2012 (10) TMI 151 - AT - Income Tax

Rejection of Books of Accounts - Addition on account of interest received on pawning - Held that - As regards rejection of books of accounts, the CIT(A) held that application of Section 145(3) is unwarranted observing that the separate method of accounting and separate sets of books of accounts of two business has been maintained by the assessee. Purchases and sales are fully supported by vouchers giving names and address of villagers of the sellers and purchasers whereas the A.O. in his order has clearly stated that the assessee maintained mix system of accounting. Almost all purchases have been made through cash below Rs.20,000/- except two purchases of which accounts have been produced by the assessee. The purchases have been made by the assessee without bills of the party concerned. The assessee did not furnish year wise details of advance money in respect of pawning business. In absence of such details, the A.O. is bound to estimate the interest income received on account of pawning business. The CIT(A) has deleted the addition of Rs.13,685/- made by the A.O. on account of interest after rejecting the books of account. The CIT(A) observed that the assessee maintained a proper pawning register. The CIT(A) did not agree with the A.O. that it is necessary to carry forward each of these pawn account at the end of the year. The CIT(A) deleted the addition without appreciating the case made out by the A.O. Addition on account of Jaydad Brindawan - Held that - The assessee told a different story before the A.O. and the CIT(A) simply accepted the assessee s submission and deleted the addition. The CIT(A) noted that fresh deposit in this account is duly covered by debit entries made for investment in U.T.I. and leaves no scope for addition, whereas, before the A.O. it was submitted by the assessee that this is very old account left by the Grand father in his name for miscellaneous purchase. The assessee did not furnish any reply in respect of credit entry of Rs.1,39,565/- even though specific query was made by the A.O. Addition on account of Narottam Das Sharma Amanat khata I & II - Held that - The assessee has taken different stands before the A.O. and before the CIT(A). Before the A.O. it was submitted that the Narottam Das Sharma was assessee s father who expired so many years ago and that the Amanat Khata No.2 was created. Similarly, in respect of Amanat Khata No.1, the A.O. specifically asked about the status of these accounts that in whose hands the tax liability of this interest account is assessed when father of the assessee has expired long back. The CIT(A) while deleting the addition accepted the assessee s contention that both these loan accounts are identical, coming from past 20 years and the A.O. has accepted the same in A.Y. 2006-07 while making the assessment under section 143(3). The CIT(A) further noted that both these accounts are supported with complete evidence of investment made in U.T.I. in earlier years. The CIT(A) did not give any finding regarding persons who were the owners of these Amanat Khata Nos.1 & 2. The A.O. has rightly asked question that who will be subjected to tax this payment of interest on these accounts. Addition in the name of Collector Babu Gupta - Held that - The A.O. noted that the assessee has neither filed confirmation nor Collector Babu Gupta was produced before the A.O. Before the A.O., on a specific query, the assessee submitted that Collector Babu Gupta was expired so many years ago and the successor of Collector Babu Gupta are not known to the assessee, even the addresses are not known. Addition on difference between salary certificates and the salary account - Held that - Addition which has been deleted by the CIT(A) observing that the A.O. failed to point out the name of any staff whose salary he intends to disallow. Contrary to that finding of CIT(A), the A.O. compared the salary account debited to Profit & Loss account and salary certificate submitted for verification. The A.O. after examining the employee wise annual salary and found that as per the salary certificate submitted by the assessee the total payment of salary comes to Rs.1,65,600/- to 5 staff members. The assessee failed to explain difference of Rs.30,000/-, debit of Rs.1,95,500/- in salary account and the difference noted of Rs.1,65,600/- in the certificate furnished by the assessee. Addition on account of Marriage Exp. & House Hold Exp - Held that - The assessee is HUF and the A.O. made the addition on account of marriage expenses Rs.1,00,000/- on account of marriage of daughter of Shri Brij Mohan Sharma, the assessee, and the house hold expenses. In respect of these two additions, in principle we do not agree with the A.O. that such addition is warranted in the hands of the HUF as these items are pertaining and related to the personal account of members of HUF - the additions deleted by the CIT(A) are confirmed not on those grounds on which the CIT(A) has deleted but on the ground of reasons as discussed above - in favour of assessee. Addition on Gold Nirman Khata & Silver Nirman Khata - Held that - As A.O. before making the addition made some quantity calculation which is evident from the facts from the Assessing Officer s calculation. The CIT(A) simply accepted the assessee s contention that without examining the facts that how the quantity details given by the A.O. is incorrect. In absence of complete finding of facts, these issues cannot be decided at this stage. The order of CIT(A) is in contravention to rule 46A as is considered in various explanations and discussions above without providing opportunity of hearing to the A.O. Therefore, find it appropriate to send back this matter to the file of CIT(A) with the direction to decide the issues afresh in accordance with law after verifying and recording complete facts by a speaking order - in favour of revenue by way of remand. Addition u/s 40A(3) - assessee contested to be covered under rule 6DD - Held that - The A.O. noted that when the payment was made in cash there was no day of Diwali festival, it was Thursday and a Bank working day. The CIT(A) confirmed the order of the A.O. on the ground that the assessee has failed to establish that the payment is covered by Rule 6DDJ - assessee changed the stand at each level before the A.O. and CIT(A) with some different reasons. The assessee has failed to point out how the payment made was covered by cottage industries - against assessee. Addition on Wages on Silver A/c & Gold A/c - Held that - As issue relating to invocation of section 145(3) and others have been sent back to the file of CIT(A) and since both these items of additions are related to trading result, therefore, it is appropriate to send the issue back to the file of CIT(A) with identical directions as given in the case of Revenue s appeal above.

Summary

Issues Involved:
1. Rejection of Books of Accounts under Section 145(3)
2. Addition on account of interest received on pawning
3. Addition on account of Jaydad Brindawan
4. Addition on account of Narottam Das Sharma Amanat Khata No.1
5. Addition on account of Narottam Das Sharma Amanat Khata No.2
6. Addition on account of Collector Babu Gupta
7. Addition on account of salary difference
8. Addition on account of marriage expenses
9. Addition on account of low household expenses
10. Addition on account of Gold Nirman Khata
11. Addition on account of Silver Nirman Khata
12. Addition on account of wages in Silver and Gold accounts
13. Disallowance under Section 40A(3)

Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3):
The Assessing Officer (A.O.) rejected the books of accounts under Section 145(3), citing defects such as mixed system of accounting and unverifiable purchases. The CIT(A) found the rejection unwarranted, stating that the assessee maintained separate methods and sets of books for different businesses, with purchases supported by specific vouchers. The Tribunal observed that the CIT(A) did not adequately address the A.O.'s findings and remanded the issue back to the CIT(A) for a fresh decision.

2. Addition on account of interest received on pawning:
The A.O. estimated the interest received on pawning at Rs.3,50,000/- against the disclosed Rs.3,36,315/-, resulting in an addition of Rs.13,685/-. The CIT(A) deleted this addition, noting that the assessee maintained a proper chronological pawning register. The Tribunal found that the CIT(A) did not appreciate the A.O.'s concerns and remanded the issue for reconsideration.

3. Addition on account of Jaydad Brindawan:
The A.O. added Rs.1,56,405/- treating the account as bogus/benami. The CIT(A) deleted the addition, stating that the source was well maintained and covered by debit entries for U.T.I. investments. The Tribunal noted discrepancies in the assessee's explanations before the A.O. and CIT(A) and remanded the issue for fresh consideration.

4. Addition on account of Narottam Das Sharma Amanat Khata No.1:
The A.O. added Rs.4,79,445/- treating it as a bogus/benami liability. The CIT(A) deleted the addition, stating that the deposits were supported by evidence of U.T.I. investments. The Tribunal found that the CIT(A) did not address the A.O.'s concerns about the account's status and remanded the issue.

5. Addition on account of Narottam Das Sharma Amanat Khata No.2:
Similar to Khata No.1, the A.O. added Rs.4,14,460/-, which the CIT(A) deleted for the same reasons. The Tribunal remanded the issue for the same reasons as Khata No.1.

6. Addition on account of Collector Babu Gupta:
The A.O. added Rs.3,27,632/- treating it as an unexplained benami liability. The CIT(A) deleted the addition, noting that the account was accepted in the previous assessment year. The Tribunal found that the CIT(A) did not address the A.O.'s concerns and remanded the issue.

7. Addition on account of salary difference:
The A.O. added Rs.30,000/- due to discrepancies between the salary account and certificates. The CIT(A) deleted the addition, stating that the A.O. did not point out specific staff names. The Tribunal found the CIT(A)'s findings perverse and remanded the issue.

8. Addition on account of marriage expenses:
The A.O. added Rs.1,00,000/- for marriage expenses of the assessee's daughter. The CIT(A) deleted the addition, citing lack of evidence. The Tribunal agreed with the CIT(A) that such expenses should not be added in the hands of the HUF but noted the need for proper reasoning.

9. Addition on account of low household expenses:
The A.O. added Rs.78,000/- for low household expenses. The CIT(A) deleted the addition, citing previous Tribunal decisions. The Tribunal agreed with the CIT(A) but noted the need for proper reasoning.

10. Addition on account of Gold Nirman Khata:
The A.O. added Rs.1,05,877/- for excess gold jewelry. The CIT(A) deleted the addition, stating that the A.O.'s method was not based on a workable formula. The Tribunal found that the CIT(A) did not adequately address the A.O.'s quantity calculations and remanded the issue.

11. Addition on account of Silver Nirman Khata:
The A.O. added Rs.70,113/- for excess silver ornaments. The CIT(A) deleted the addition for the same reasons as the Gold Nirman Khata. The Tribunal remanded the issue for the same reasons.

12. Addition on account of wages in Silver and Gold accounts:
The A.O. added Rs.8,276/- and Rs.14,460/- for unaccounted wages. The CIT(A) upheld these additions, stating that the assessee failed to provide proper evidence. The Tribunal remanded the issue for fresh consideration.

13. Disallowance under Section 40A(3):
The A.O. disallowed Rs.11,055/- for cash purchases, which the CIT(A) upheld. The Tribunal agreed with the CIT(A) that the payments were not covered by Rule 6DD and upheld the disallowance.

Conclusion:
The Tribunal found that the CIT(A) had not provided adequate reasoning or addressed the A.O.'s concerns in several issues. The Tribunal remanded multiple issues back to the CIT(A) for fresh consideration and directed the CIT(A) to decide the issues after verifying and recording complete facts by a speaking order. The Tribunal also upheld the disallowance under Section 40A(3). The appeal of the Revenue and the Cross Objection of the assessee were partly allowed for statistical purposes.