COMMISSIONER OF INCOME TAX Vs. MOTILAL KHATRI

JUDGEMENT

(1.) THIS appeal has been filed by the Revenue against the judgment of the learned Tribunal, dt. 20th Feb., 2004, deciding two cross -appeals; dismissing the appeal of the Revenue, while allowing the appeal of the assessee. These appeals were filed against the order of the learned CIT(A), who in turn had partly allowed the appeal of the assessee, and deleted the addition of Rs. 2,24,600 made under Section 40A(3), while upholding the addition made in the sum of Rs. 3,88,000 under Section 69 of the IT Act.

(2.) THE appeal was admitted vide order dt. 26th July, 2005, by framing the following two substantial questions of law: 1. Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 3,88,000 equivalent to purchase of gold on behalf of the assessee by his son Lalit Kumar? 2. Whether on the facts and in the circumstances of the case, the learned Tribunal was legally justified in dismissing the appeal filed by the Department in respect of additions made by the AO within the meaning of Section 40A(3) of the Act, which were deleted by the learned CIT(A)?

(3.) THE assessing authority found that on examination of Kachhi and Pakki cash books, it revealed that amount of Rs. 7,35,000 was drawn from the cash book, and was given to Lalit Kumar to bring gold bar biscuits from Ahmedabad. In the cash book an entry was recorded with the narration that Rs. 7,35,000 send Lalit Kumar to Ahmedabad to bring gold after taking the cheques. However, it was found that contrary to the narration, the assessee himself admitted that alleged 15 gold bar biscuits valuing Rs. 7,35,000 had been purchased otherwise than (by) cheque/drafts, and the assessee claimed that sufficient cash was available with him on the date of passing of such entry in the books of account. Therefore, the assessee was told that the provisions of Section 40A(3) are attracted to this transaction, which was contested on the ground, that Section 40A(3) applies only to those payments of cash payments of cash purchase which has been taken in the books of account, as stock -in -trade i.e., purchase of goods entered in the regular accounts books, and it does not apply in respect of expenditure which is not claimed as deduction under Sections 32 to 37, and regarding bill of Rs. 3,88,000, it was contended that the bill was not in the name of firm, but was in the name of minor son Lalit Kumar. These contentions were negatived by the AO, by considering that the balance sheet of the firm has been examined, and the gold value of 15 bars of Rs. 7,35,000, has been shown in the asset side of the balance sheet. The assessee was thus found to be taking inconsistent stand, i.e. on the one hand contending, that alleged purchase has been made out of cash balance available, while on the other hand contending, that the same has not been included in the books. Thus, an addition under Section 40A(3) to the extent of 20 per cent of this amount was made. Then, regarding the amount of Rs. 3,88,000, it has been found by the AO that the statement of Lalit Kumar was recorded by the customs authorities, which was confirmed from the sellers viz., Bhupat Bhai, Govind Bhai of Ahmedabad, who deposed to have sold 8 gold bar biscuits valuing Rs. 3,88,000 on cash payments to Lalit Kumar, and it was found that in the cash book of the assessee there was no withdrawal recorded regarding this amount, and the explanation of assessee was asked as to why this amount be not added as unexplained investment, and added to his total income, coupled with the addition, as warranted by the provisions of Section 40A(3), and the assessee replied on 7th March, 2002, contending that son was minor at the time of statement. However, gold biscuits have been assumed to have been purchased on his behalf, and no entry having been passed in the books of account, and thus both, the purchase and sale are out of books, therefore, profits on the transaction be added as per gross profit rate according to the books. This reply was not accepted, and it was considered that the assessee has admitted that the transactions took place on his behalf and that there was sufficient cash balance available with the assessee in his books of account, then from out of that withdrawal of this amount of Rs. 3,88,000 is not recorded, and thus it was found to be unexplained investment made by the assessee for purchase of 8 gold biscuits. According to Section 69 it was deemed to be the income of the assessee for the financial year relevant to the assessment year in question, and since the transaction of the so -called unrecorded purchase has been made on behalf of the assessee by way of cash payment, for which purchase bill has been issued, by invoking provisions of Section 40A(3), the 20 per cent amount has further been added in the declared income.