The High Court · 2025

HE HONOURABLE SRI JUSTICE P.SAM KOSHY AND DArE OF JUDGMETT:// .t2.202s Between : Mr. Sri Rajesh Rawtani. The Income Tax Officeq Ward 6(1.), Hyderabad. ENft-) ...Appellant Respondent JUDGMHNT: (per the Hon'bte Sri tustice p.Sam Koshy) Heard Mr. Prudhviraj Mattepally, learned counsel appearing on behalf of Mr. K.Raji Reddy, learned counsel for the appellant / assessee; and Bokaro Sapna Reddy, learned Senior Standing counsel for Income Tax Department appearing on behalf of the respondernt / Revenue.

2. Thr: instant appeal has been filed by the appellant / assessee under Sr:ction 260-A of the Income Tax Act, 1961 (for short'the Act') assailing the order dated 18.12 .2009, in I.T.A.No.719lHyd/2OOB, passed by the Income Tax Appellate Tribunal, Hyderabad, Bench 'A' (for short the 'ITAT'), for the assessment year 2004-05.

3. The question of law to be considered in the instant appeal is "whether the ITAT was correct in not following the contention of the appellant that the goods which remained unsold for the assessment years 2001-02 to 2003-04 from the purchase made from outside the books of accounts and when the same was assessed in the said three years and the same cannot be assessed again in the year 2004-05 which amounts to double taxation in the hands of the appellant, since the same were sold in subsequent assessment years?"

4. In the instant case, the Assessing Officeri the Commissioner of Income Tax (Appeals), as also the ITAI have all decided the matter against the appellant.

5. The appellant herein carries on the business of footwear. For the assessment year 2004-05, the appellant submitted its returns on 27.08.2004 admitting an income of Rs.2 ,75,g5g/-. Howeve4 the 6 Assessing Officeq subsequently on scrutiny found that the assessn'rent made by the appellant was not proper, and thereafteq vide or,ler dated 28.12.006 passed an assessment order raising demanc of Rs.LO,3L,794l- which is inclusive of interest both under Section 234-8 and 234-C of the Act. While passing the said assessn'lent ordeq the Assessing Officer rejected the contention of the appellant to treat the creditors liability as unexplained income.

6. Irr the course of assessment, the Assessing Officer found that there were lot of differences in the trade liabilities. This according to the appellant were certain unrecorded purchases and the liabilities of which standing in the books of accounis of the creditors was not properly appreciated by the Assessing Officer while passing the assr:ssment order on 28.12.2006.

7. It was contended by the learned counsel for the appellant that the returns have been filed on the estimated basis of 5olo on the turnover under Section 44AF of the Act. According to the learned counsel for the appellant, the difference in the balance of creditors under Section 69 of the Act has to be treated as unexplained income. ._::.(\

8. According to the learned counsel for the appellant, this issue arose because of the stocks lying with the appellant and these stocks were those which were sold in the previous year, but could not be delivered within time and those were also shown as balance outstanding in the books of accounts on 31.03.2OO4.

9. Learned Senior Standing Counsel for Income Tax Department, opposing the appeal, referred to the findings arrived at by the three forums, all of whom have given a concurrentfinding of fact. According to the learned Senior Standing Counsel, the appellant himself had in a correspondence made with the Department on 26.72.2004, contended that the said correspondence did not disclose any plausible explanation in respect of the so-called persons against whom outstanding credit is reflected in the books of accounts.

10. Learned Senior Standing Counsel for Income Tax Department referring to the order passed by the Assessing Officer at the first instance submitted that the said findings are findings of fact since there was no justification and satisfactory explanation given by the appellant in respect of the outstanding balances reflected in the books of accounts and the contention of the appellant that those 1/'1 were irr respect of the subsequent sales made is also not a convincing argument. Thus, requested the Court to refuse said contention of the appellant

11. Lt:arned Senior Standing Counsel for Income Tax Department further referring to the appellate authority's order submitted that there is a finding of fact in the appellate authority's order also. That in spite of repeated opportunities being granted to the appellant to reconcile the differences those are reflected in the books of account:s, the only vague excuse given by him was that these substarrtial sales being made on unrecorded purchases are not something which could be accepted taking into consideration the magnitude of the so-called unrecorded purchases. L2. L,:arned Senior Standing Counsel also referred to paragraph No.5 ol' the Commissioner of Income Tax (Appeal) order, wherein the Commissioner of Income Tax (Appeal) while rejecting the appeal preferred by the appellant, had made a categorical finding of the l'ailure on the part of the appellant in not producing cogent materierl to substantiate their contention. For ready reference, paragrarph No.5 of the Commissioner of Income Tax (Appeals) order is reprc,duced hereunder, viz., 6, ".........However, as stated earlier, in the course of the remand proceedings when the Assessing Officer called for the purchase register, stock register and sales register erc., which were not produced. When the appellant made a claim, the onus was on him to establish such claim with required evidences. In the instant caset though opportunity was provided to the appellant for establishing his claim in course of the appeal proceedings by remanding the matter to the Assessing Officer the appellant failed to establish the same with the requisite evidences. On this ground alone the claim of the appellant is liable to be'rejected'.'

13. In addition, the learned Senior Standing Counsel also referred to paragraph No.5.1 of the Commissioner of Income Tax (Appeals) ordeq which would again glve a clear indication of the grounds on which the appellant's claim was rejected. For ready reference, paragraph No.5.1 is reproduced hereunde\ viz., "In the assessment order, the Assessing Officer treated 20o/o of such unrecorded purchases as the income of the appellant and assessed the same as such. Whether unrecorded sale itself is income or only a net profit on such sale is the income, would depend upon the facts of each case. Where an assessee makes purchases outside the books and also sales books outside the books, naturally the profit i.€., difference between the sale price and the expenditure incurred by the assessee/ is the income from the unrecorded sale. In the instant case, for the assessme nt years 2000-01 to 2OO3-04 since regular books of accounts had not been m,zintained, unrecorded purchases were detected and th=refore fhe Assessing Officer made the natural presumption that the appellant had indulged in both unaccounted pu'rchases as well as Ltnaccounted sales. Therefore, the profit or, such unrecorded transactions was taken as income. This in'plies that the unrecorded purchases detected during the assessmenf years 2000-01 to 2003-04 were treated as unrecorded sales and applying the GP rate income was de'termined. LJnder these circumstances, bringing those unrecorded purchases fo the books of accounts maintained for fhe assessment year 2004-05 does not arise at all. The claim of the appellant in this regard is totally unfounded and be,seless. Hence, the same is'rejected'." L4. Subsequently, the learned Senior Standing Counsel for Income Tax Department took the Court through the findings given by the ITAT in paragraph No.4 of its order. For ready reference, the relevant: portion of paragraph No.4 of the ITAT's findings is also reproduced hereun der, viz., "...........Therefore, the goods which remained unsold for the assf. years 2001-02 to 2003-04, which were manufactured fr<tm the material purchased outside the books of account, cannot be said to be subjected to tax for the earlier asst, ye,ars. Therefore, if any addition is made in respect of stock remaining with the assessee which was purchased outside the bctoks of account for the earlier asst. years, the same has to be: brought to tax. In such situation, it cannot be said that the same was subjected to tax twice." I Page B of 9

15. In addition, paragraph No.5 of the ITAT's order also reiterates the same principles, which again for ready reference is reproduced hereunde r, viz., "...............Admittedty, the assessee has shown excess liability of Rs.22,83,829. In the absence of any material to show that this liability arose out of the purchase made outside the books of account in the earlier yea6 in our opinion, the lower authorities have rightly made the addition. From the order of the CIT (A) it appears that a remand report was called for from the AO. The AO gave an opportunity to the assessee fo explain how the stocks purchased in the earlier years remained with the assessee. In spite of opportunity, the assessee could not establish the availability of stock purchased outside the books of account in the earlier years. In those circumstance, we do not find any infirmity in the " order of the lower authority, Accordingly, the same is confirmed."

16. From the aforesaid factual matrix of the case, and on perusal of the ITAT's order, we do not have any hesitation in reaching to the conclusion that the appellant in fact has failed to substantiate their contention and defence by producing any cogent material before any of the authorities concerned in support of his contentions, be it from the books of accounts or from any other records or registers which were maintained by the appellant. For I E the said reason, we are not inclined to interfere with the impugned t7. Arrother reason which goes in favour of the Revenue is the concurrent findings of fact given by the Assessing Officer, the Commissioner of Income Tax (Appeals) and subsequently by the iTAT giving reasons for reaching to the said conclusion and which predom nantly was on the failure on the part of the appellant in showing substantial material in support of his contentions.

18. Tlre instant appeal therefore fails, and is accordingly, dismissr-'d. The question of law framed accordingly stands answered in favour of the Revenue and against the assessee affirming the order prrssed by the Assessing Officer, the Commissioner of Income Tax (Apceals) and lastly by the ITAT.

19. Ar; a sequel, miscellaneous petitions pending if any, shall stand closed. However, there shall be no order as to costs. SD/- R. KARTHIKEYAN OINT REGISTRAR I / /TRUECOPY / / OFFICER To, 1,. The file of the Income Tax Appellate Tribunal, Bench-A, Hyderabad 2. The Inconte Tax (Appeals)-I, Visakhapatnam. 3. One CC to Sri K.Raji Reddy, Advocate [OPUC] 4. One CC to Ms. Bokiro Sapna Reddy (SENIOR SC INCOME TAX) [OPUC] 5. Two CD Copies ICK/sA ,w t ,] 5 :t: E t I Ct 8 1 HIGH COURT DATED:1"7 /12/tt-02s JUDGMENT: ITTA.No.278 of 11010 Dismissing the I T.T.A. without costs. o O t * SHE\ 2BII2I 0?fi * * "r?nAk- -k-T*tt P\\\t*- c / 4 ,.,:.itiE ,S,m