M/s Aditi Associates, V. THE ITO, Kakinada

CO 11/VIZ/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4193 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D KOMALI KRISHNADR
• Section: 143(2); 131; 68

Judgement Text

ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.594/VIZAG/2014 ( / ASSESSMENT YEAR:2010-11) ITO, WARD - 1, KAKINADA VS. M/S. ADITI ASSOCIATES, KAKINADA [PAN: AAPFA3660F ] ( / APPELLANT) ( / RESPONDENT) C.O. NO.11/VIZAG/2015 (ARISING OUT OF I.T.A.NO.594/VIZAG/2014) ( / ASSESSMENT YEAR:2010-11) ITO, WARD - 1, KAKINADA VS. M/S. ADITI ASSOCIATES, KAKINADA [PAN: AAPFA3660F ] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SMT. D. KOMALI KRISHNA,DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 09.06.2016 / DATE OF PRONOUNCEMENT : 17.06.2016 ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 28.8.2014 FOR THE ASSESSMENT YEAR 2010-11. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE HEARD TOG ETHER AND DISPOSED OFF, BY THIS COMMON ORDER FOR THE SAKE OF CONVENIEN CE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE FINANCE BUSINESS, FILE D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 16.12.2010 DECLA RING TOTAL INCOME OF ` 1,08,158/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 (HERE INAFTER CALLED AS 'THE ACT') WAS ISSUED. IN RESPONSE TO NOTICE, THE AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISH ED BOOKS OF ACCOUNTS AND OTHER INFORMATION CALLED FOR. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED FROM THE ASSESSEES BALANCE SHEET FOR THE YEAR ENDED 31.3.2003 THAT ASS ESSEE HAS TAKEN LOAN FROM VARIOUS PERSONS TO THE TUNE OF ` 1,05,12,857/-. THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH DETAILS OF UNSECURED LOANS ALONG WITH CONFIRMATION LETTER FROM THE PARTIES. I N RESPONSE TO NOTICE, ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 3 THE ASSESSEE HAS FILED THE DETAILS OF UNSECURED LOA NS ALONG WITH CONFIRMATION LETTERS. TO EXAMINE THE GENUINENESS O F THE ABOVE LOAN CREDITORS, THE A.O. ISSUED SUMMONS U/S 131 OF THE A CT AND RECORDED STATEMENT FROM THE ABOVE SAID 9 CREDITORS. OUT OF T HE 9 LOAN CREDITORS, 4 CREDITORS HAVE BEEN ACCEPTED BY THE A.O., STATING T HAT THE CREDITORS HAVE DISCHARGED THEIR BURDEN CAST UPON BY FILING THE NEC ESSARY PROOF. HOWEVER, IN RESPECT OF REMAINING 5 CREDITORS, THE A .O. OBSERVED THAT IN THE STATEMENT RECORDED, THE CREDITORS HAVE STATED T HAT THEY HAVE ADVANCED LOAN TO THE FIRM AND THE SOURCES FOR THE S AID LOAN WAS BORROWED FROM THEIR FRIENDS. THE A.O. FURTHER OBSER VED THAT FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND CONFIRMATION LETTER FILED BY THE PARTIES, THE AMOUNTS HELD IN THE NAME OF SOME PERSO NS IN THE PREVIOUS FINANCIAL YEAR HAVE BEEN TRANSFERRED TO THE NAME OF THESE 5 PERSONS, BUT IN THE STATEMENT, THEY HAVE STATED THAT THEY HAVE B ORROWED MONEY FROM THEIR FRIENDS AND INVESTED IN M/S. ADITI ASSOCIATES ONLY 6 MONTHS BACK. THERE IS A DIVERGENT FACTS FROM THE STATEMENT OF CR EDITORS AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THEREFORE, THE A.O. CA ME TO THE CONCLUSION THAT CREDITS IN THE NAME OF THESE 5 PERSONS ARE BOG US AND THEREFORE MADE ADDITIONS OF RS.55,63,980/-. ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 4 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED WRITTEN SUBMISSIONS ALONG WITH CONFIRMATION LETTERS , STATEMENT OF UNSECURED LOANS FOR THE YEAR 2008-09 AND 2009-10 AN D COPIES OF RELEVANT LEDGER ACCOUNTS OF LOAN CREDITORS. THE ASS ESSEE FURTHER SUBMITTED THAT LOANS IN THE NAME OF 5 PERSONS ARE A CCEPTED DURING THE FINANCIAL YEAR 2008-09 AND DURING THE FINANCIAL YEA R 2009-10, THE INDIVIDUAL LOANS OF VARIOUS PERSONS HAVE BEEN RE-GR OUPED INTO 5 PERSONS BY PASSING NECESSARY JOURNAL ENTRIES IN THE BOOKS O F ACCOUNTS OF THE FIRM. THE FIRM HAS NOT ACCEPTED ANY FRESH LOANS FRO M THESE PERSONS DURING THE FINANCIAL YEAR 2009-10. THE A.O. WITHOUT EXAMINING THE DETAILS, BELIEVED THE STATEMENT GIVEN BY THE PARTIE S, WHEREIN THEY HAVE STATED BY MISTAKE THAT THEY HAVE INVESTED IN M/S. A DITI ASSOCIATES ON THEIR OWN. THE CIT(A) AFTER CONSIDERING THE EXPLANA TIONS FURNISHED BY THE ASSESSEE HELD THAT THE AMOUNT REPRESENTS UNSECU RED LOANS ARE BORROWED IN THE FINANCIAL YEAR 2008-09, BUT NOT IN THE FINANCIAL YEAR 2009-10. THE ASSESSEE HAS RE-GROUPED THE INDIVIDUAL LOANS ACCOUNTS INTO THESE 5 PERSONS ACCOUNTS BY PASSING JOURNAL ENTRIE S IN THE BOOKS OF ACCOUNTS DURING THE FINANCIAL YEAR 2009-10 WITHOUT ANY FRESH CREDITS. AS THE IMPUGNED LOAN BORROWINGS HAVE TAKEN PLACE IN TH E YEAR 2008-09 AND THERE WAS NO FRESH BORROWINGS IN THE SUBJECT ASSESS MENT YEAR AND ALSO ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 5 THE TRANSFER OF CREDITS ARE CONFIRMED BY THE CREDIT ORS IN THEIR INCOME TAX RETURNS, THERE IS NO BASIS TO MAKE THE ADDITIONS FO R THE SUBJECT ASSESSMENT YEAR. WITH THESE OBSERVATIONS DIRECTED TH E A.O. TO DELETE THE IMPUGNED ADDITIONS MADE U/S 68 OF THE ACT. AGG RIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE CIT(A) ERRED IN IDENTIFYING THE MODUS OPERANDI OF THE ASSESSEE FIRM IN GROUPING THE VARIOUS CREDITS APPEARING IN MANY NAMES TO 9 PERSONS AND THESE 9 PE RSONS ALSO HAVE NO CREDITWORTHINESS, EXCEPT STATING THAT THEY HAVE MOBILIZED THE SUMS FROM THEIR FRIENDS. THE D.R. FURTHER ARGUED THAT TH E CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE A.O. AFTER THORO UGH EXAMINATION OF FACTS HAS DISALLOWED THE AMOUNTS GROUPED TO 5 PERSO NS OUT OF THE TOTAL LOAN FROM 9 PERSONS ON THE BASIS OF STATEMENTS GIVE N BY THESE 5 PERSONS. THE D.R. FURTHER ARGUED THAT WHILE DEPOSI NG BEFORE THE A.O., THESE 5 CREDITORS HAVE STATED THAT THEY HAVE INVEST ED IN THE PARTNERSHIP FIRM FROM THE MONIES BORROWED FROM THEIR FRIENDS AN D RELATIVES ONLY 6 MONTHS BACK THAT TOO IN CASH. THE ASSESSEE FIRM CLA IMS THAT IT HAS BORROWED LOANS FROM VARIOUS INDIVIDUALS DURING THE FINANCIAL YEAR 2008- 09 AND RE-GROUPED THE INDIVIDUAL LOANS INTO THESE 5 PERSONS ACCOUNTS BY PASSING JOURNAL ENTRIES. THERE IS A CONTRADICTORY STATEMENT GIVEN BY THE ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 6 LOAN CREDITORS AND THE PARTNERSHIP FIRM. UNDER THE SE CIRCUMSTANCES, THE A.O. WAS RIGHTLY HELD THAT THE CREDITS APPEARING IN THE NAME OF THESE 5 PERSONS ARE BOGUS. 5. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF CIT(A). THE A.R. FURTHER SUB MITTED THAT THE ASSESSING OFFICER SHOULD HAVE CONSIDERED THE FACT T HAT THE CREDITORS HAVING ENOUGH SOURCES TO ADVANCE MONIES TO THE PART NERSHIP FIRM. THE CREDITORS HAVE FILED CONFIRMATION LETTERS AND ALSO PROVED THE SOURCES FOR LOANS GIVEN TO PARTNERSHIP FIRMS. THE A.R. FURTHER ARGUED THAT THE ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THA T NONE OF THE CREDITS ARE RECEIVED DURING THE RELEVANT FINANCIAL YEARS. ALL T HE CREDITS ARE RECEIVED DURING THE FINANCIAL YEAR 2008-09 AND DURING THE FI NANCIAL YEAR THE FIRM HAS RE-GROUPED THE INDIVIDUAL LOANS INTO 5 PERSONS ACCOUNTS BECAUSE OF ADMINISTRATIVE CONVENIENCE. THE A.O. WAS NOT CORREC T IN INVOKING THE PROVISIONS OF SEC. 68 TO THE CREDITS FOUND IN THE B OOKS OF ACCOUNTS WHICH ARE BROUGHT FORWARDED FROM PREVIOUS FINANCIAL YEAR. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. MADE ADDITIONS U/S 68 OF THE ACT TOWARDS UNSEC URED LOANS. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT P ROVED THE ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 7 GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINES S OF THE PARTIES IN RESPECT OF THESE 5 CREDITORS OUT OF 9 CREDITORS. TH E A.O. FURTHER OBSERVED THAT THE CREDITORS HAVE ADMITTED THAT THEY THEMSELV ES HAVE INVESTED THE MONEY IN THE PARTNERSHIP FIRM OUT OF THE BORROWINGS FROM THEIR FRIENDS AND RELATIVES IN LAST 6 MONTHS THAT TOO IN CASH. T HE ASSESSEE CLAIMS THAT IT HAS ACCEPTED LOANS FROM VARIOUS INDIVIDUALS DURI NG THE FINANCIAL YEAR 2008-09 AND DURING THIS FINANCIAL YEAR IT HAS RE-GR OUPED THE LOANS STANDING IN THE NAME OF VARIOUS INDIVIDUALS INTO TH ESE 5 PERSONS ACCOUNTS BY PASSING NECESSARY JOURNAL ENTRIES IN TH E BOOKS OF ACCOUNTS OF THE FIRM. THERE IS NO FRESH LOAN ACCEPTED DURIN G THE CURRENT FINANCIAL YEAR, THEREFORE, THE A.O. WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAS ACCEPTED FRESH LOAN DURING TH E FINANCIAL YEAR 2009-10. 7. THE ISSUE BEFORE US IS UNDER THE FACTS AND CIRCU MSTANCES OF THE CASE, THE A.O. WAS RIGHT IN INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT, TO MAKE ADDITION TOWARDS CREDITS BROUGHT FORWA RD FROM LAST YEAR. SEC. 68 PROVIDES FOR ADDITION, WHERE ANY SUM IS FOU ND CREDITED IN THE BOOKS OF ASSESSEE MAINTAINED FOR THE PREVIOUS YEAR AND THE ASSESSEE OFFERS NO EXPLANATIONS ABOUT THE NATURE AND SOURCE THEREOF, OR EXPLANATIONS OFFERED BY THE ASSESSEE IS NOT IN THE OPINION OF THE A.O. ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 8 SATISFACTORY, THEN SUM FOUND CREDITED MAY BE CHARGE D TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. A PLAIN READING OF SECTION 68 OF THE ACT MAKES IT CLEAR THAT ANY SUM F OUND CREDITED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, ASSESSEE OFFERS NO EXPLANATIONS ABOUT NATURE AND SOURCE OF THE CREDITS, THEN THE SU MS FOUND CREDITED IN THE BOOKS OF ACCOUNTS IS TAXABLE DURING THAT FINANC IAL YEAR. IN THE PRESENT CASE ON HAND, ON PERUSAL OF THE FACTS AVAIL ABLE ON RECORD, WE NOTICED THAT THE ASSESSEE HAS ACCEPTED LOANS FROM V ARIOUS INDIVIDUALS DURING THE PREVIOUS FINANCIAL YEAR 2008-09. DURING THE FINANCIAL YEAR 2009-10 THE ASSESSEE HAS RE-GROUPED THE VARIOUS LOA N ACCOUNTS INTO THESE 5 CREDITORS ACCOUNTS BY PASSING NECESSARY JO URNAL ENTRIES. WE FURTHER NOTICED THAT THERE IS NO FRESH CREDIT ACCEP TED DURING THE CURRENT FINANCIAL YEAR. ALL THE CREDITS ARE TRANSFERRED FR OM THE PREVIOUS FINANCIAL YEAR. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. W AS NOT CORRECT IN MAKING ADDITIONS TOWARDS BROUGHT FORWARD CREDITS DU RING THE FINANCIAL YEAR 2009-10. THE CIT(A) AFTER CONSIDERING THE RELE VANT DETAILS DELETED THE ADDITIONS MADE BY THE A.O. WE DO NOT SEE ANY ER ROR OR INFIRMITY IN THE ORDER PASSED BY THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS THE APPEAL FILED BY THE REVENUE. ITA NO.594/VIZAG/2014 & CO NO.11/VIZAG/2015 M/S. ADITI ASSOCIATES, KAKINADA 9 8. THE CROSS OBJECTION FILED BY THE ASSESSEE IS SUP PORTING THE ORDER OF CIT(A). THEREFORE, FOR THE REASONS RECORDED IN THE PRECEDING PARAGRAPHS, WE DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17 TH JUN16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 17.06.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-1, KAKINADA 2. / THE RESPONDENT M/S. ADITI ASSOCIATES, D.NO.4-1 9-56/16, ADITI ARCADE, 5 TH STREET, SRINAGAR, MANDAPETA, EAST GODAVARI DIST. 3. + / THE PRINCIPAL CIT-2, VISAKHAPATNAM 4. + / THE CIT, RAJAHMUNDRY 5. + ( ) / THE CIT (A), VISAKHAPATNAM 6. # . , . , # / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM