Girish Mishra vs Asstt. Cit

ORDER Bravnesh Saini J.M.

ITA No, 436 of 1995 by the assessee is directed against the order of the Commissioner (Appeals), Varanasi, dated 21-12-1994, for the assessment year 1991-92. ITA No. 738 of 1998 by the revenue is directed against the order of the Commissioner (Appeals), Varanasi, dated 16-1-1998 for the assessment year 1992-93.

2. One of the issues in the assessee's appeal is connected with the departmental appeal, therefore, both were heard together and we dispose of the same by this common order.

ITA No. 436 of 1995 :

3. This appeal by the assessee is filed on six grounds of appeal. However, we take all the grounds separately for the purpose of disposal of this appeal.

Ground Nos. 1 & 3:

"1. Because the Courts below erred in sustaining addition of Rs. 1,55,000 as unexplained deposits whereas the parties have trade account with the applicant and they have debit balance with us. The applicant had to credit the amount in the respective party account but it was separately credited to the parties security account.

3. Because the Courts below erred in wrongly and illegally confirming the deposit of Rs. 1,55,000."

4. The assessing officer detected that the assessee has shown deposit of Rs. 1,55,000 in the name of undernoted dealers in cash

4. The assessing officer detected that the assessee has shown deposit of Rs. 1,55,000 in the name of undernoted dealers in cash Name Name Name Amount Amount Amount Rs.

Rs.

1.

1. Shubham Enterprises Shubham Enterprises 40,000 40,000

2.

2. Trimurti Enterprises Trimurti Enterprises 50,000 50,000

3.

3. Sabera Lottery House Sabera Lottery House 20,000 20,000

4.

4. Krishna Lottery Agency Krishna Lottery Agency 20,000, 20,000,

5.

5. B.I.A. Lottery Agency B.I.A. Lottery Agency 10,000 10,000

6.

6. Maa Vaishnou Lottery Agency Maa Vaishnou Lottery Agency 15,000 15,000 1,55,000 1,55,000 The assessing officer observed that the assessee has failed to establish the identity of these depositors and transactions whatever and their creditworthiness to prove the source of these deposits in the books of account of the assessee. The assessing officer also observed that these deposits are in violation of provisions of section 269SS. The aforesaid amount was, thus, treated as unexplained and was added towards the income of the assessee. The matter was carried to the Commissioner (Appeals). It was submitted that all these six parties are agents of the assessee making the purchases of the lottery tickets from the assessee being stockist. The assessee is stated to be the stockist of lottery under U.P. State Lottery Rules. It was further submitted that at the time of receiving the amount receipt was issued by the assessee. It was further submitted that the advance was taken towards the security purpose. The copies of the receipts issued to all these six parties along with the parties account during the financial year 1990-91 were also filed to show that these six parties were the lottery agents of the assesses. It was therefore, claimed that the receipts being a trading receipt cannot be treated as deposit/credit. The detailed paper book was filed which were also filed before the assessing officer, therefore, the learned Commissioner (Appeals) has referred to papers to the assessing officer for his comments during the hearing of the appeal, The assessing officer's comments were obtained as per his letter dated 16-12- 1994 on the points raised in the written arguments and the documents. It is mentioned in the impugned order that the assessing officer issued summons under section 131 to these six parties out of which summons was served upon M/s Shubham Enterprises and the remaining summons returned unserved. The Commissioner (Appeals) accordingly confirmed the action of the assessing officer because of non-service of the summons on the addresses supplied by the assessee in respect of five parties and in the absence of the details with regard to M/s Subham, Enterprises. The contention of the assessee was also rejected. The Commissioner (Appeals) accordingly dismissed the appeal of the assessee on this issue. The assessee feeling aggrieved by the findings of the authorities below filed this appeal on grounds mentioned above.

5. We have heard the learned counsel for the assessee and the learned departmental Representative. The learned counsel for the assessee filed detailed paper book containing written submissions filed before the Commissioner (Appeals), details of the security deposit of all the six parties like copy of receipt, cash book, ledger, copy of account, copies of various letters/notifications issued by the, U.P. Government from time to time regarding the unsold tickets etc. and audited balance sheet. The learned counsel for the assessee mainly argued that the Commissioner (Appeals) has reversed the finding with regard to the invoking of the provisions of section 145(2) of the Income Tax Act. He has further argued that proper books of account have been maintained which were audited as per law and the department.has not filed any appeal against the impugned order, therefore, the finding of the Commissioner (Appeals) are final whereby the books of account have been accepted. The learned counsel for the assessee further argued that all the deposits are of the dealers of the lottery who have taken delivery of lottery tickets in the subsequent year and as such the advance money was accounted for against, their sales. The learned counsel for the assessee further argued that the assessing officer has referred for initiation of the proceedings under section 269SS in which penalty is also imposed under section 271D of the Income Tax Act vide order dated 17-4-1995, on the same matter by the Dy. Commissioner (Appeals), Varanasi. Therefore, the assessing officer was not justified in making the addition. under section 68 of the Income Tax Act. The learned departmental Representative on the other hand, argued that the parties were not produced before the assessing officer for verification, therefore, the assessing officer was justified in making the addition in the hands of the assessee. The learned departmental Representative further argued that the proceedings under section 269SS not be seen in the context of section 68 of the Income Tax Act. The learned departmental Representative relied upon the findings of the authorities below. The learned counsel for the assessee in rejoinder argued that both the provisions under section 269SS and 68 are on different footings, therefore, no proceedings could be held in both the sections against the assesse in the same assessment year. The learned counsel for the assessee has also referred to the order of the Tribunal 'D' Bench, Allahabad, dated 17-7-1992, in the case of Shri Ashok Kumar Jaiswal v. Income Tax Officer, copy of the same is filed on record. The learned counsel for the assessee further argued that the lotteries were banned, therefore, the agents have closed down their business who had deposited the money in the year 1991 with the assessee, therefore, no adverse presumption could be drawn against the assessee. He has further argued that since the accounts of these parties were settled in the immediately preceding year, therefore, those dealers were not in the control of the assessee.

6. We have considered the rival submissions, materials available on record and the details submitted in the paper book. We find from the assessment order that the assessing officer himself stated that Rs. 1,55,000 was deposited by those dealers in cash with the assessee. The assessing officer did not take any step in the matter to verify the genuineness of the transaction as nothing is mentioned in the assessment order. The assessing officer has not taken any step in this regard for verifying the transaction of those agents with the assessee. The assessing officer has also referred the matter to the Dy. CIT for initiating the proceedings under section 269SS of the Income Tax Act. The order of Commissioner (Appeals) shows that the paper book-was referred to the assessing officer for his comments. The finding in the impugned order shows that the assessing officer issued notice under section 131 of the Income Tax Act through Inspector to those six agents out of which five summons returned unserved. Therefore, the Commissioner (Appeals) has taken adverse presumption against the assessee. The details of Shubham Enterprises were filed, therefore, adverse presumption was also drawn in respect of this party and addition was sustained. We do not approve the finding of the authorities below. The assessing officer initiated penalty proceedings under section 271D of the Income Tax Act through Dy. CIT, Varanasi, in respect of the same amount. The learned counsel for the assessee filed copy of the order under section 271D dated 17-4-1995, and also intimated that the appeal of the assessee is pending before the Commissioner (Appeals) on this issue. Therefore, the order under section 271D dated 17-4-1995, still exists. We find from the order under section 271D of the Income Tax Act (supra) that the penalty was imposed in a sum of Rs. 1,55,000 in respect of the amount deposited by the above six agents with the assessee in cash. Sec. 68 provides:

"Addition for cash creditsIt provides that where any sum is found credited the books of the assessee and the assessee offers no explanation about the nature and source, or the explanation offered by him is not in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."

Therefore, under section 68 the unexplained amount could be treated as income of the assessee. However, section 269SS provides :

"That no person shall take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee draft if it was ten thousand rupees or more."

Therefore, penalty would be imposed under section 271D accordingly if a person takes or accepts any loan or deposit in contravention of provisions of section 269SS.

The Dy. Commissioner (Appeals), Varanasi, imposed the penalty against the assessee under section 271D of the Income Tax Act in respect of the same amount of deposit/loan vide order dated 17-4-1995, and the same is not reversed as yet. Therefore, the assessing officer impliedly accepted that the amount of Rs. 1,55,000 of six agents was the loan or deposit, which was accepted by the assessee in cash in violation of section 269SS. We fail to understand how the assessing officer could take the same amount as unexplained income of the assessee under section 68 of the Income Tax Act. The assessing officer should not have taken contradictory stand in the assessment order. We further find that the assessing officer did not take any step at the stage of assessment to verify the transaction from these six agents. The assessment order is silent with regard to the fact if any step is taken by the assessing officer to verify the genuineness of the transaction. The assessee has filed all the papers before the authorities below and more particularly when the paper book was referred to the assessing officer for his comments, but then again the assessing officer has not pointed out any adverse remarks against these documents. Merely summons could not be served under section 131 through IT Inspector was the reason for upholding the addition by the Commissioner (Appeals). The assessing officer could have directed the IT Inspector to make enquiry in the matter. The Commissioner (Appeals) in para 4 of the impugned order has specifically taken the view that :

"The assessing officer has not brought on record any material in support of rejection of the accounts for invoking the provisions of section 145(2). On the other hand, I find that the appellant has maintained verifiable accounts duly supported by stock registers, purchase bills, sale vouchers as certified by an auditor under section 44AB. The assessing officer has not mentioned a single lapse/discrepancy with the maintenance of accounts. "

7. These findings of the Commissioner (Appeals) have not been challenged by the department in the departmental appeal, as noted by the learned Departmental Representative. The findings of the Commissioner (Appeals) have thus, become final on this point, which specifically proves that the books of account of the assessee were reliable in which no defects have been pointed out by the assessing officer. The learned counsel for the assessee relied upon the order of the Tribunal 'B' Bench, Allahabad, dated 17-7-1992, in which the Tribunal has precisely held:

"That before deciding this issue, it is necessary to bear in mind the settled legal position that in the income-tax proceedings due regard has to be had for all the material and evidences, which may not even come up to the level of 'evidence' in strict sense in a court of law and such a material and evidence can be oral as well as documentary."

8. There is no dispute about this legal proposition as use of the word "material" in section 143(3) shows that the assessing officer not being a court and was relying upon the material which may not strictly be an evidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. The detailed documents were filed before the authorities below to show that the amount in question was advance deposited by the lottery agents of the assessee against which the tickets were sold subsequently. We may also mention that the argument of the learned counsel are probable that the dealers have closed their business as the lottery was banned throughout the country. Since the accounts of the agents were settled-by selling the tickets to them in the next year, which is evident from the documents filed in the paper book, therefore, those parties were not within the control of the assessee. The assessing officer has not taken any step to verify the documents at the initial stage of assessment, therefore, no fault could be found against the assessee. Even at the appellate stage, the summons returned unserved but no efforts were taken to justify the transaction in any way. Moreso, the material. available on record clearly suggests that the amount in question was the amount deposited by the dealers/agents as security deposits with the assessee for purchase of the lottery ticket and their advances were settled. Keeping in view the above facts and circumstances, we find merit in the assessee's appeal on this issue. We delete the entire addition on the issue and allow the appeal of the assessee on this ground of appeal.

9. As a result, ground Nos. 1 and 3 are allowed.

Ground No. 2:

"2. Because the Courts below erred in sustaining loss on unsold tickets at Rs. 1,44,202, which is unjustified and unreasonable."

10. The assessee has shown loss on unsold tickets of Rs. 1,44,202. The assessing officer observed that the assessee has wrongly claimed this amount as loss as the unsold tickets should have been returned to the Director of the U.P. State Lotteries in time as and when the result was announced but the assessee has shown negligence regarding the unsold tickets, therefore, the business loss was not allowed. The matter was carried to the Commissioner (Appeals). It was submitted that clause 17 of the U.P. State Lottery Rules, 1969, provides :

"Ticket book shall be sold to agents only in the form of complete books. The tickets book once sold shall not be returnable."

The details of the losses incurred were also submitted before the authorities below. The assessee has worked out the actual value of unsold tickets at Rs. 8,64,028 after adjusting the commission receivable, prizes/bonus received. The net result was a loss of Rs. 1,44,302. The assessee has maintained detailed particulars of the loss incurred , and claimed as such. It was accordingly submitted that the losses having been incurred during the course of carrying of the business was, therefore, admissible, deduction while computing the total income. The learned Commissioner (Appeals) after considering the facts and circumstances of the case, found that the assessee has not returned unsold tickets to the Director, State Lotteries, within time. On the other hand, the learned Commissioner (Appeals) found that the assessee has received prizes on some tickets by which the loss has been reduced. The Commissioner (Appeals) ultimately held that since the assessee is a stockist selling ticket on behalf of the Director, U.P. State Lotteries, in his view, the loss sustained as a result of unsold tickets cannot be held to be a business loss. The assessee is in, appeal on the grounds mentioned above.

11. We have heard the learned counsel for the assessee and the learned departmental Representative. The learned counsel for the assessee argued that prize/commission assessed as income, therefore, out of the same transaction if losses suffered in unsold tickets then it should be treated as business loss. He has further argued that on account of negligence, no disallowance could be made. The learned departmental Representative, on the other hand, argued that the assessee was doing business of lottery on commission basis and it is not clear as to why the tickets were kept subsequently. In rejoinder, the learned counsel for the assessee argued that the U.P. State Lottery Rules provides that:

"The ticket books once sold shall not be returnable."

The learned counsel for the assessee has taken us to reply filed before the authorities below, in which it was stated that the U.P. Government does not take the unsold ticket and as such the assessee had to suffer loss of unsold tickets. The learned counsel for the assessee further argued that the assessee maintained register of unsold tickets, which was produced before the authorities below to prove the losses.

12. We have considered the rival submissions and the material available on record. The assessee has replied before the authorities below that the assessee is maintaining detailed particulars of the unsold tickets on which the loss was suffered. We find that there are no adverse comments of the authorities below on this issue. Therefore, it is admitted that the assessee has specifically shown the loss on account of unsold tickets. The assessee has claimed actual value of the unsold tickets at Rs. 8,64,208, after adjusting the commission receivable, prize/bonus received. After necessary adjustment, loss was shown. The revenue department has thus, accepted the commission receivable and prize/bonus on those unsold tickets and on the other hand, has denied loss on account of unsold tickets. Rule 17 of the U.P. State Lottery Rules is filed which provides that:

"Ticket books shall be sold to agents only in the form of complete book and ticket book once sold shall not be returnable."

Technically, the assessee may be stockist but this definition includes the agents of the lottery tickets. The assessee went further and also acted as an agent of the State of U.P. for the purpose of selling the lottery tickets. Therefore, the clause 17 of the U.P. State. Lottery Rules is applicable to the case of the assessee also. The learned counsel for the assessee filed copy of many correspondences between the assessee and the U.P. State Lotteries, which are filed from p. 51 onwards in the paper book in which it is precisely mentioned that the tickets are sold on 100 per cent sold basis. It was the business of the assessee to get commission from the State of U.P. on selling of the tickets. Therefore, incidentally, it is the same business of the assessee to deal in lottery tickets. There may be various reasons by which the assessee may suffer in the business on account of unsold tickets, but the fact remains that if there is a business loss then it should be deducted from the income of the assessee. The assessee is master of his own business and cannot be compelled by the revenue department to act in a particular way to earn the income. The assessee may know how best he can earn the profit out of the business. Even if due to some negligence, tickets are not returned though according to the counsel for the assessee the tickets could not have been returned. We find that even if some loss is suffered by the assessee on account of neghgence, the same would have been the legitimate deduction out of the profit as the profit of the assessee's business includes losses also. Nobody can imagine that in every business, there would always be profit, when the element of loss is also attached to every business. There is no denial by the authorities below that the assessee had in fact suffered losses. There is no finding of fact against the losses suffered by the assessee but how it is suffered is not the question to be decided by the revenue department. We further find in the circumstances that lottery tickets which remained unsold cannot earn any profit, therefore, it has to be deducted from the closing stock naturally by doing so, the profit would be reduced. The assessee has claimed in the same way and as such the contention of the assessee cannot be rejected. Keeping in view the above facts and circumstances and more particularly that the fact of loss has not been disputed by the authorities below, we find that the authorities below were not justified in disallowing the loss in the case of the assessee. As a result the findings of the authorities below are set aside and the entire addition on this issue are deleted.

13. As a result, ground No. 2 is accordingly allowed.

Ground No. 2:

"4. Because the Courts below erred in disallowing the following expenses which is unjustified and is highly excessive:

Rs.

Out of General expenses 2,500 Out of Car depreciation 1/4 8,769"

14. The assessing officer disallowed Rs. 5,000 out of general expenses of Rs. 20,262 for want of vouchers as well as the amount claimed in general expenses included as charity and donation. The learned Commissioner (Appeals) reduced the same to Rs. 2,500. The assessing officer also disallowed 25 per cent depreciation for personal use of vehicle. The Commissioner (Appeals) confirmed the same as the assessee did not deny the user of the car for personal purposes. The learned counsel for the assessee argued that it is excessive disallowance. On the other hand, the learned Departmental Representative relied upon the orders of the authorities below. Having considered the facts and observation above, we do not find that the disallowance sustained by the Commissioner (Appeals) are excessive in nature. This ground of appeal is accordingly rejected.

Ground No. 5:

"5. Because the Courts below erred in disallowing 20 per cent of expenses of Rs. 76,994 which include Rs. 24,000 hire charges paid for van on which no disallowance can be made. However, 20 per cent disallowance is also too excessive as the car was used in the end of financial year for personal use. "

15. The assessing officer disallowed Rs. 76,994, as the assessee has not furnished details of car hiring charges of Rs. 24,000, which has actually been paid, hence the same was not allowed along with the car running and maintenance expenses of Rs. 52,994 because the assessee did not own car nor any agreement has been furnished. The matter was carried to the Commissioner (Appeals). The Commissioner (Appeals) considering the nature of the business, held that it would be reasonable if disallowance is made at 20 per cent of the total expenditure including hire charges paid amounting to Rs. 76,994. Thus, the disallowance was reduced to Rs. 15,500. The learned counsel for the assessee argued that it is excessive disallowance. We, after considering the observations of the authorities below, found that no copy of the agreement is furnished even before us. In the absence of any details and personal user of the vehicle in question, which is not denied before the Commissioner (Appeals), we do not find that the disallowance is excessive in nature. This ground of appeal of the assessee is rejected.

Ground No. 6 :

"6. Because the Courts below erred in disallowing Rs. 6,915 out of T.A. expenses which is unjustified."

16. The assessing officer disallowed Rs. 6,915 out of travelling expenses, but no detailed reasons are given. However, the learned Commissioner (Appeals) has specifically mentioned in the impugned order that, as per tax audit report a sum of Rs. 6,915 was determined in excess of rule 6D for which separate addition has already been made and as such, there was no justification to make further disallowance of Rs. 8,000. The Commissioner (Appeals) accordingly sustained the addition. The learned counsel for the assessee argued that it is excessive disallowance. On the other hand, the learned Departmental Representative relied upon the orders of the authorities below. The learned counsel for the assessee very fairly filed copy of the audit report under section 44AB of the Income Tax Act at p. 79 of the paper book in which it is specifically mentioned that expenditure in excess of the limit laid down in r. 6D is Rs. 6,915.20. The copy of Annex. 'A' is also filed in this regard. In view of the facts mentioned in the audit report no interference is called for. This ground of appeal of the assessee is accordingly rejected. No other ground is argued or pressed.

17. As a result, the appeal of the assessee is partly allowed.

ITA No. 738/All/1998 :

18. This appeal by the revenue is filed on the following ground

18. This appeal by the revenue is filed on the following ground "1. On the facts and circumstances of the case, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 54,477 being loss on unsold tickets.

19. This ground was considered by us in the assessee's appeal for the assessment year 1991-92 in ITA No. 436/1995 and we have allowed the claim of the assessee.

We found that in the assessment year 1992-93, the Commissioner (Appeals) himself allowed this ground in favour of the assessee, hence the appeal was filed by the department. By following our finding in ITA No. 436/1995, we dismiss the departmental appeal.

20. As a result, the assessee's appeal is partly allowed and departmental appeal is dismissed.