna Reddy, learned counsel for the

respondents.

2. This appeal has been preferred by the assessee under

Section 260A of the Income Tax Act, 1961 (briefly 'the Act'

hereinafter) against the order dated 27.06.2005 passed by the

Income Tax Appellate Tribunal, Hyderabad Bench 'A',

Hyderabad (briefly 'the Tribunal' hereinafter) in

I.T.A.No.686/Hyd/2000 for the assessment year 1996-97.

3. Though this appeal was admitted on 14.03.2006, no

substantial question of law was framed. However, appellant

has proposed the following questions in the memo of appeal

as substantial questions of law:

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(i) Whether on the facts and in the circumstances of the case, Tribunal was justified in setting aside the order of the Commissioner of Income Tax (Appeals) and sustaining the addition of Rs.6,90,876.00 made by the assessing officer on account of undisclosed investment in stock ?

(ii) Whether on the facts and in the circumstances of the case, Tribunal was justified in setting aside the order of the Commissioner of Income Tax (Appeals) and sustaining the addition of Rs.2,56,772.00 made by the assessing officer on account of unaccounted investment in property ?

4. Appellant is an assessee under the Act having the status

of an individual carrying on the business of sale of electronic

goods. For the assessment year 1996-97, assessee filed return

of income on 17.03.1997 admitting income of Rs.2,43,320.00.

Assessing officer, in the course of the assessment proceedings,

noticed that as per the statement filed by the assessee along

with the return of income, the closing stock was quantified at

Rs.26,25,634.00 whereas assessing officer worked out the

closing stock as on 31.03.1996 at Rs.19,34,758.00. It was

found that assessee had admitted excess stock of ::3::

Rs.6,90,876.00. Explanation given by the assessee was found

to be not satisfactory. Assessing officer therefore presumed

that assessee had invested income from undisclosed sources

and accordingly added Rs.6,90,876.00 to the income of the

assessee.

5. Insofar investment in house property is concerned,

assessing officer noted that there was a survey under

Section 133A of the Act at the premises of the assessee.

Assessee could not explain properly the source of the

vouchers found at the time of survey. According to the

assessing officer, an amount of Rs.6,50,734.00 was found to be

unexplained investment in house property. Accordingly, the

same was added to the income of the assessee vide the order of

assessment dated 31.03.1999.

6. Aggrieved by the above, assessee preferred appeal

before the Commissioner of Income Tax (Appeals-II), ::4::

Hyderabad (for short 'CIT(A)' hereinafter). By the appellate

order dated 09.06.2000, CIT(A) deleted both the additions.

7. Thereafter, revenue preferred appeal before the

Tribunal. By the order dated 27.06.2005, Tribunal set aside

the order of the CIT(A) and restored the order of the

assessing officer dated 31.03.1999 insofar investment in stock

is concerned. Insofar investment in house property is

concerned, Tribunal noted that instead of Rs.6,50,734.00

added by the assessing officer, there was no explanation for an

amount of Rs.2,56,772.00. Accordingly the order of CIT(A)

dated 09.06.2000 was set aside and the order of the assessing

officer dated 27.06.2005 was restored to the extent of addition

of Rs.2,56,772.00.

8. Learned counsel for the appellant submits that there was

no justification at all for the Tribunal to reverse the well-

considered order of the CIT(A). Insofar investment in stock

is concerned, appellant had declared the excess stock in the ::5::

books of account and also made the necessary payment. This

was noted by the CIT(A). Without any dilation on such

finding rendered by the first appellate authority, Tribunal

mechanically set aside the order of CIT(A). Similarly, he

submits that Tribunal was not justified in making addition on

the ground of unexplained investment in house property when

appellant had clearly shown that such investments were made

following credit obtained from banking sources as well as on

account of income earned during the relevant previous year.

Without considering the above aspect, Tribunal was not

justified in partially setting aside the order of CIT(A).

9. Per contra, Ms. Sapna Reddy, learned counsel for the

respondent has taken the Court to the orders passed by the

revenue authority and submits that there is no error or

infirmity in the findings rendered by the Tribunal. She has

also taken the Court to Section 69 of the Act and submits that

the said provision has been duly applied by the Tribunal.

Therefore, the appeal should be dismissed.

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10. We have heard learned counsel for the parties and

perused the materials on record.

11. Insofar the first issue i.e., investment in stock is

concerned, the finding of CIT(A) reads as follows:

The first ground in this appeal is towards difference in stock. During the course of assessment proceedings, the AO found that the closing stock admitted by the appellant was Rs.26,25,634.00. In this regard, the assessee was asked to produce the closing stock inventories and the stock books. The assessee denied having maintained any stock registers. Further, the AO observed that when compared with the stock admitted and the stock found at the time of survey and worked out the stock as per these inventories, the assessee has admitted excess stock of Rs.6,90,876.00. As per the AO, since the assessee was unable to explain the sources for the excess stock admitted in the return of income, when compared with the stock inventory taken and reworked out till 31.03.1998, it is to be presumed that the assessee has invested income from undisclosed sources in the form of stock which is to be assessed. Accordingly, the AO has added the difference of Rs.6,90,876.00.

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During the course of hearing, it is stated that the appellant has admitted the value of the closing stock to be Rs.26,25,634.00. The AO on the other hand arrived at the value of the stock at Rs.19,34,758.00. In this regard, it is submitted that the difference cannot be the income of the appellant and the appellant has already credited the closing stock value of Rs.26,25,634.00 to the P&L account as against the amount of Rs.19,34,758.00. It is further contended that by admitting the closing stock more than the stock found at the time of inventory, the appellant has, in fact, disclosed more income and as such, there is no point in AO making further addition in this regard. Therefore, it is required to delete the above addition.

I have given my careful consideration to the submissions of the appellant's AR. I am in agreement with the arguments of the learned AR of the appellant. The appellant showed higher value for the closing stock than the value arrived at by the Assessing Officer, which mean that the appellant admitted more income in the return of income filed by him by admitting more closing stock.

Therefore, the AO is not justified in making further addition of Rs.6,90,876.00. In view of the above, I opine that the above addition needs to be deleted. The AO is accordingly directed to delete the above addition.

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12. Thus, we find that according to CIT(A), assessee had

shown higher value for the closing stock than the value arrived

at by the assessing officer, meaning thereby, that assessee had

admitted more income in the return of income filed by him by

admitting more closing stock. That being the position, CIT(A)

was of the opinion that addition made by the assessing officer

was not justified and accordingly, the same was deleted.

13. When the matter reached the Tribunal, a view was taken

by the Tribunal that the only conclusion possible was that

assessee had suppressed sales amounting to Rs.6,90,876.00

which was utilized for making investment towards purchase of

goods reflected in the closing stock as on 31.03.1996.

14. We are afraid, there was no material on record to

support such a conclusion reached by the Tribunal. As

pointed out by the CIT(A), when the assessee himself had

disclosed higher stock, question of taking a view that assessee

had suppressed sales for making investment towards purchase ::9::

of goods which is reflected in the higher stock figures does

not appear to be reasonable.

15. Section 69 of the Act deals with unexplained

investments. It says that where in the financial year

immediately preceding the assessment year, the assessee has

made investments which are not recorded in the books of

account, if any, maintained by him for any source of income,

and the assessee offers no explanation about the nature and

source of the investments or the explanation offered by him is

not, in the opinion of the assessing officer, satisfactory, the

value of the investments may be deemed to be the income of

the assessee in such financial year.

16. As we have noted above, the quantum of closing stock

was reflected in the books of account of the assessee. When

such closing stock is reflected in the books of account,

assessing officer was not justified in holding that assessee had

made investments, which are not recorded in the books of ::10::

account. There is no material on record to justify such a

finding. The closing stock disclosed by the assessee cannot

be said to be investment of the assessee in the form of closing

stock not reflected in the books of account. Therefore, such

addition made by the assessing officer and affirmed by the

Tribunal cannot be sustained.

17. This brings us to the next issue of investment in house

property. We have already noticed the addition made by the

assessing officer under this head to the tune of Rs.6,50,732.00.

CIT(A), while dealing with this ground of appeal, held as

follows:

The last ground of appeal is an addition of Rs.6,50,734.00 on account of investment in construction. The AO found that there were number of vouchers and bills relating to the construction, which was completed in the year 1998. During the course of survey, the AO found certain papers amounting to Rs.6,50,734.00 for which the AO has asked the appellant to mention whether he maintained the ::11::

books of account for construction account or not for which the appellant categorically explained that he did not maintain any books and hence, the AO has treated the entire amount of Rs.6,50,734.00 as unexplained investment.

In this regard, it is submitted that the appellant borrowed a sum of Rs.3.5 lakhs from State Bank of Hyderabad, Adilabad Branch for construction of the building and the appellant has also declared an amount of Rs.3 lacs under VDIS. Therefore, it is stated that the income of Rs.3 lacs derived during 1992-93 to 1994-95 was utilized in construction of the building. The appellant also submitted that the appellant has offered an additional amount of Rs.1,50,000.00 as income for the year under consideration. Therefore, it is stated that the appellant is able to explain the sources for about Rs.8 lacs and the amount corresponding to construction is only Rs.6,50,734.00. In view of the above, it is requested to hold this amount invested as explained and requested to delete this addition. I have carefully considered the submissions of the appellant's AR. I am in agreement with the contentions of the AR. I opine that the ::12::

Assessing Officer ought to have compared the actual cost with the estimated cost and difference, if any, might have been considered. The total bills found by the AO aggregated to Rs.6,50,734.00 but, the appellant produced proof for the sources to an extent of Rs.8 lakhs in the way of borrowing a sum of Rs.3.5 lakhs from SBH, Adilabad, declaration of Rs.3 lakhs made under VDIS and admission of additional income of Rs.1,50,000/-. Further, if the AO got any doubts, he should have referred matter to the Valuation Cell and got estimated the cost of construction by the Valuation Cell. In view of the above, I am satisfied that the appellant proved sources to an extent of Rs.8 lakhs. Therefore, I am unable to sustain the action of the assessing officer in making the addition in this regard. Hence, I am of the view that this addition also needs to be deleted. The AO is accordingly directed to delete the above addition.

18. Thus, according to CIT(A), assessing officer found

certain papers in the course of survey amounting to

Rs.6,50,734.00, which according to the assessing officer were ::13::

unexplained investment in the construction of the house by

the assessee. CIT(A) noted that assessee had borrowed a sum

of Rs.3.5 lakhs from State Bank of Hyderabad, Adilabad

branch for the purpose of construction of the building.

Further, assessee had also declared an amount of Rs.3 lakhs

under the VDIS i.e., Voluntary Disclosure of Income Scheme.

That apart, income of Rs.3 lakhs derived from the year 1992-

93 to 1994-95 was utilised in the construction of the building.

Assessee also offered an additional income of Rs.1.5 lakh as

income for the assessment year under consideration. Thus,

according to the CIT(A), assessee was able to explain the

source for about Rs.8 lakhs, which was more than the figure

of Rs.6,50,734.00. CIT(A) accepted the explanation of the

assessee to an extent of Rs.8 lakhs i.e., (1) by way of borrowing

Rs.3.5 lakhs from the State Bank of Hyderabad, Adilabad

branch (2) declaration of Rs.3 lakhs under the VDIS and (3)

additional income of Rs.1.5 lakhs for the assessment year

under consideration. CIT(A) further found that without ::14::

referring the matter to the departmental valuation cell,

assessing officer was not justified in making the addition.

Accordingly, the addition of Rs.6,50,734.00 was deleted.

19. When the matter reached the Tribunal, Tribunal

adopted a strange procedure. The departmental representative

had filed extracts from the valuation report to the tune of

Rs.24,73,037.00. Assessee had shown investment to the tune

of Rs.19,29,058.00. Thereafter, Tribunal noticed that certain

goods were received by the assessee but source of payment

was not explained. After giving credit for Rs.3 lakhs disclosed

on account of VDIS and a further amount of Rs.84,962.00 on

account of income disclosed, there still remained a gap of

Rs.2,56,772.00, which according to the Tribunal remained

unexplained. Accordingly, Tribunal modified the order of

CIT(A) dated 09.06.2000 and upheld the order of the assessing

officer dated 31.03.1999 to the tune of Rs.2,56,772.00.

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20. We are afraid we cannot subscribe to the procedure

adopted by the Tribunal for more than one reason.

20.1. Before the CIT(A), assessing officer did not produce

any valuation report. As a matter of fact, CIT(A) had

observed that assessing officer could very well had obtained a

report from the departmental valuation cell to arrive at the

correct figure of investment in house property. Before the

Tribunal, the departmental representative filed extracts from

the valuation report. From a reading of the order of the

Tribunal, it is not discernible as to how such extracts could

have been filed before the Tribunal that too without

furnishing copy to the assessee. In our view, placing reliance

on the extracts from the valuation report was not at all

justified by the Tribunal.

20.2. That apart, CIT(A) had clearly mentioned that assessee

had obtained loan from the Bank to the tune of Rs.3.5 lakhs.

In addition, Tribunal itself gave credit for a sum of Rs.3 lakhs ::16::

on account of VDIS. That apart, Tribunal also gave credit for

disclosing income of Rs.84,962.00. If the three figures are

added i.e., Rs.3.5 lakhs+Rs.3 lakhs+Rs.84,962.00, the total

figure is much higher than the alleged unexplained investment

figure of Rs.6,50,734.00. That being the position, we set aside

the aforesaid finding of the Tribunal as well.

21. Consequently, both the substantial questions are

answered in favour of the appellant/assessee and against the

respondent/revenue.

22. Appeal is accordingly allowed. No costs.

As a sequel, miscellaneous petitions, pending if any,

stand closed.

__________________ UJJAL BHUYAN, CJ

_______________ N.TUKARAMJI, J Date: 22.02.2023 LUR