ACIT, CHENNAI v. Shri D.D.Paulraj, CHENNAI

ITA 885/CHNY/2010 | 2007-2008
Pronouncement Date: 18-01-2011 | Result: Dismissed

Appeal Details

RSA Number 88521714 RSA 2010
Assessee PAN AHHPP5558L
Bench Chennai
Appeal Number ITA 885/CHNY/2010
Duration Of Justice 7 month(s) 13 day(s)
Appellant ACIT, CHENNAI
Respondent Shri D.D.Paulraj, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 18-01-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 2007-2008
Appeal Filed On 04-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH D : CHENNAI [BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER] I.T.A NOS. 884 & 885/MDS/2010 ASSESSMENT YEARS : 2006-07 & 2007-08 THE ACIT CIRCLE IV CHENNAI VS SHRI D.D. PAULRAJ 24 ASHOK NAGAR MAIN ROAD KODAMBAKKAM CHENNAI - 24 [PAN - AHHPP5558L] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B RENGARAJAN JR. STANDING COUNSEL RESPONDENT BY : MS. PUSHYA SITARAMAN SR. COUNSEL & MS. G. VARDHINI & MS. J SREE VIDYA O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THESE APPEALS FILED BY THE REVENUE FOR ASSESS MENT YEARS 2006-07 AND 2007-08 ARE DIRECTED AGAINST THE COMBI NED ORDER OF THE LD. CIT(A)-VIII CHENNAI DATED 23.3.2010. IN THE SE TWO APPEALS ALMOST IDENTICAL ISSUES ARE INVOLVED THEREFORE FO R THE SAKE OF CONVENIENCE AND BREVITY THEY ARE BEING DISPOSED OF BY A COMMON ORDER. ITA 884 & 885/10 :- 2 -: 2. THE FACTS RELEVANT TO THESE APPEALS ARE THAT THE ASSESSEE CARRIES ON BUSINESS IN THE TRADING OF CONSTRUCTION MATERIALS LIKE CEMENT SAND BRICKS BLUE METAL ETC. IN THE NAME AND STYL E OF JHOTHI AGENCIES WHICH IS HIS PROPRIETARY CONCERN. THE INCOME RETURNED BY THE ASSESSEE AND ASSESSED BY THE ASSESSING OFFICER ARE AS UNDER: ASSESSMENT YEAR 2006-07 2007-08 RETURNED INCOME INCOME FROM HOUSE PROPERTY (-)78 900 (-)80 627 INCOME FROM BUSINESS 5 03 424 6 87 585 INCOME FROM CAPITAL GAINS(ST) -- 57 000 GROSS TOTAL INCOME 4 24 524 6 63 958 LESS: DEDUCTION U/S 80C 1 00 000 1 00 000 TOTAL INCOME 3 24 524 5 63 958 INCOME ASSESSED INCOME RETURNED AS ABOVE 3 24 524 5 63 958 UNEXPLAINED ADVANCES 2 65 000* 7 50 000 BANK ACCOUNT OF THE EMPLOYEES 14 40 000* 11 34 000 TOTAL INCOME 20 29 524 24 47 958 * IT IS NOTED THAT THE ASSESSING OFFICER HAS ERRED IN STATING THE INCOME WHICH SHOULD BE AS FOLLOWS AS PER HIS NARRAT IVE DISCUSSION IN THE ASSESSMENT ORDER UNEXPLAINED ADVANCES 14 40 000 BANK ACCOUNT OF EMPLOYEES AS UNDISCLOSED INCOME 2 65 000 3. AGGRIEVED THE ASSESSEE TOOK THE ISSUES REGARDING U NEXPLAINED ADVANCES GIVEN TO VARIOUS PERSONS DURING THE COURSE OF REAL ESTATE BUSINESS AND UNDISCLOSED INCOME PERTAINING TO THE TRANSACTIONS IN THE BANK ACCOUNTS OF TWO EMPLOYEES. ON THE BASIS OF DE TAILS OF CASH ITA 884 & 885/10 :- 3 -: BALANCE IN THE BOOKS OF ACCOUNT OF THE PROPRIETARY CONCERN ON THE DATES OF UNEXPLAINED ADVANCES RELEVANT TO THE ASSES SMENT YEARS UNDER CONSIDERATION THE LD. CIT(A) HAS DELETED THE ADDIT IONS SO MADE. REGARDING THE ADDITIONS MADE IN RESPECT OF THE D EPOSITS IN THE BANK ACCOUNTS OF THE ASSESSEES EMPLOYEES NAMELY SHRI K. VEERAPPAN AND SHRI K. VINOTH KUMAR THE LD. CIT(A) HAS ACCEPTED T HE CONTENTION OF THE ASSESSEE THAT IN ORDER TO OBVIATE CERTAIN DIFFI CULTIES IN HIS RETAIL TRADE OF CONSTRUCTION MATERIALS THE ASSESSEE WAS R UNNING THE SAME BUSINESS IN CONSTRUCTION MATERIALS SEPARATELY IN TH E NAME OF HIS TWO TRUSTED EMPLOYEES; IN THE SAME PREMISES. BUT THE I NCOME WAS BEING ACCOUNTED FOR IN HIS PROFIT & LOSS ACCOUNT AS COMM ISSION FOR WANT OF BETTER EXPRESSION. ALL THE TRANSACTIONS WERE CARR IED THROUGH NORMAL BANKING CHANNELS. THE LD. CIT(A) HAS ACCEPTED THAT THE CREDITS IN THE BANK STATEMENT REPRESENTED SALE PROCEEDS WHILE DEB ITS DENOTED COST OF PURCHASES AND THE SALE EXPENSES. NOW THE REVEN UE IS AGGRIEVED AND HAS TAKEN ALMOST IDENTICAL ISSUES IN BOTH THE Y EARS. FOR READY REFERENCE WE EXTRACT THE GROUNDS RAISED IN ASSESSM ENT YEAR 2006-07. IT WOULD GIVE A CLEAR PICTURE OF THE GROUNDS FOR AS SESSMENT YEAR 2007- 08 AS WELL. THE GROUNDS RAISED IN ASSESSMENT YEAR 2006-07 ARE AS UNDER: 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX(AP PEALS) IS OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CA SE. ITA 884 & 885/10 :- 4 -: 2. THE LD. CIT(A) ERRED IN DELETING HE ADDITION ON ACCOUNT OF ADVANCES IN CASH MADE BY THE ASSESSEE. 2.1 THE LD. CIT(A) HAS FAILED TO NOTE THAT THE ADVA NCES MADE BY HE ASSESSEE TO INTENDED SELLERS WERE ENTIRELY OUTSIDE THE BOOKS OF ACCOUNT. 2.2 THE LD. CIT(A) ERRED IN ACCEPTING THE ASSESSEE S CLAIM WITHOUT TAKING INTO CONSIDERATION THE FACT TH AT THE ASSESSING OFFICER DURING HE COURSE OF ASSESSMENT PROCEEDINGS HAD EXAMINED THE CASH BOOK AND COME TO A CONCLUSION THAT THE ADVANCES WERE UNACCOUNTED. 2.3 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT WHEN THE ASSESSEE ADMITS THAT THE CASH PAYMENTS WERE NOT THROUGH BOOKS THEN THE ONUS IS ON THE ASSESSEE TO OFFER SATISFACTORY EXPLANATIONS REGARDING THE SOURCE FOR THESE ADVANCES. 2.4 THE LD. CIT(A) ERRED IN DELETING THE ADDITION O N ACCOUNT OF PEAK CREDITS APPEARING IN THE BANK ACCOUNT OF THE EMPLOYEES OF THE ASSESSEES BUSINESS CONCERN. 3.1 THE LD. CIT(A) ERRED IN ACCEPTING THE ASSESSEE S CLAIM THAT THE RESULT OF THE TRANSACTIONS THROUGH UNACCOUNTED BANK ACCOUNT IN THE NAMES OF ASSESSEES EMPLOYEES WERE ALREADY OFFERED FOR TAXATION UNDER COMMISSION. 3.2 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE ASSESSING OFFICER HAD BROUGHT IT OUT ON RECORD THAT THE ASSESSEE WAS EARNING COMMISSION ONLY FROM GRASIM INDUSTRIES AND THE TRANSACTIONS IN THESE BAN K ACCOUNTS CONNECTED TO ASSESSEES BUSINESS IN BLUE METAL SAND AND BRICKS HAD NOTHING TO DO WITH COMMISSION. 3.3 THE LD. CIT(A) FAILED TO NOTE THAT THE ASSESSEE S CLAIM WAS NOTHING BUT AN AFTERTHOUGHT AND THAT THE ASSESSEE CONCEALED THE INCOME FROM THE BUSINESS OF TRADING IN BLUE METAL SAND AND BRICK DONE THROUGH BANK ACCOUNTS IN THE NAMES OF HIS EMPLOYEES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE RECORD. IT WAS ARGUED BY THE LD .DR IN RELATION TO THE ISSUE OF DELETION OF ADDITION MADE ON ACCOUNT O F ADVANCES IN CASH ITA 884 & 885/10 :- 5 -: THAT THE ADVANCES WERE ENTIRELY OUTSIDE THE BOOKS O F ACCOUNT AND MOREOVER THE SOURCE THEREOF REMAINED UNEXPLAINED. ON THE OTHER HAND THE LD.AR HAS RELIED ON THE REASONS GIVEN BY THE LD. CIT(A) FOR DELETING THE IMPUGNED ADDITION. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND LOOKING INTO THE RECORDS BEFORE US WE HAVE FOUND THAT DURING A SURVEY U/S 133A CONDUCTED ON 25.7.200 7 IN ASSESSEES CASE EVIDENCE REGARDING CASH ADVANCES OF ` 21 90 000/- DURING FINANCIAL YEARS 2005-06 AND 2006-07 WERE NOTICED. THE ASSESSEE HAS ADMITTED ADVANCES OF ` 5 00 000/- ON 27.2.2006 AND VARIOUS CASH ADVANCES TOTALING TO ` 9 40 000/- TO HAVE BEEN MADE DURING THE RELEVANT YEARS. THE TOTAL ADVANCES OF ` 14 40 000/- RELATING TO ASSESSMENT YEAR 2006-07 WERE STATED TO HAVE BEEN M ADE TO PERSONS IN RELATION TO PROPERTY DEALS WHICH ACCORDING TO HI M WOULD RESULT IN COMMISSION EARNING WHEN THE PROPERTY DEALS MATERIA LIZE. THIS EXPLANATION COULD NOT SATISFY THE ASSESSING OFFICER BECAUSE FOR MAKING COMMISSION INCOME WHY A PERSON SHOULD MAKE ADVANCES . SO HE TREATED THE ENTIRE CASH ADVANCES FOR BOTH THE YEARS AS UNEXPLAINED. THE ASSESSING OFFICER ALSO OBSERVED THAT AT THE REL EVANT TIME THE ASSESSEE MADE HUGE CASH TRANSACTIONS TO AVOID PAYME NT OF TAX. CONSEQUENTLY HE MADE THE IMPUGNED ADDITIONS IN BOT H THE YEARS. THE CASE OF THE ASSESSEE IS THAT THE BUSINESS IN REAL E STATE WAS STARTED RECENTLY ON SMALL SCALE BASIS THAT TOO AS A BROKER. THE MODUS ITA 884 & 885/10 :- 6 -: EMPLOYED WAS THAT TO CAPTURE THE PROSPECTIVE SELLE R HE ADVANCED FUNDS AND WAITED TILL A SUITABLE BUYER WAS FOUND TO STRIKE A DEAL THEREWITH. IN OUR OPINION THIS EXPLANATION OF THE ASSESSEE CANNOT BE SIMPLY IGNORED AS IT HAS BECOME A NORMAL PRACTICE I N THIS LINE OF BUSINESS. THE REALTORS USE VARIOUS MODES AND METHO DS TO CATCH HOLD OF A NEEDY SELLERS AND ALSO SIDE BY SIDE HUNT FOR A GOOD BUYER FOR GETTING COMMISSION OR WHATSOEVER. THE ASSESSEE HAS ALSO CLAIMED THAT FOR RUNNING NORMAL TRADING BUSINESS OF CONSTRU CTION MATERIALS HEAVY BORROWINGS WERE MADE FROM THE BANKS SO THAT H E COULD KEEP GOOD AMOUNT OF CASH IN HAND TO USE IN THE PROPERTY BUSINESS. WE FIND THIS EXPLANATION OF THE ASSESSEE TO BE SATISFACTORY AND TRUE. THE BROKERAGE BEING MEAGER AND THE MAINTENANCE OF ACCOU NTS BECOMES TEDIOUS SO NON-MAINTENANCE OF ACCOUNTS FOR THIS BUS INESS ALSO GETS EXPLAINED. THE BALANCE SHEET FILED FOR ASSESSMENT YEAR 2006-07 SHOWS A CASH BALANCE OF ` 18 96 316/- AS ON 31.3.2006. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE. THE ASSESSEE HAD ADVANCED CASH TO VARIOUS PROPERTY OWNERS THE DETAILS OF WHICH AR E AS UNDER: 20.1.2006 MR. KRISHNAN ` 84 000/- 27.1.2006 MR. LOGANATH ` 10 000/- 27.2.2006 MR.ARUMUGAM ` 5 00 000/- 17.3.2006 MS.PARIMALAM ` 8 00 000/- 19.3.2006 MR.KRISHNA ` 56 000/- ITA 884 & 885/10 :- 7 -: 5. THE FURTHER EXPLANATION OF THE ASSESSEE THAT HE W OULD UTILIZE CASH BALANCES IN HIS BUSINESS BECAUSE THE RESERVE B ANK OF INDIA DOES NOT PERMIT ANY LOAN FACILITY FOR REAL ESTATE TRANSA CTIONS THEREFORE THE ASSESSEE DID NOT BOOK THESE ACCOUNTS. BUT HE WAS TR YING TO GET SUBSTANTIAL OVERDRAFT FACILITY FROM THE BANKS. IN OUR OPINION THIS IS A GOOD REASON FOR NOT ACCOUNTING ADVANCES IN THE BOOK S. SIMILARLY IN ASSESSMENT YEAR 2007-08 ADVANCES WERE MADE AS UNDE R: SL NO. AMOUNT REFER ANNEX-I DETAILS OF CASH BALANCE 1. MR. ARUMUGAM 3 00 000 APRIL 06 2. MR. KRISHNA 1 06 000 APRIL 06 3. MR.MUTHUKRISHNAN 35 000 AUGUST 06 4. MR. GANESAN 10 000 AUGUST 06 5. MR.DHANASEKARAN 10 000 OCTOBER 06 6. MR. KUMAR 2 75 000 OCTOBER 06 7. OTHERS 4 000 OCTOBER 06 6. IDENTICAL EXPLANATIONS WERE GIVEN REGARDING THESE A DVANCES ALSO. THE BANK BORROWINGS WERE AT ` 70 28 536/- AND CASH BALANCE AS ON 31.3.1997 WAS ` 4 14 639/-. IT IS SEEN FROM THE ABOVE TABLE THAT ASSESSEE HAD SUFFICIENT FUNDS TO GIVE ADVANCES IN Q UESTION AS ON 1.4.2006 AND 31.3.2007 THE ASSESSEE HAD ` 18 96 316/- AND ` 4 14 639/- AS CASH BALANCES RESPECTIVELY. SO IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE HAD SUFFICIENT CASH BALANCE IN H AND TO MAKE THE IMPUGNED ADVANCES THAT TOO TO SELLERS OF THE PROP ERTIES. THE CASH FLOW STATEMENTS FOR ASSESSMENT YEARS 2006-07 AND 20 07-08 GIVEN ON ITA 884 & 885/10 :- 8 -: VARIOUS DATES WERE FOUND TO BE CORRECT AND UNDISPUT ED. SO IT IS CLEAR FROM THE RECORD THAT IN THIS MANNER THE ASSESSEE HA D SUFFICIENT FUNDS IN HAND FOR MAKING ADVANCES IN BOTH THE YEARS H ENCE THE SOURCE OF THESE ADVANCES STANDS APTLY EXPLAINED. WE ARE IN A GREEMENT WITH THE REASONING GIVEN BY THE LD. CIT(A) AND THEREFORE CO NFIRM THE IMPUGNED DELETION IN BOTH THE YEARS. 7. THE SECOND COMMON ISSUE RELATES TO ADDITION MADE ON ACCOUNT OF DEPOSITS IN BANK ACCOUNTS OF TWO EMPLOYEES OF TH E ASSESSEE NAMELY SHRI K. VEERAPPAN AND SHRI K. VINOTH KUMAR. IT WAS DETECTED DURING SURVEY THAT THE ASSESSEE HAD OPENED TWO BANK ACCOUNTS IN THE NAMES OF HIS ABOVE NAMED TWO EMPLOYEES TO USE THEM FOR DOING UNACCOUNTED TRANSACTIONS. AS PER THE ASSESSEE THE CASH DEPOSITS IN THESE TWO ACCOUNTS REPRESENT SALE PROCEEDS AND WITH DRAWALS REPRESENT COST OF PURCHASES. ACCORDING TO HIM THE PROFIT EA RNED FROM THIS BUSINESS HAS BEEN SHOWN AS COMMISSION INCOME IN T HE PROFIT & LOSS ACCOUNT FOR THESE TWO YEARS. THE ASSESSEE HAS SHO WN ` 2 25 000/- FOR ASSESSMENT YEAR 2006-07 AND ` 1 92 768/- FOR ASSESSMENT YEAR 2007- 08. AS STATED EARLIER THE ASSESSEE WAS RUNNING BUSINESS IN CONSTRUCTION MATERIALS SEPARATELY IN THE NAMES OF T WO OF HIS TRUSTED EMPLOYEES FROM THE SAME PREMISES. HE SAYS THAT HE HAS ACCOUNTED FOR THE INCOME FROM THIS BUSINESS IN PROFIT & LOSS ACCOUNT AS COMMISSION. IN OUR OPINION THE ASSESSEE HAS COM E FORWARD TO ITA 884 & 885/10 :- 9 -: EXPLAIN THE FACTS TRUTHFULLY AND EXACTLY IN THE MAN NER HE HAS CONDUCTED HIMSELF REGARDING THE IMPUGNED INCOME. IT IS AN UN DISPUTED FACT THAT THE ENTIRE TRANSACTIONS IN THE BUSINESS WERE CARRIE D THROUGH NORMAL BANKING CHANNELS. IT HAS BEEN ESTABLISHED THAT THE NORMAL CREDITS IN THE BANK STATEMENTS REPRESENTED SALE PROCEEDS AND D EBITS REPRESENTED COST OF PURCHASES AND SALES EXPENSES. THE TURNOVER OF ` 59 67 064/- HAS BEEN SHOWN FOR ASSESSMENT YEAR 2006-07 AND ` 43 14 272 FOR ASSESSMENT YEAR 2007-08. THE NET RESULT ALONGWITH COMMISSION INCOME HAS BEEN INCORPORATED IN THE ASSESSEES RET URN OF INCOME WITHOUT CONCEALING THE SAME. THE SALES TURNOVER AN D ADDITIONAL INCOME OFFERED BY THE ASSESSEE FOR THESE TWO YEARS ARE AS FOLLOWS: A.Y 2006-07 A.Y 2007-08 SALES TURNOVER 59 67 064 43 14 272 PROFIT 3 06 897 2 15 714 INCOME ALREADY RETURNED 2 25 000 1 92 768 ADDITIONAL INCOME NOW OFFERED BY ASSESSEE IN APPEAL PROCEEDINGS 81 897 22 946 ROUNDED OFF TO 82 000 23 000 8. THE ASSESSING OFFICER HAS MADE ADDITION OF ` 2 65 000/- IN ASSESSMENT YEAR 2006-07 AND ` 11 34 000/- IN ASSESSMENT YEAR 2007- 08 BY TREATING THEM AS PEAK CREDITS. THE LD. CIT(A ) HAS DIRECTED THE ASSESSING OFFICER TO ADD THE FOLLOWING AMOUNTS OFFE RED BY THE ASSESSEE IN ITS TOTAL INCOME FOR THE YEARS UNDER CONSIDERATI ON: ITA 884 & 885/10 :- 10 - : A.Y 2006-07 A.Y 2007-08 BROKERAGE ` 41 500 ` 25 000 COMMISSION ` 82 000 ` 23 000 9. THE LD. CIT(A) HAS DELETED THESE ADDITIONS BY ACCEP TING THE SUBMISSION OF THE ASSESSEE. WE ALSO DO NOT FIND AN YTHING ON RECORD WHICH CAN DISSUADE US FROM ACCEPTING THE CONTENTION OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE FI NDING OF THE LD. CIT(A) ON THIS ISSUE AND CONFIRM THE SAME FOR BOTH THE YEA RS UNDER CONSIDERATION. 10. IN THE RESULT BOTH THE APPEALS FILED BY THE REVEN UE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 .1.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 18 TH JANUARY 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR