2021 (4) TMI 247 - AT - Income Tax

Enhancement of income of the assessee by CIT-A - estimation of profit on turnover - CIT(A) after giving enhancement notice u/s. 251(2), enhanced the income of the assessee at 8% on the total turnover after reducing cash deposits - HELD THAT - CIT(A) after giving enhancement notice u/s. 251(2) enhanced the income of the assessee at 8% on the total turnover after reducing cash deposits without considering the actual transactions statement, which was available before him, in which, there is a loss. Once the AO had considered and satisfied with these transactions that there is a loss, in our considered view, the CIT(A) again cannot enhance the income without rejecting the facts which were available before him. The purchase and sales are clearly reflected in that statement. No doubt the transactions were outside the books of account but the sales have been accepted by ld. CIT(A). Once the sales have been accepted the purchases cannot be denied i.e. both purchases and sales are genuine. In the statement, which is placed in paper book there is a loss of ₹ 17,69,957/- which is a genuine loss calculated. Therefore, the ld. CIT(A) cannot estimate profit on the turnover. Therefore, we are of the view that the CIT(A) was not justified to make enhancement on the income of the assessee. Thus, we uphold the action of the AO regarding carry forward set off of loss as the assessee did not file his return of income within the prescribed time. Addition on account of dividend received from M/s. Sriram Chits - The authorities below were justified in making addition on this count as the dividend received was not reflected in the return of income filed by the assessee. Addition on account of interest on OD facility and interest on mortgage loan - We are of the view that once the income has been estimated on certain percentage based on the under the head income from profit and business or profession, then, other disallowances on account of expenditure cannot be made. Therefore, the AO was not justified in making further addition after estimating the income of the assessee on the turnover. Therefore, this ground is partly allowed.

Summary

Issues Involved:
1. Explanation and acknowledgment of cash deposits.
2. Treatment of speculative transactions and related losses.
3. Inclusion of cash deposits as sales and estimation of income.
4. Rejection of books of accounts and resort to estimation.
5. Power of the CIT(A) to enhance assessment by discovering a new source of income.
6. Principles of natural justice in appellate proceedings.
7. Contradictory observations regarding investments in Multi Commodity Exchange.
8. Consideration of account details from M/s. B.N. Rathi Commodities Private Limited.
9. Consequential order and raised demand.
10. Non-availability of the Remand Report to the appellant.
11. Utilization of chit account proceeds and mortgage loan for business purposes.

Detailed Analysis:

1. Explanation and Acknowledgment of Cash Deposits:
The appellant argued that during the scrutiny proceedings, the sources of cash deposits amounting to ?43,08,600 into ING Vysya Bank were duly explained and acknowledged by the Assessing Officer (AO). However, the Commissioner of Income Tax (Appeals) [CIT(A)] failed to consider these explanations.

2. Treatment of Speculative Transactions and Related Losses:
The appellant contended that all relevant details regarding speculative transactions in the Multi Commodity Exchange were provided to the AO, who acknowledged the losses suffered. The CIT(A) failed to take these details into account, leading to an unsustainable addition of ?18,00,01,632.

3. Inclusion of Cash Deposits as Sales and Estimation of Income:
The AO treated the cash deposits of ?43,08,600 as sales related to the appellant's jewelry business and included them in the total sales, estimating the income at 8%. The CIT(A) directed the AO to reduce ?43,08,600 from the total turnover of ?225.43 crores and to estimate the balance sales at 8%, treating ?43,08,600 as unexplained cash deposits.

4. Rejection of Books of Accounts and Resort to Estimation:
The AO rejected the appellant's books of accounts and resorted to estimation due to discrepancies in the recorded sales and the actual cash deposits. The CIT(A) upheld this approach but made further adjustments.

5. Power of the CIT(A) to Enhance Assessment by Discovering a New Source of Income:
The appellant argued that the CIT(A) overstepped his authority by discovering a new source of income, which is against the principles established by the Hon'ble Supreme Court in CIT v. Shapoorji Pallonji Mistry. The Tribunal agreed, stating that the CIT(A) cannot change the character of the additions made by the AO and must confine his assessment to the original assessment order.

6. Principles of Natural Justice in Appellate Proceedings:
The appellant claimed that the CIT(A) acted against the principles of natural justice by not considering the elaborate submissions made during the appellate proceedings and by not providing a copy of the Remand Report for due consideration and rebuttal.

7. Contradictory Observations Regarding Investments in Multi Commodity Exchange:
The CIT(A) made contradictory observations regarding the appellant's investments in the Multi Commodity Exchange, initially stating an investment of ?225.43 crores and later acknowledging the cash deposits of ?43,08,600. This inconsistency led to an unsustainable addition.

8. Consideration of Account Details from M/s. B.N. Rathi Commodities Private Limited:
The appellant argued that the CIT(A) failed to consider the account details from M/s. B.N. Rathi Commodities Private Limited, which showed an investment of ?43,08,600 and a loss of ?17,69,956. The Tribunal noted that the AO acknowledged these transactions and the loss, and the CIT(A) should not have enhanced the income without rejecting the facts available.

9. Consequential Order and Raised Demand:
Following the CIT(A)'s order, the AO issued a consequential order raising a demand of ?5,69,43,420, which the appellant claimed was baseless.

10. Non-Availability of the Remand Report to the Appellant:
The appellant argued that the CIT(A) did not provide a copy of the Remand Report obtained from the AO, which is against the principles of natural justice.

11. Utilization of Chit Account Proceeds and Mortgage Loan for Business Purposes:
The appellant contended that the proceeds from the chit account and the mortgage loan were utilized solely for business purposes. Therefore, once income estimation is resorted to, further disallowances related to interest on the mortgage loan and the treatment of chit dividend as additional business income are incorrect.

Judgment:
The Tribunal partly allowed the appeal, upholding the AO's action regarding the carry forward and set off of the loss due to the appellant not filing the return of income within the prescribed time. The Tribunal also ruled that the CIT(A) was not justified in enhancing the income without considering the actual transactions and the genuine loss incurred. The addition of ?1,62,203 on account of dividend received from M/s. Sriram Chits was upheld, while the addition of ?5,65,498 on account of interest on OD facility and mortgage loan was partly allowed, as further disallowances cannot be made once income is estimated.