By TIOL News Service

KOLKATA, JAN 13, 2016: THE issue is - Whether even if assessee is able to explain excess cash found during Survey by furnishing cash-flow statements, addition made u/s 69A can be sustained. NO is the answer.

Facts of the case

The assessee is an individual. He carried on business on trading in all kinds of jewellery. There was survey operation u/s 133A carried out by the Revenue on 07.03.2005. In the course of survey cash amounting to Rs.2,94,565/- was found. The cash as per the cash book was only Rs.2,35,967/-. The assessee explained that out of cash found during the course of survey a sum of Rs.45,000/- belongs to his son Shri Arun Kumar Verma, who was also looking after the affairs of M/s J.K.Jeweller, the proprietory business of the assessee. The claim of the assessee regarding availability of cash in the hands of his son was duly substantiated by a cash flow chart. The assessee also explained that another sum of Rs.20,000/- belonged to him and was brought from the house and kept in the business premises at the time of survey. The assessee's explanation was rejected for the reason that such an explanation was not given at the time of survey and the same was given only at the time of assessment proceedings. It is to be noted that the above explanation is accepted then there would be a shortage of cash of Rs.1402/- which was explained by the assessee as Rs.1200/- was paid to one staff for office expenses and the remaining Rs.202/- was in coins which was not counted at the time of survey.

Assessee paid commission of Rs.1,58,026/- to one Shri Ashok Kr.Gupta and an amount of Rs.,1,18,784/- to Shri Sunil Kumar Verma. The summons issued by the AO to both these parties were returned unserved. The AO in the given circumstances treated the payment of commission as not genuine. Accordingly addition of Rs.2,76,810/- was made to the total income of the assessee. The submission before me was that the bills raised by the aforesaid parties on the assessee bear PAN numbers and tax had been deducted at source at the time of payment of commission. The commission had been paid by cheques and therefore the assessee has proved the genuineness of the expenditure incurred by it. The assessee placed reliance on the decision of the Calcutta HC in the case of Mather & Platt (India) Ltd. Vs CIT 2012-TIOL-817-HC-MUM-IT. In the aforesaid decision the Calcutta HC held that merely because a person was not found at the given address it cannot be concluded that the said person was non-existent. The DR relied on the order of the CIT(A).

Having heard the matter, the Tribunal held that,

++ I find that the plea of the asessee is duly substantiated by the cash flow statement of Shri Arun Kumar Verma, assessee's son and personal cash book of the assessee, copies of which are placed at page 31 of the assessee's paper book. The fact that such an explanation was not given at the time of survey cannot be the basis for rejecting the claim of the assessee. I accordingly direct the AO to delete the addition made in this regard. At the time of survey 30404.830 gms of gold was found. Gold as per the stock register was 26,154.703 gms. There was excess gold to an extent of 4250.127 gms. The assessee explained that 4051.500 gms of gold was received from M/s.Emarald Jewellers, Coimbatore and that the normal practice in the trade was that the stock receipt from outside state is not entered in the stock register till it gets endorsed by the Sales tax authorities. The assessee thus explained that the aforesaid quantity of gold was not recorded in the stock register. With regard to the remaining gold 208.627 gms the assessee explained that the same is arising out of incorrect weighing of gold in this regard. The assessee pointed out that there was a complete match of physical stock with the stock register in terms of items and the difference of 208.627 gms was only due to the difference in the matter of weighing of gold. The assessee also pointed out that after the bill was endorsed by the Sales Tax authorities the quantity of gold brought from M/s.Emerald Jewellers was duly recorded in the stock register. The AO did not accept the explanation with regard to 208.627 gms of jewellery and added the same to the total income of the assessee which resulted in an addition of Rs.1,29,662/-This has been wrongly added at Rs.1,58,000/- in the computation of the total income by the AO. The CIT(A) also did not accept the plea of the assessee. I also do not find the item-wise tally of the stock as per physical verification at the time of survey on the stock as per the stock register of the assessee. It is therefore not possible to come to a conclusion that the difference is only due to incorrect weighing of the items of jewellery. Therefore, I confirm the order of CIT(A) in this regard. Ground No.3(a) and (b) of the assessee is dismissed;

++ in my view one of the prime requirements for allowing deduction on account of commission is that the assessee has to prove the nature of serviced rendered for which commission is paid. The evidence on record in the form of bills raised by Shri Ashok Kr. Gupta and Shri Sunil Verma are placed at pages 22 to 27 of the assessee's paper book. The bills merely refer to commission on sales and making charges for a particular period. The evidences filed by the assesse cannot be accepted by the AO as it is and therefore AO thought it fit to summon the persons to whom the commission was paid. The AO could not succeed to procure the persons of the recipients of the commission. The assessee also did not make any efforts to produce these person before the AO for examination. In such circumstances I am of the view that disallowance of commission was rightly made by the revenue authorities. Ground No.4 of the assessee is dismissed. Ground nos. 5 and 6 relate to disallowance of Rs.10,000/- towards Travelling and Conveyance expenses and Rs.3,000/- out of repairs and maintenance expenses. The AO made the impugned disallowances on the ground that the same were supported by self made vouchers. In my view the disallowance in question was a paltry sum compared to the expenditure of rs.3,32,791/- and Rs.1,17,540/- respectively claimed by the assessee. I am of the view that the disallowance is reasonable and does not call for any interference. Accordingly ground nos. 5 and 6 are dismissed. In the result the appeal of the assessee is partly allowed.

(See 2016-TIOL-78-ITAT-KOL)