M/s Shri Ramkrupa Corporation, RAJKOT-GUJARAT V. The Income Tax Officer, Ward 2(4), RAJKOT-GUJARAT

CO 18/RJT/2010

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2554 (ITAT-RAJKOT)
• Duration Of Justice: 11 year(s) 7 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-10-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-10-2021
• Assessment Year: 2003-2004
• Appeal Filed On: 08-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S RATHI
• Assessee Lawyers: RM MANEK
• Keywords: Business income; Depreciation; Income from undisclosed sources; Additional evidence; Wrong claim; Set aside
• Section: 48; 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (THROUGH VIRTUAL COURT) BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./C.O. NO. 18/RJT/2010 (IN ITA NO. 652/RJT/2010) ( / ASSESSMENT YEAR: 2003-04) M/S. SHRI RAMKRUPA CORPORATION 7, LATI PLOT, KUVADAVA ROAD, RAJKOT / VS. ITO WARD-2(4), RAJKOT ./ ./PAN/GIR NO. : AAQFS1834G ( /APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI R. M.MANEK, AR / RESPONDENT BY : SHRI S. S. RATHI, SR. DR / DATE OF HEARING 05/10/2021 / DATE OF PRONOUNCEMENT 29/10/2021 !' /O R D E R PER MADHUMITA ROY, JM: THE CROSS OBJECTION FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 25.11.2009 PASSED BY THE LD. CIT(A)-III, RAJKO T ARISING OUT OF THE ORDER DATED 31.12.2008 PASSED BY THE ITO, WARD-2(4), RAJK OT UNDER SECTION 144 R.W.S. 263 OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED AS TO THE ACT) FOR A.Y. 2003-04 WITH THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ADDITION OF RS. 3371217/- ON ACCOUNT OF INTEREST PAID THOUGH IT WAS CONFIRMED BY THE PAYEE. 2. THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANC E OF INTEREST OF RS. 3371217/- BY NOT APPRECIATING THE FACT AND COMPUTATION OF INCOME ACCOMPANIED WITH THE RETURN OF INCOME WHICH IS BAD IN LAW AND ALSO ON FACTS. 3. THE LEARNED CIT(A) HAS ALSO ERRED IN CONSIDERING THE INTEREST EXPENDITURE OF RS. 3371217/- AS NOT ALLOWABLE U/S. 36(1) OR SEC. 37 OF I.T. ACT WHICH IS BAD IN LAW AND FACTS OF THE CASE. C.O. NO. 18/RJT/2010 A.Y. 2003-04 - 2 - 4. THE LEARNED CIT(A) HAS ALSO ERRED IN CONFIRMING RS. 3657103/- WHICH IS BAD IN LAW AND ON FACTS. 5. THE LEARNED CIT(A) HAS ALSO ERRED IN CONSIDERING THE COMMISSION INCOME OF RS. 3657103/- AS INCOME FROM UNDISCLOSED SOURCES THOUGH AUDIT REPORT WAS ON RECORD. 6. THE LEARNED CIT(A) HAS ALSO ERRED IN CONFIRMING RS. 585299/- BEING FROM CAPITAL INTRODUCED BY PARTNERS WHICH IS BAD IN LAW AND ALSO ON FACTS. 7. THE LEARNED CIT(A) HAS ALSO ERRED IN CONFIRMING THE INTEREST U/S. 234B, 234C OF I. T. ACT WHICH IS BAD IN LAW. 2. GROUND NOS. 1, 2 & 3 ARE RELATING TO DISALLOWANC E OF INTEREST EXPENDITURE UNDER SECTION 36(1) OF THE ACT. 3. THE BRIEF FACTS LEADING TO THE ISSUE IS THIS THA T SUCH INTEREST ACCRUED AMOUNTING TO RS. 33,71,217/- THOUGH CLAIMED AS PAYA BLE IN THE RETURN BUT WAS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. SINCE SEVERAL OPPORTUNITIES WERE GIVEN TO THE ASSESSEE NO EXPLANATION AND/OR SUBMISS IONS MADE IN SUPPORT OF SUCH DEDUCTION OF INTEREST ACCRUED AND PAYABLE AND HENCE THE SAME COULD NOT BE VERIFIED AND THEREFORE, WAS DISALLOWED FINALLY A ND ADDED TO THE TOTAL INCOME OF THE ASSESSEE WHICH WAS, IN TURN, CONFIRMED BY TH E LD. CIT(A). HENCE, THE INSTANT APPEAL BEFORE US. 4. THE APPELLANTS CASE IS THIS THAT THE APPELLANT HAD TAKEN ADVANCE FROM M/S. RAMDOOT FINANCE LTD. THE COMPANY HAD NOT MADE PROVISION FOR THE INTEREST TO BE PAID AS IT WAS NOT DECIDED TILL THE FINALIZATION OF THE ACCOUNTS. HOWEVER, IT HAS SUBSEQUENTLY DECIDED TO PAY THE INT EREST ON THE AMOUNT BORROWED FROM RAMDOOT FINANCE LTD. SUCH CLAIM OF I NTEREST WAS MADE IN THE STATEMENT OF ACCOUNT ONLY AT THE TIME OF FILING OF RETURN. 5. THE LD. CIT(A) WHILE DECIDING THE CLAIM AGAINST THE ASSESSEE OBSERVED AS FOLLOWS: 5.6. I HAVE CAREFULLY CONSIDERED THE FINDING GIVEN BY THE ASSESSING OFFICER AND THE SUBMISSION OF THE AR OF THE APPELLANT. FROM THE PER USAL OF ALL THE FACTS, IT IS NOTICED THAT THE APPELLANT'S CLAIM THAT INTEREST IS PAYABLE TO M/S. RAMDOOT FINANCE LTD. IS NOT BORNE OUT FROM THE RECORDS OR SUPPORTED BY ANY EVIDENCE. IT IS FOUND THAT IN THE AUDITED ACCOUNTS OF APPELLANT INTEREST LIABILITY OF RS. 3371217/- HAS NEVER BEEN C.O. NO. 18/RJT/2010 A.Y. 2003-04 - 3 - DEBITED. IT IS ONLY THAT IN THE COMPUTATION OF INCO ME FILED WITH THE RETURN OF INCOME, THE APPELLANT HAS MADE CLAIM OF PAYMENT OF RS. 3371 217/- FOR INTEREST AND DEDUCTED THE SAME FROM THE INCOME SHOWN. IT APPEARS TO BE A LAST MOMENT AFTER THOUGHT MADE BY THE APPELLANT TO REDUCE THE INCOME AND LOWE R THE TAX INCIDENT BY RESORTING TO THIS COLOURABLE EXERCISE. THERE IS NO RECORD OR ANY AGREEMENT TO SHOW THAT INTEREST WAS PAYABLE TO M/S. RAMDOOT FINANCE LTD., HENCE IT IS APPARENT THAT THERE WAS NO LIABILITY TO PAY INTEREST AND THAT APPELLANT HAS CREATED BOGUS LIABILITY WITH THE SOLE PURPOSE OF REDUCING THE PROFIT, NO DETAILS REGARDING THE RATE OF INTEREST CHARGED OR WORKING OF INTEREST WAS ALSO FILED IN SU PPORT OF THE CLAIM OF INTEREST. APPARENTLY WHEN THE SAME IS NOT ACCOUNTED FOR IN TH E BOOKS OF ACCOUNTS, NO DETAILS ARE FORTHCOMING FROM THE APPELLANT. THE COPY OF M/S . RAMDOOT FINANCE LTD. IN THE BOOKS OF APPELLANT IS ALSO NOT FILED, WHICH CAN BE MADE BASIS TO EXAMINE THE CLAIM OF INTEREST. ONLY IN THE AUDITED ACCOUNTS OF APPELL ANT IN ADVANCES, AMOUNT OF RS. 3111469/- IS SHOWN AGAINST M/S.RAMDOOT FINANCE LTD. IN AUDITED ACCOUNTS, NO INTEREST LIABILITY HAS BEEN FOUND DEBITED. THE APPE LLANT ALSO FILED COPY OF AUDITED ACCOUNTS OF M/S.RAMDOOT FINANCE LTD. THE EXAMINATI ON OF THE SAME REVEALED THAT IN THE AUDITED ACCOUNTS OF M/S RAMDOOT FINANCE LT D. IN CURRENT LIABILITY AMOUNT OF RS.3111469/-IS SHOWN AGAINST THE APPELLANT I.E. M/S . SHRI RAMKRUPA CORPORATION. IT IS ALSO FOUND THAT IN THE AUDITED ACCOUNTS OF M/ S.RAMDOOT FINANCE LTD, INTEREST INCOME OF RS.3371217/- WAS NOT CREDITED. THE P & L ACCOUNTS SHOW ONLY INTEREST INCOME OF RS.197266/-. THUS, THE APPELLANT'S ABOVE CLAIM THAT INTEREST WAS PAYABLE IS NOT FOUND SUPPORTED BY ANY FACTS OR MATERIAL ON RECORD. ON THE OTHER HAND, THE EXAMINATION OF THE AUDITED ACCOUNTS OF APPELLANT AN D M/S. RAMDOOT FINANCE LTD. AND ALL MATERIAL FACTS POINT OUT THAT APPELLANT HAS CREATED BOGUS INTEREST LIABILITY, WHICH CANNOT BE ALLOWED TO BE DEDUCTED OUT OF PROFI T SHOWN IN BOOKS OF ACCOUNTS. RELIANCE PLACED ON GWAN BROTHERS 48 ITR 941 (ALL). THE APPELLANT'S OTHER CLAIM THAT M/S.RAMDOOT FINANCE LTD. HAS SHOWN INTEREST IN COME IN THEIR RETURN OF INCOME WAS VERIFIED AND IT IS FOUND THAT M/S.RAMDOOT FINAN CE LTD, WAS HAVING HUGE LOSSES DURING THE A.Y.2003-04. ON VERIFICATION OF COMPUTAT ION OF INCOME OF M/S.RAMDOOT FINANCE LTD., IT IS NOTICED THAT THERE IS A HUGE LO SS OF RS.3431216/- AND THIS HAS BEEN SET OFF BY CLAIMING DEPRECIATION OF RS.162691/ - AND INTEREST INCOME OF RS.3371217/- NOT ACCOUNTED FOR AND DONATIONS OF RS. 56700/-, TOTALING TO RS.3590608/-, AND AFTER REDUCING DEPRECIATION AS PE R AUDITED ACCOUNTS OF RS.162691/-, LOSS OF RS.3299/- HAS BEEN RETURNED. T HIS FACT CLEARLY SHOWS THAT BECAUSE OF HUGE LOSS AVAILABLE, THE BOGUS LIABILITY WAS CREATED IN THE ACCOUNT OF THE APPELLANT AND INTEREST INCOME WAS SHOWN IN THE HAND S OF M/S.RAMDOOT FINANCE LTD., WHICH RESULTED INTO NO TAX LIABILITY IN THE H ANDS OF M/S.RAMDOOT FINANCE LTD. AS THERE REMAIN NET LOSS OF RS.3299/-. THUS, IN THI S COLOURALBE MANNER BY CREATING BOGUS LIABILITY OF RS.3371217/-, APPELLANT HAS REDU CED ITS PROFIT AND NOT PAID TAX ON THE SAME. ON OTHER HAND M/S.RAMDOOT FINANCE LTD, HA S NOT PAID ANY TAX ON ACCOUNT OF THIS SHAM AND BOGUS TRANSACTION, WHICH C ANNOT BE ALLOWED IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MC DOWELL AND CO. LIMITED VS. CIT (154 ITR 148). FURTHER THE ADVANCES OR BORROWIN GS TAKEN FROM M/S,RAMDOOT FINANCE LTD. SHOWN OUTSTANDING OF RS.3111469/- HAVE NOT BEEN PROVED TO BE USED FOR BUSINESS PURPOSES, THEREFORE, NO DEDUCTION CAN BE ALLOWED U/S.36(L)(III) OF THE IT, ACT, 1961. THE APPELLANT HAS FAILED TO PROVE THE C ONDITIONS LAID DOWN U/S.36(L)(III) ARE FULFILLED BY THEM TO CLAIM DEDUCTION OF INTERES T. AS NO EVIDENCE THERE TO PROVE THAT ADVANCES WERE TAKEN FOR BUSINESS PURPOSES, NO INTEREST LIABILITY OF RS.3371217/- CAN BE ALLOWED, RELIANCE IS PLACED ON TIRUPATI TRAD ING CO, 244 ITR 18 (KAL), INDIAN SAVINGS PRODUCTS LTD, 265 ITR 252 (RAJ), ORISSA CEM ENT LTD. 258 ITR 365 (DEL). FURTHER THE INTEREST LIABILITY IS ALSO NOT ALLOWED U/S.37 AS DEBT IS NOT EXPLAINED AND ITS USE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE S IS NOT PROVED. CONSIDERING ALL C.O. NO. 18/RJT/2010 A.Y. 2003-04 - 4 - THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT INTEREST LIABILITY OF RS,3371217/- IS NOT ALLOWABLE EITHER U/S,36(L)(III) OR SECTION 37 AND ON THE OTHER HAND IT IS ALSO PROVED TO BE A BOGUS LIABILITY, MOR EOVER, THE INCOME SHOWN BY THE APPELLANT HAS NOT BEEN TREATED AS BUSINESS INCOME B UT INCOME FROM UNDISCLOSED INCOME, WHILE DECIDING GROUND OF APPEAL NO. 4. AS SUCH , NO DEDUCTION U/S. 36(1)(III) CAN BE ALLOWED. THEREFORE, THE ADDITION OF RS. 3371217/- MADE BY THE AO IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 6. THE ASSESSEES FURTHER CASE IS THIS THAT THE ASS ESSEE FIRM WAS HAVING OVERDUE DEBTS TO RAJKOT NAGARIK SAHAKARI BANK. THE SAID BANK HAS SEALED THE OFFICE PREMISES AND TAKEN THE POSSESSION OF THE OFF ICE OF THE FIRM AS A STEP FOR THE RECOVERY OF THE DUES. FOR THIS REASON THE ASSE SSEE COULD NOT PRODUCE THE RELEVANT MATERIALS IN SUPPORT OF HIS CASE. HOWEVER , THE LD. ADVOCATE APPEARING FOR THE ASSESSEE FAILED TO GIVE US ANY PR OPER EXPLANATION AS TO WHAT STEPS THE ASSESSEE HAS TAKEN FOR OBTAINING THOSE DO CUMENTS FROM THE CONCERNED BANK IN ORDER TO SUBMIT THE SAME TO THE REVENUE WHI CH HAS SUBMITTED TO HAVE BEEN SEALED AND LYING WITH THE SAID BANKS FOR THE L AST MORE THAN 15 YEARS. 7. THE MAIN GRIEVANCE OF THE REVENUE IS THIS THAT I N THE AUDITED ACCOUNTS OF THE APPELLANT THE LIABILITY OF RS. 33,71,217/- H AS NEVER BEEN DEBITED AS IT APPEARS THEREIN. ON THE CONTRARY, IT WAS ALSO FOUN D THAT THE AUDITED ACCOUNTS OF M/S. RAMDOOT FINANCE LTD. THE INTEREST AMOUNT TO THE TUNE OF RS. 33,71,217/- WAS NOT CREDITED. THE APPELLANT CLAIM THAT INTEREST PAYMENT WAS NOT FOUND SUPPORTED BY ANY FACTS OR MATERIAL ON REC ORD. IN THAT VIEW OF THE MATTER IN THE ABSENCE OF PROPER EXPLANATION MADE BY THE ASSESSEE WITH CORROBORATIVE EVIDENCE THE INCOME SHOWN BY THE APPE LLANT HAS RIGHTLY BEEN TREATED AS UNDISCLOSED INCOME AND ADDED TO THE TOTA L INCOME OF THE ASSESSEE BY THE REVENUE WHICH WAS FURTHER CONFIRMED BY THE LD. CIT(A) WITHOUT ANY AMBIGUITY SO AS TO WARRANT INTERFERENCE. HENCE, TH E GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE FOUND TO BE DEVOID OF ANY MERIT AN D HENCE DISMISSED. C.O. NO. 18/RJT/2010 A.Y. 2003-04 - 5 - GROUND NOS. 4 & 5:- 8. THESE GROUNDS RELATE TO THE COMMISSION INCOME OF RS. 36,57,103/- WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE TREATING THE SAME AS INCOME FROM UNDISCLOSED SOURCES. 9. IN THE ORIGINAL ASSESSMENT ORDER THIS COMMISSION INCOME HAS BEEN TREATED INCOME FROM UNDISCLOSED SOURCES WHICH HAS A GAIN BEEN REITERATED IN THE BUSINESS OF EVIDENCE OF EARNING THE SAID COMMIS SION. IN APPEAL CERTAIN ADDITIONAL EVIDENCES TAKING OVER POSSESSION ALL THE RECORDS OF THE ASSESSEE BY RAJKOT NAGRIK SAHAKARI BANK WHICH PREVENT THE ASSES SEE TO PRODUCE THE BOOKS OF ACCOUNTS UNDER RULE 46A OF THE ACT WERE PLACED B EFORE THE LD. CIT(A) WHICH WAS FORWARDED TO THE LD. AO FOR HIS COMMENT. IN REPLY OF THE SAME THE AO REITERATED THE NON-COMPLIANCE OF THE COURSE OF A SSESSMENT PROCEEDING AND THEN IT WAS THE LD. CIT WHO TOOK THE PEN OF EXAMINI NG THE ISSUES IN DETAILS. THE RELEVANT OBSERVATION MADE BY THE LD. CIT(A) ON THIS ASPECT IS AS FOLLOWS: 6.6 I HAVE CAREFULLY CONSIDERED THE FINDING GIVEN BY THE ASSESSING OFFICER AND THE SUBMISSION OF THE AR OF THE APPELLANT. IT IS NO TICED THAT IN THE AUDITED ACCOUNTS FILED DURING THE APPELLATE PROCEEDINGS, THE APPELLA NT HAS SHOWN THE AMOUNT OF RS. 3657103/- AS COMMISSION INCOME AND CLAIMED EXPENDIT URE OF RS. 287142/- THEREBY SHOWING NET PROFIT OF RS. 3370871/-. THE ASSESSING OFFICER HAS MENTIONED THAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS IN WANT OF ANY EXPLANATION REGARDING NATURE OF INCOME, THE INCOME WAS TREATED AS INCOME FROM UNDIS CLOSED SOURCES. IN SET ASIDE PROCEEDINGS ALSO, THE ASSESSING OFFICER TREATED THE SAME AS INCOME FROM UNDISCLOSED SOURCES AS NO EXPLANATION WAS FILED BY THE APPELLANT BEFORE ME. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE ME ALSO, THE NATURE OF BUSINESS HAS NOT EXPLAINED AND ALSO THE NATURE OF INCOME AND SOURCE OF INCOME IS NOT DISCLOSED. THEREFORE, THE TOTAL INCOME SHOWN BY THE APPELLANT IS REQUIRED TO BE CONSIDERED AS INCOME FROM UNDISCLOSED SOURCES. THEREFORE, THE EXP ENSES CLAIMED ARE ALSO NOT HELD AS ALLOWABLE. CONSIDERING ALL THE FACTS AND CIRCUMS TANCES OF THE CASE, THE AOS ACTION IN CONSIDERING THE COMMISSION INCOME OF RS. 3657103/- AS INCOME FROM UNDISCLOSED SOURCES IS CONFIRMED. THIS GROUND OF AP PEAL IS DISMISSED. THE LAST AND 5 TH GROUND OF APPEAL IS GENERAL IN NATURE, DO NOT REQU IRE ANY ADJUDICATION. IN VIEW OF THE ABOVE DECISION, THE ASSESSING OFFICER IS DIR ECTED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE AS UNDER:- 1. INCOME FROM UNDISCLOSED SOURCES RS. 3657103/- 2. BOGUS CLAIM OF INTEREST ACCRUED RS. 3371217/- 3. UNEXPLAINED CAPITAL RS. 585299/- TOTAL INCOME RS. 7613619/- C.O. NO. 18/RJT/2010 A.Y. 2003-04 - 6 - THUS, IT APPEARS SINCE BEFORE THE APPELLATE PROCEE DING THE NATURE OF BUSINESS HAS NOT BEEN EXPLAINED AND ALSO THE NATURE OF INCOME AND THE SOURCE OF INCOME WERE NOT DISCLOSED. IN THAT VIEW OF THE MATTER, THE TOTAL INCOME SHOWN BY THE APPELLANT WERE CONSIDERED AS UNDISCLOS ED SOURCES AND EXPENSES CLAIMED MADE THEREUPON WAS THUS DISALLOWED. WHICH IN OUR CONSIDERED VIEW IS JUST AND PROPER WITHOUT ANY AMBIGUITY SO AS TO W ARRANT INTERFERENCE. GROUND NO.6:- 10. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ASSESSEE HE DOES NOT WANT TO PRESS THIS GROUND. ACCORDINGLY, THIS G ROUND OF APPEAL IS DISMISSED AS NOT PRESSED. 11. GROUND NO. 7 IS CONSEQUENTIAL AND THAT DOES NOT NEED ANY ADJUDICATION AT THIS STAGE. 12. IN THE RESULT, THE C.O. FILED BY THE ASSESSEE I S DISMISSED. SD/- SD/- (AMARJIT SINGH) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 2910/2021 TANMAY TRUE COPY / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. ! / ASSESSEE 3. #$% & / CONCERNED CIT 4. & - / CIT (A) 5. '( ) **$% , $% , +,! # ! / DR, ITAT, AHMEDABAD 6. ) -. / / GUARD FILE. BY ORDER/ !' , / ( DY./ASSTT.REGISTRAR) ! ' , 0 / ITAT, RAJKOT THIS ORDER PRONOUNCED IN OPEN COURT ON 29/10/2021