IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM

Transcription

1 आयकर अप ल य अध करण, ध श ख पटणम प ठ, ध श ख पटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श र. द ग र,न य धयक सदस य ए श र धड.एस. स न दर ससह, ल ख सदस य क समक ष BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER आयकर अप ल स./I.T.A.No.451/Viz/2016 (ध रण र / Assessment Year: ) B.Durga Prasad D.No.6-206, Rangappa Cheruvu Street Gollaprolu East Godavari Dist. Vs. Income Tax Officer Ward-1 Tuni [PAN : AGAPG2347L] (अप ल र थ / Appellant) (प रत यर थ / Respondent) अप ल र थ क ओर स / Appellant by प रत यर थ क ओर स / Respondent by : : Shri G.V.N.Hari, AR Shri Ch.Sanjeev, DR स नव ई क त र ख / Date of Hearing : घ षण क त र ख/Date of Pronouncement : आद श /O R D E R PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax(Appeals) [(CIT(A)]-2, Guntur vide Appeal No.92/14-15 dated for the assessment year

2 2 2. Ground Nos. 1 and 6 are general in nature which does not require specific adjudication. 3. Ground Nos. 2 and 3 are related to the estimation of income. The assessee is in the business of Indian Made Foreign Liquor (IMFL) and for the assessment year , the assessee filed the return of income declaring total income of Rs.5,77,646/-. During the previous year relevant to the Assessment Year(AY) , the assessee has made the purchases of Rs.2,36,62,794/- and admitted the sales of Rs.3,06,14,597/-. During the assessment proceedings, the Assessing Officer (AO) has called for the details and verified the books of accounts. Since the assessee failed to produce the stock register, sale bills with the quantity of sales item wise and the quantitative details of valuation of closing stock etc., the AO rejected the books of accounts and estimated the net profit at 20% of the purchases put to sale. 4. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and requested to accept the book results or to estimate the 5% as per the decision of the Hon ble ITAT, Visakhapatnam in the case of Tangudu Jogisetty in ITA No.96/Vizag/2016

3 3 dated The Ld.CIT(A) was of the view that the profit cannot be uniformly adopted in all cases and it requires to be considered on the facts of each case. The Ld.CIT(A) further observed that the Government itself has accepted before the Hon ble High Court of A.P., that there were huge violations in the liquor trade with regard to the sale prices. Therefore, the Ld.CIT(A) was of the view that the decision of the ITAT, Visakhapatnam in the case of Tangudu Jogisetty cited supra is not applicable in the assessee s case and accordingly directed the AO to recompute the income estimating the net of the purchase price. 5. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. 6. We have heard both the parties and perused the material placed on record. In this case, the AO rejected the books of accounts and estimated the net profit at 20% of the purchases put to sale. The Ld.CIT(A) observed that the Government of Andhra Pradesh filed affidavit before the Hon ble High Court of Andhra Pradesh stating that there were huge violations in the sale prices, thus viewed that the assessee s case is distinguishable when compared to the decision of ITAT, Visakhapatnam in the case of Tangudu

4 4 Jogisetty cited supra. Though the Ld.CIT(A) has taken the support of the affidavit filed by the Govt. of Andhra Pradesh and Telangana for distinguishing the case of this Tribunal, no specific deviations in assessee s case were brought on record. Neither the Commissioner nor the AO has specifically pin pointed the discrepancies for making the estimation of income at higher rate than what was adopted by the Tribunal. Though the Ld.CIT(A) has held that the assessee s case is not a normal case, the Ld.CIT(A) did not specially show the reasons how the assessee s case is abnormal. Neither the AO, nor the CIT(A) has analyzed the books of accounts and brought on record the specific defects found during the course of assessment proceedings to resort for higher estimation. The AO rejected the books of accounts because of non production of stock register, sale bills, quantitative details of stocks sold and the valuation of closing stock with the details. The Ld.AR submitted that the defects pointed out by the Ld.AO are common in all the IMFL cases and argued that the assessee s case cannot be given a separate treatment for resorting to higher estimation of income as held by the Ld.CIT(A). The above submission was not controverted by the Revenue, hence we do not find any reason to resort for higher rate of profit. We are of the view that the assessee s case is squarely covered by the decision of this Tribunal in Tangudu Jogisetty cited

5 5 (supra), hence, we set aside the order of the Ld.CIT(A) and direct the AO to estimate the of the goods sold. Accordingly, we uphold the rejection of books of accounts and estimate the income at 5% of the goods sold. Accordingly, ground Nos.2 and 3 of the appeal of the assessee are partly allowed. 7. Ground No.4 is related to the separate addition of Rs.37,83,000/- made by the Ld.CIT(A) u/s 68 during the appeal proceedings, thereby enhancing the income. The assessee went on appeal before the Ld.CIT(A) with a grievance for estimation of of the cost of goods sold which is very high in this line of business. During the appeal hearing, the Ld.CIT(A) noticed the investments of Rs.37,83,000/- made by the assessee towards the advance license fee, DD for purchases of I.M.F.L and the bank margin money etc. The Ld.CIT(A) further observed that the AO has neither caused any enquiries nor called for the details and the assessee also did not furnish the sources for investments. The Ld.CIT(A) stated that there was inconsistency in respect of explanation for the sources of investment. Initially the assessee explained that out of Rs lakhs, Rs.30 lakhs was invested by him from his own sources and Rs.7.83 lakhs was made out of regular sales and cash flow. Later on the assessee has changed the version

6 6 and explained that 16 individuals of them have formed the firm and pooled the sum of Rs.31.5 lakhs and the said firm has invested/advanced the amount to do the business of IMFL. The assessee filed confirmation letters from all the parties confirming the investment in the firm. The Ld.CIT(A) forwarded the confirmation letters and called for the remand report from the AO. The AO submitted the remand report on stating that out of 16 persons, the sources for investment of Rs.3 lakhs was not properly explained and accepted the sources for the remaining amount as genuine. However, the Ld.CIT(A) analysed the sources of all 16 persons individually and came to conclusion that the source of all the 16 persons were not supported by the proper evidence to establish the credit worthiness of the parties. The Ld.CIT(A) further observed that all the contributors of the capital to the firm were either small agriculturists or the persons with meager income and did not have the source to make the investments. Their earnings were sufficient to meet their regular house hold expenditure and do not support the investment to the firm. Therefore, the Ld.CIT(A) held that the assessee failed to prove the identity and credit worthiness of the parties and the genuineness of the transactions. Therefore, enhanced the income and directed the AO to treat the entire

7 7 Rs lakhs as unexplained cash credits and accordingly made the addition. 8. Aggrieved by the order of the Ld.CIT(A) the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR argued that, the AO during the assessment proceedings has called for the details, examined the details and satisfied with regard to the sources of capital, and the investments, which is evident from para No.2.1 of the assessment order. The assessee has furnished the details to the satisfaction of the AO and the AO having satisfied with the sources for contribution of the capital and the source for investments, has accepted the sources and completed the assessment. Once the AO has caused the detailed enquiries and satisfied with regard to the sources, the Ld.CIT(A) is not justified in reexamining the same issue which was already examined by the AO at the time of assessment and argued that the Ld.CIT(A) has travelled beyond his jurisdiction. The assessment was completed after verification of the books of accounts, vouchers, bills and the AO has rejected the books of accounts for common defects such as non production of quantitative details register, proper sale bills containing quantitative details of the stock sold etc. which are very common in all the IMFL cases. All the purchases were made

8 8 through Andhra Pradesh Beverage Corporation Ltd., and sold across the counters in cash. Non-maintenance of proper sale bills, quantitative details is a common defect in liquor shops and such defect should not lead to the addition u/s 68/69 of the Act. The Ld.AR further submitted that the assessee is in appeal before the Ld.CIT(A) for adjudicating the reasonableness of estimation of income but not on any other issue. The Ld.CIT(A) has taken all together a different issue and issued enhancement notice for a different head of income or the new source of income which is not a part and parcel of the income assessed by the AO and the same is not permissible as per the provisions of the Act. The source of income in litigation was the estimation of income and the Ld.CIT(A) has made the enhancement on account of introduction of capital and the investment of source relating the payment of Licence fee and the initial purchases which was already examined by the AO in the original assessment proceedings and this is not permissible by the Ld.CIT(A) and out of his jurisdiction. Even otherwise also, the AO has examined the sources for the introduction of capital and the sources for investment and satisfied with regard to the genuineness of the source of investment which is evident from the assessment order. Having obtained the details of confirmations and found satisfactory explanation, reexamination of the same issue is not permissible

9 9 which tantamount to difference of opinion. The Ld.CIT(A) is not permitted to take up reinvestigation of the same issue in the guise of improper verification or inadequate enquiries conducted by the AO. Since the enhancement is directed towards new source of income, the Ld.AR relied on the decision of Hon ble High court of Delhi in the case of CIT Vs. Sardarilal & Co reported in (2001) 170 CTR 0431, wherein, Hon ble Delhi High Court full bench held that the first appellate authority has no power to enhance the assessment by discovering a new source of income which was not considered by the AO in the order appealed against. The Ld.AR also relied on the decision of Hon ble Kerala High Court in the case of CIT Vs. B.P.Sherafudin (2017) 87 Taxmann.com 330 (Kerala), wherein, the Hon ble High Court has taken similar view following the decision of Hon ble Delhi High Court cited supra and argued that the assessee s case is squarely covered by the decision of the Hon ble Delhi High Court as well as the Hon ble High Court of Kerala. The Ld.AR without conceding to his stand that the Ld.CIT(A) has no power to enhance the assessment with the new source of income, argued that the Ld.CIT(A) has called for the remand report from the AO and the AO submitted the remand report after causing the enquiries in second round also and accepted the genuineness for introduction of capital to the extent

10 10 of Rs.28.5 lakhs and did not accept the sources in respect of three partners namely, K.Suresh, P.Phani Kumar and B Ramakrishna who have contributed a sum of Rs.1 lakh each. The Ld.A.R submitted that the Ld.CIT(A) ought to have accepted the remand report and restricted the enhancement to a sum of Rs.3 lakhs instead of making the addition of Rs lakhs. 9. On the other hand, the Ld.DR argued that the Ld.CIT(A) has vested with the powers u/s 251 of the Act to confirm the addition, reduce or to enhance or annul the assessment order. The Ld.CIT(A) is having coterminous powers with that of the AO and has very wide powers for enhancing the addition. The issue with regard to unexplained sources is very much available in the assessment itself and the Ld.CIT(A) did not find any new source. The Ld.CIT(A) has verified the genuineness of sources for investment made and exercised his jurisdiction as per law and argued that the Ld.CIT(A) did not travel beyond the jurisdiction and the enhancement made by the Ld.CIT(A) is within the ambit of law and also argued that the decision of Hon ble Delhi High Court has no application in the assessee s case.

11 During the appeal hearing, the assessee submitted additional ground which reads as under : On the facts and circumstances of the case, whether the enhancement of the assessment made by the Learned CIT(A) is outside the scope of his powers as conferred u/s 251(1) of the Act and consequently the enhance is liable to be set aside? 11. The assessee filed petition for admission of additional ground stating that the only issue contested in the appeal was estimation of profit, the other issues of investments in business and sources thereof were not contested before the Ld.CIT(A). The Ld.A.R submitted that the powers conferred u/s 251 of the Act, the Ld.CIT(A) can enhance the assessment only on those issues which are agitated in appeal but not on any other issue which was not considered by the AO. As such the enhancement made by the Ld.CIT(A) was clearly outside the scope of his powers and this legal position was enunciated in various decisions of the Hon ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry 44 ITR 891, Hon ble Delhi High Court in the case of CIT Vs. Sardari Lal & Co and Hon ble High Court of Kerala in the case of CIT Vs. B.P.Sherafudin. The Ld.AR further argued that, since the issue raised by the assessee vide additional ground is a legal issue and the entire information was made available before the lower

12 12 authorities the same does not amount additional evidence and accordingly requested to admit the additional ground for adjudication. 12. We have heard both the parties and perused the material placed on record. The additional ground raised by the assessee goes to the very root of the powers conferred to the Ld.CIT(A) u/s 251 of the Act and it was only a legal issue, therefore, we admit the additional ground and examine the jurisdiction of the Ld.CIT(A) for enhancement with regard to new source of income. In this case, the assessee is a dealer in wine shop and trading in IMFL. For the assessment year , the assessee filed the return of income and during the course of assessment proceedings, the AO has called for the information with regard to the sources for capital introduction, sources for payment of licence fees, copies of bank account, confirmation of unsecured loans, creditors which were placed by the assessee before the AO. The AO examined the sources, introduction of capital, sources of investment and obtained loan confirmations from the unsecured creditors. Having satisfied with the genuineness, identity and credit worthiness of the creditors and sources for investment of capital and other investments, the AO accepted the sources for investment and did not make any addition on account of sources for investments as well as introduction of capital. The

13 13 only addition made by the AO was estimation of income by rejection of books of accounts which was agitated before the Ld.CIT(A). During the appeal proceedings while adjudicating the estimation of income, the Ld.CIT(A) reexamined the sources for investments stating that the AO has not caused any enquiries. From the assessment order, it is clear that the AO has called for the details and verified the sources for investment and cash credits. Further verification of sources for investments into business by the Ld.CIT(A) is nothing but reexamination of the same issue which was already examined and accepted by the AO. At best it can be termed as inadequate enquiry, but cannot be held that there is lack of enquiry. From the above, it is clear that the enhancement is towards altogether a new and different source of income and tantamount to redoing the entire assessment. The issue in this case is whether the Ld.CIT(A) is permitted enhance the assessment on new source of income and re do the assessment. The Ld.CIT(A) is vested with the powers u/s 251(1)(a) to confirm, reduce or enhance the assessment. For ready reference, we extract relevant part of section 251(1)(a) of the Act which reads as under : 251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment;

14 The Act has conferred a right and vested the power in Ld.CIT(A) to make the enhancement of assessment. Though the power of the Ld.CIT(A) is coterminous with that of the AO, the Ld.CIT(A) was given power to enhance the assessment, but the CIT(A) was not vested with the power to redo the assessment made by the AO. The Ld.CIT(A) is not given powers to reframe the assessment u/s 143(3) by completely substituting the assessment made by the AO. In the instant case, the AO has examined the issue, satisfied with the correctness with regard to the identity, genuineness and credit worthiness of the capital introduction, unsecured loans and the sources of investments and accepted the same as genuine. By enhancement notice, the Ld.CIT(A) intended to redo the assessment and reexamine the issue which was already examined by the AO. It is not the case of non causing enquiries by the AO as evident from assessment order in para No.2.1. The AO has called for the details and examined the issue in detail. Though, the Ld.CIT(A) is vested with the powers for enhancement, as held by Hon ble Delhi High Court in the case of CIT Vs. Sardarilal and Co. supra, the Ld.CIT(A) is not empowered to enhance the assessment by discovering the new source of income. The Hon ble Delhi High Court considered the decision of Hon ble Supreme Court in the case of CIT Vs. Union Tyres [240 ITR 556], Jute Corporation of India Ltd. Vs. CIT [180 ITR

15 15 688] and the decision of Hon ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry supra and held that the Ld.CIT(A) has no power to enhance the assessment on new source of income. For the sake of clarity and convenience, we extract para No.6 to 8 of the order of the Hon ble Delhi High Court which reads as under : 6. A similar question has been examined by the apex Court, as noted above, on several occasions. We do not think it necessary and appropriate to proliferate this judgment by making reference to all the decisions. A few of the important ones need to be noticed. One of the earliest decisions on the point was in CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) TC 7R.576. The matter related to corresponding provisions of the IT Act, 1922 (in short, 'the old Act'). It was held inter alia that in an appeal filed by the assessee, AAC has no power to enhance the assessment by discovering a new source of income not considered by the ITO in the order appealed against. A similar view was expressed in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) TC 7R.590. That also related to a case under s. 31(3) of the old Act. It was held that the power of enhancement under s. 31(3) of the old Act was restricted to the subject-matter of assessment or the source of income, which had been considered expressly or by clear implication by the AO from the point of view of taxability and that AAC had no power to assess the source of income, which had not been taken into consideration by the AO. It is to be noted that strong reliance was placed by learned counsel for the Revenue on the decision of the apex Court in CIT vs. Nirbheram Daluram (1997) 139 CTh (SC) 484 (1997) 224 DR 610 (SC) TC S It was submitted that a different view was expressed about the scope and ambit of the power of the first appellate authority vis-a-vis, the sources considered by the AO even if the action of the first appellate authority related to a new source of income not considered by the AO, it was not impermissible. It is to be noted that in Union Tyres' case (supra), this decision was 'also considered by this Court in the background of what had been stated in Daluram's case (supra) and it was observed that there was really no difference from the view expressed earlier in Shapoorji's case (supra) and Chamaria's case (supra). 7. Learned counsel for the Revenue also submitted that this conclusion of the Division Bench needs a fresh look. We have considered this submission in the background of what had been stated by the apex Court in Jute Corporations case (supra) and Daluram's case (supra). In Jute Corporation's case (supra), the apex Court while considering the question whether AAC has jurisdiction to allow the assessee to raise an additional ground in assailing the order of assessment before it, referred to Shapoorji's case (supra), and drew a distinction between the power to enhance tax on discovery of a new source of income and granting a deduction on the admitted facts supported by the decision of the apex Court. Relying on certain observations made by the apex Court in CIT vs. Kanpur Coal syndicate (1964) 53 ITR 225(SC)TC 6R.197, the

16 16 apex Court held that powers of the first appellate authority are coterminous with those of the AO and the first appellate authority is vested with all the wide powers, which the subordinate authority may have in the matter. In Daluram's case (supra), the decisions of Kanpur Coal's case (supra) and Jute Corporation's case (supra) were also considered and it was observed by the apex Court that the appellate powers conferred on the first appellate authority under s. 251 of the Act were not confined to the matter, which had been considered by the ITO, as the first appellate authority is vested with all the wide powers of the AO may have while making the assessment, but the issue whether these wide powers also include the power to discover a new source of income was not commented upon. Consequently the view expressed by Shapoorji s case (supra) and Chamaria s case (supra) still holds feet. It may be noted that the issue was considered in CIT vs. McMillan & Co. (1968) 33 ITR 182 (SC) :TC 7R.653. Referring to a decision of the Bombay High Court in Narondas Manohar Dassvs. CIT (1957) 31 ITR 909 (Bom) TC 7R.427, it was held that the language used in S. 31 of the old Acts wide enough to enable the first appellate authority to correct the ITO not only with regard to a matter which has been raised by the assessee but also with regard to a matter which has been considered by the AO and determined in the course of assessment. It is also relevant to note that in the Jute Corporation's case (supra), the apex Court inter alia observed as follows The AAC, on an appeal preferred by the assessee, had jurisdiction to invoke, for the first time, the provisions of r. 33 of the Indian IT Rules, 1922 (in short, the Rules'), for the purpose of computing the income of a non-resident even if the ITO had not done so in the assessment proceedings. But, in Shapoorji's case (supra), this Court while considering the extent of the power of the AAC, referred to a number of cases decided by various High Courts including the Bombay High Court judgment in Narrondas's (1957) 31 ITR 909 (Born) TC 7R.427 and also the decision of this Court in Mc.Millan's (1968) 33 ITR 182 (SC) :TC 7R.653 and held that, in an appeal flied by the assessee, the AAC has no power to enhance the assessment by discovering new sources of income not considered by the ITO in the order appealed against. It was urged on behalf of the Revenue that the words enhance the assessment occurring, In s. 31 were not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. The court observed that there was no doubt that this view was also possible, but having regard to the provisions of ss. 34 and 33B, which made provision for assessment of escaped income from new sources, the interpretation suggested on behalf of the Revenue would be against the view which had held the field for nearly 37 years." 8. Looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the AO, the jurisdiction to deal with the same in appropriate cases may be dealt with under s. 147/148 of the Act and s. 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, decision in Union Tyres' case (supra) of this Court expresses the correct view and does not need reconsideration. This reference is accordingly disposed of.

17 Similarly Hon ble Kerala High Court in the case of CIT Vs. B.P.Sherafudin cited supra has taken a similar view following the decision of Delhi High Court. We extract para No.51 of the order which reads as under : 51. Undeniably, the precedential position on the powers of the first appellate authority under section 251 undulates. There are seeming contradictions. But, as held by Union Tyres, and as affirmed on reference by Sardari Lai, there is a consistent judicial assertion that the powers under section 251 are, indeed, very wide; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148, and 263 of the Act For escapement of income, there are remedial measures provided u/s 147 and 148 of the Act. If the order passed by the AO is erroneous and prejudicial to the interest of the revenue, the alternative remedy is provided u/s 263 of the Act. Similarly, if a mistake is committed by the AO, which is apparent form the record, remedial measures are provided u/s 154 of the Act. If the Ld.CIT(A) is allowed to make the enhancement on a new source of income which was not considered by the AO, the provisions of section 147, 148 and 263 would become redundant. Therefore, we are of the considered opinion that the Ld.CIT(A) is not permitted to make the enhancement on completely new source of income, which was not considered by the AO. Since the facts of the case are identical to the decision of Hon ble Delhi High Court in the case of Sardarilal, the assessee s

18 18 case is squarely covered by the decision cited supra and respectfully following the decision of Hon ble Delhi High Court and Hon ble Kerala High Court, we set aside the order of the Ld.CIT(A) and delete the enhancement made by the Ld.CIT(A) and allow the appeal of the assessee on this ground. 13. Since we have decided the appeal of the assessee on the enhancement made by the Ld.CIT(A), we consider it is not necessary to adjudicate the other grounds raised by the assessee in respect of restricting the addition in ground No.4(b) and In the result, the appeal of the assessee is partly allowed. The above order was pronounced in the open court on 24 th October, Sd/- Sd/- (.द ग र ) (धड.एस. स न दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न य धयक सदस य/JUDICIAL MEMBER ल ख सदस य/ACCOUNTANT MEMBER ध श ख पटणम /Visakhapatnam दद क /Dated : L.Rama, SPS

19 19 आद श क प रध धलधप अग र धर /Copy of the order forwarded to:1. अप ल थ / The Appellant B.Durga Prasad, D.No.6-206, Rangappa Cheruvu Street, Gollaprolu, East Godavari Dist. 2. प रत य र थ / The Respondent Income Tax Officer, Ward-1, Tuni 3. The Pr.Commissioner of Income Tax-2, Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-2, Guntur 5. ध भ ग य प रध ध ध, आयकर अप ल य अध करण, ध श ख पटणम /DR, ITAT, Visakhapatnam 6. ग ड फ़ ईल / Guard file आद श स र / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM