ITO, Hyderabad V. M/s Gayatri Associates, Secunderabad

ITA 1026/HYD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1355 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Accommodation entries; Capital receipt
• Section: 143(3); 68; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNA L HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1026/HYD/2010 ASSESSMENT YEAR 2005-06 THE INCOME TAX OFFICER WARD-10(2) HYDERABAD VS. M/S. GAYATRI ASSOCIATES SECUNDERABAD PAN: AAFFG6635E APPELLANT RESPONDENT APPELLANT BY: SMT. AMISHA S. GUPT RESPONDENT BY: SRI S. RAMA RAO DATE OF HEARING: 1 0.01.2013 DATE OF PRONOUNCEMENT: 11.03.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), TIRUPATI DATED 28.4.2010 FOR ASSESSMENT YEAR 2005-06. 2. THE GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL IS WITH REGARD TO DELETION OF ADDITION OF RS. 64,00,00 0 MADE TOWARDS UNEXPLAINED CASH CREDITS U/S. 68 OF INCOME- TAX ACT, 1961. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISPOSAL OF LIQUIDATED INDUSTRIAL UNDERTAKINGS. THE ASSESSING OFFICER WHI LE COMPLETING ASSESSMENT U/S. 143(3) OF THE ACT NOTICE D THAT THE ASSESSEE HAS RECEIVED UNSECURED LOANS FROM THE FOLLOWING PARTIES: IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 2 S. NO. NAME AMOUNT (RS.) REMARKS 1. PADMAVATHI 12,00,000 LOAN 2. K. VENUBABU 8,00,000 ADVANCE 3. J.S. CHOWDARY 4,00,000 ADVANCE 4. P. SAILAJA 1,61,335 ADVANCE 5. P. SAILAL 6,38,665 ADVANCE 6. P. SRIDEVI 8,00,000 ADVANCE 7. VENKATESWAR RAO 16,00,000 ADVANCE 8. NEW SMILE 8,00,000 ADVANCE TOTAL 64,00,000 4. AS THE ASSESSEE FAILED TO ESTABLISH THE IDENTITY, C REDIT- WORTHINESS AND GENUINENESS OF THE TRANSACTIONS BEFO RE THE ASSESSING OFFICER, THE ASSESSING OFFICER TREATED TH E SAME AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT. 5. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE FURNISHED ADDRESSES AND BANK ACCOUNTS OF THE RESPEC TIVE PARTIES. HE OBSERVED THAT THE ASSESSING OFFICER WI THOUT EXAMINING THE PARTIES HAS REJECTED EXPLANATION OF T HE ASSESSEE. ACCORDING TO THE CIT(A), THE ASSESSEE HAS DISCHARGE D THE INITIAL BURDEN CAST UPON IT. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND PROCEEDI NGS, THE ASSESSING OFFICER CONFIRMED THE FACT THAT THE ASSES SEE HAS FURNISHED BANK ACCOUNTS THROUGH WHICH THE TRANSACTI ONS TOOK PLACE IN RESPECT OF FOUR PARTIES OUT OF 8 PARTIES A ND IN RESPECT OF THE OTHER FOUR PARTIES THE ASSESSEE FAILED TO PRODU CE BANK ACCOUNTS. AFTER CONSIDERING THE REMAND REPORT, THE CIT(A) OBSERVED THAT THE ASSESSEE HAS COMMENCED ITS BUSINE SS IN AUGUST, 2004. THE MONEY RECEIVED IN THE INITIAL PE RIOD CANNOT BE TREATED AS CASH CREDITS AND IT IS A TRADE ADVANC E. HE OBSERVED THAT PROVISIONS OF SECTION 68 OF THE ACT A RE NOT APPLICABLE AND AS THE ASSESSEE HAS PRODUCED ADDRESS ES OF ALL THE PARTIES, IDENTITIES OF THE PARTIES IS PROVED AN D ALSO THE BANK ACCOUNTS OF FOUR PARTIES WHICH DID NOT REVEAL ANY S USPICIOUS IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 3 FEATURES, THEREFORE, SECTION 68 OF THE ACT IS NOT A PPLICABLE. FURTHER, THE CIT(A) OBSERVED THAT AS THE ASSESSEE F URNISHED DETAILS OF ALL THE EIGHT PARTIES ALONG WITH CHEQUE/ DD DETAILS AND ALSO BANK ACCOUNT IN RESPECT OF FOUR PARTIES AND AL SO EXPLAINED CIRCUMSTANCES UNDER WHICH THE CASH CREDITS WERE REC EIVED AND THE CIT(A) DELETED THE ADDITION. AGAINST THE DELET ION OF ADDITION, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT WITH REGARD TO I DENTITY AND CAPACITY OF THE PARTIES AND GENUINENESS OF THE TRAN SACTIONS. HE SUBMITTED THAT BANK STATEMENT FOR COMPLETE YEAR OF THOSE PARTIES WAS NOT GIVEN. SHE ALSO SUBMITTED THAT IN THOSE CREDITORS' ACCOUNTS CHEQUE WAS ISSUED TO THE ASSESS EE ON THE SAME DAY WHEN THE CASH IS DEPOSITED. ACCORDING TO HER IT GIVES THE INDICATION THAT THESE ARE ACCOMMODATION TRANSAC TIONS. SHE RELIED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF MANGILAL JAIN VS. ITO (315 ITR 105) (MAD). FURTHER SHE SUBMITTED THAT IN SIMILAR CIRCUMSTANCES IN THE CASE OF M/S. BEERELLI DAMADAR IN ITA NO. 1648/HYD/2008, THE TRIB UNAL VIDE ORDER DATED 9 TH APRIL, 2010 CONFIRMED THE ADDITION MADE U/S. 68 OF THE ACT BY OBSERVING THAT EVEN THE CREDIT ENTRIE S IN THE ACCOUNTS OF THE ASSESSEE IN THE FIRST YEAR ALSO LIA BLE FOR ADDITION U/S. 68 OF THE ACT. 7. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT TH E ASSESSEE IS MAINLY INTO THE BUSINESS OF ACQUISITION , DISMANTLING AND DISPOSAL OF SICK INDUSTRIAL UNDERTAKINGS IN THE OPEN AUCTION. THE FIRM HAS BEEN PARTICIPATING IN THE B IDDING PROCESS FOR DISPOSAL OF SICK UNITS OF M/S. NEYVELLI LIGNITE CORPORATION, CHENNAI BUT THE TENDER HAS GONE IN FAVOUR OF M/S. C HITRAHAR TRADERS, TIRUPUR (CHT). LATER CHT CAME INTO AN UND ERSTANDING WITH THE FIRM ON THE CONDITION OF CONTRIBUTING RS. 3 CRORES WHICH WOULD BE ADJUSTED AGAINST THE DISPOSAL OF MATERIAL. AS THE IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 4 ASSESSEE COULD NOT MOBILISE ENTIRE RS. 3 CRORES, AS AGREED, BUT ONLY RS. 2.36 CRORES, THE CHT MOBILISED THE BALANCE AMOUNT FROM THEIR KNOWN ASSOCIATES. ACCORDINGLY, THE ABOV E 8 PERSONS, AS TABULATED IN EARLIER PARAS, CONTRIBUTED RS. 64 L AKHS. HE SUBMITTED THAT THE ASSESSEE HAS FILED ADDRESSES OF ALL THE PARTIES BEFORE THE LOWER AUTHORITIES AND ALSO BANK ACCOUNTS OF FOUR OF THEM AND ESTABLISHED AUTHENTICITY OF THE TRANSACTIO NS. ACCORDING TO THE AR THE ASSESSEE DISCHARGED THE INI TIAL BURDEN CAST UPON IT AND TO PROVE IT OTHERWISE, THE ASSESSI NG OFFICER SHALL BRING THE FACTS TO SHOW THAT THE ENTRIES ARE BOGUS OR ACCOMMODATION ENTRIES. FURTHER HERE RELIED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGI NEERING & CONSTRUCTION CO. (83 ITR 187) FOR THE PROPOSITION T HAT THE ASSESSEE CANNOT DERIVE HUGE PROFIT WITHIN A FEW DAY S OF COMMENCEMENT OF BUSINESS AND IT IS REASONABLE TO PR ESUME THAT THE CASH ENTRIES ARE CAPITAL RECEIPTS AND CANNOT BE CONSIDERED AS UNEXPLAINED CASH CREDITS U/S. 68 OF THE ACT. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL ON RECORD. SECTION 68 OF THE INCOME-TAX ACT, 1961 REA DS AS FOLLOWS: 'WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF 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 INC OME OF THE ASSESSEE OF THAT PREVIOUS YEAR.' 9. AS PER SECTION 68 ANY CASH CREDITS WHICH ARE NOT SATISFACTORILY EXPLAINED MAY BE ASSESSED AS INCOME. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF ACCOUNT OF TH E ASSESSEE, INITIAL BURDEN IS ON THE ASSESSEE TO OFFER AN EXPLA NATION OF THE NATURE AND SOURCE OF THE CASH CREDIT. IF THE EXPLA NATION IS NOT FOUND SATISFACTORY OR REASONABLE, THE ASSESSING OFF ICER CAN TREAT SUCH MONEY AS ASSESSEES INCOME FROM UNDISCLOSED SO URCES. IT WAS HELD BY THE SUPREME COURT IN THE CASE OF A. GOV INDARAJULU IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 5 MUDALIAR VS. CIT (34 ITR 807) THAT SECTION 68 CONST ITUTES A CHARGING PROVISION WHICH APPLIES WHEN THE ASSESSEE S EXPLANATION REGARDING THE CASH CREDIT IS REJECTED A S BEING UNSATISFACTORY OR WHEN THE ASSESSEE DOES NOT RENDER ANY EXPLANATION. SECTION 68 PROVIDES THAT THE ASSESSIN G OFFICER MAY BRING TO CHARGE THAT SUM AS INCOME OF THE PREVIOUS YEAR IF (I) THE SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE FOR ANY PREVIOUS YEAR, (II) THE ASSESSEE OFFERS NO EXPLANAT ION ABOUT THE NATURE OF SOURCE OF THAT SUM AND (III) THE EXPLANAT ION IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, WHERE THE SUM WAS CREDITED MAY BE IN THE ASSESSEES NAME OR IN TH E NAME OF A THIRD PARTY, THE ASSESSEE IS LIABLE TO PLACE NECESS ARY EVIDENCE IN SUPPORT OF THE CLAIM TO FACILITATE THE ASSESSING OF FICER TO CAUSE NECESSARY ENQUIRY. THE ASSESSING OFFICER HAS EVERY POWER TO ENQUIRE INTO ALL THE RELEVANT FACTS BROUGHT ON RECO RD BY THE ASSESSEE. 10. IN THE PRESENT CASE THE ASSESSEE HAS TAKEN A PLEA T HAT THE ASSESSEE HAS FURNISHED REQUISITE DETAILS TO THE ASS ESSING OFFICER. BUT THE FACTS BROUGHT ON RECORD BY THE ASSESSING OF FICER WHICH IS EVIDENCED BY THE REMAND REPORT DATED 4.2.2010 PL ACED AT PAGE NO. 109 OF THE PAPER BOOK SHOWS THAT THE ASSES SEE FURNISHED ONLY DETAILS OF BANK ACCOUNT THROUGH WHIC H TRANSACTION TOOK PLACE IN RESPECT OF FIRST FOUR PAR TIES ONLY OUT OF THE 8 PARTIES TABULATED IN PARA 3 OF THIS ORDER. I N RESPECT OF REMAINING FOUR PARTIES, THE ASSESSEE FAILED TO SUBM IT ANY DETAILS. EVEN AFTER CONSIDERING THIS POSITION, THE CIT(A) OB SERVED THAT THE ASSESSEE HAS PRODUCED ADDRESSES OF ALL THE 8 PA RTIES AND BANK ACCOUNTS OF FOUR PARTIES OF THEM AND HE IS HAV ING NO SUSPICION ABOUT THE NATURE OF CREDITS. THE CIT(A) ALSO RECORDED A FINDING THAT THE ASSESSEE COMMENCED ITS BUSINESS ONLY IN THE MONTH OF AUGUST, 2004 AND THE MONEY RECEIVED CANNOT BE SAID AS CASH CREDITS. THIS FINDING OF THE CIT(A) IS TOT ALLY INCORRECT. IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 6 11. FIRST OF ALL, THE JUDGEMENT RELIED ON BY THE CIT(A) IN THE CASE OF BHARAT ENGINEERING CONSTRUCTION CO. (83 ITR 187) WAS DELIVERED UNDER THE INCOME-TAX ACT, 1922. UNDER SE CTION 68 OF THE INCOME-TAX ACT EVEN IN A CASE WHERE AN AMOUNT I S CREDITED ON THE VERY FIRST DAY OF THE ACCOUNTING YEAR AND TH E EXPLANATION OFFERED BY THE ASSESSEE IS NOT ACCEPTED, SUCH AMOUN T MAY BE ASSESSED AS INCOME OF THE ASSESSEE OF THAT ACCOUNTI NG YEAR FOR WHICH THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT. FU RTHER SOME TRANSACTION TAKEN PLACE BY CHEQUE WHICH CANNOT BE S AID THAT THE TRANSACTION IS GENUINE. IT IS THE BURDEN ON TH E ASSESSEE TO ESTABLISH THE IDENTITY OF THE CREDITORS, CAPACITY O F THE CREDITORS TO ADVANCE MONEY AND GENUINENESS OF THE TRANSACTION . ONCE THE ASSESSEE DISCHARGED THE BURDEN THEN THE BURDEN WILL SHIFT TO THE DEPARTMENT. IT IS NOT CORRECT TO STATE THAT TH E ASSESSING OFFICER IS NOT ENTITLED TO REJECT THE EXPLANATION O F THE ASSESSEE, IF IN HIS OPINION THE EVIDENCE PRODUCED BY THE ASSESSE E IS NOT ENOUGH TO BELIEVE THAT THE TRANSACTION IS GENUINE. IT IS INCUMBENT UPON THE ASSESSEE TO PROVE THAT THE CREDI T ENTRY IN ITS BOOKS OF ACCOUNT DOES NOT REPRESENT ANY INCOME AND THAT THE PARTY IN WHOSE NAME THE AMOUNT IS CREDITED IS NOT F ICTITIOUS PARTY BUT REAL, AND THE ASSESSEE IS ALSO REQUIRED T O PROVE THAT THE ENTRY MADE IN THE BOOKS OF ACCOUNT IS GENUINE. ONCE THE IDENTITY OF THE PARTIES IS ESTABLISHED BEFORE THE A SSESSING OFFICER BY PLACING NECESSARY EVIDENCE AND THE ASSESSEE PROV ED THAT THE ENTRIES ARE NOT FICTITIOUS, THE INITIAL BURDEN LYIN G ON THE ASSESSEE CAN BE SAID TO HAVE BEEN DULY DISCHARGED BY HIM. I T WILL NOT, THEREFORE, BE FOR THE ASSESSEE TO EXPLAIN FURTHER A S TO HOW OR IN WHAT CIRCUMSTANCES THE CREDITORS GIVEN MONEY TO THE ASSESSEE OR HOW AND WHY HE RECEIVED THE ADVANCES FROM THE PA RTIES. AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE FOR T HE REASONS BEST KNOWN TO THE ASSESSEE, FURNISHED ONLY THE BANK ACCO UNT DETAILS OF FOUR PARTIES AND NOT FURNISHED ANY DETAILS OF TH E OTHER FOUR PARTIES. IN THESE CIRCUMSTANCES, THE ASSESSING OFF ICER CANNOT IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 7 MAKE FURTHER ENQUIRY AND THE ARGUMENT OF THE ASSESS EES COUNSEL THAT THE ASSESSEE DISCHARGED THE INITIAL BU RDEN CAST ON IT, IS NOT CORRECT. 12. IN THE PRESENT CASE, EVEN ASSUMING THAT THE ASSESSE E HAS DISCHARGED THE INITIAL BURDEN BY PROVING IDENTITY O F THE CREDITORS AND, THEREFORE, THE BURDEN SHIFTED TO THE DEPARTMEN T TO SHOW AS TO WHY THE ASSESSEES CASE SHOULD NOT BE ACCEPTED, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS NO MATERIAL TO CAUSE ENQUIRY OR TO EXAMINE THE CREDITORS AND FOR COLLECT ING RELEVANT MATERIALS IN SUPPORT OF REVENUES CASE. THE PLEA O F THE AR IS DEVOID OF MERIT. THE PLEA OF THE AR THAT UNDER SEC TION 68 OF THE ACT, THE ASSESSEE IS NOT EXPECTED TO ESTABLISH THE CAPACITY OF THE CREDITORS TO ADVANCE MONEY AND GENUINENESS OF THE T RANSACTION IS NOT ACCEPTABLE. WE ARE OF THE OPINION THAT THE ASSESSEE IS EXPECTED TO ESTABLISH PROOF OF IDENTITY OF THE CRED ITORS, CAPACITY OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION S IN ORDER TO DISCHARGE THE ONUS CAST ON THE ASSESSEE. BY MERELY FILING BANK ACCOUNT DETAILS OF THE ALLEGED CREDITORS, IT IS NOT ENOUGH TO HOLD THAT THE ASSESSEE HAS SATISFIED THE ABOVE INGREDIEN TS OF SECTION 68 OF THE ACT. 13. OUR VIEW IS FORTIFIED BY THE JUDGEMENT OF JURISDICT IONAL HIGH COURT IN THE CASE OF R.B. MITTAL VS. CIT (246 ITR 283) WHEREIN SIMILAR VIEW HAS BEEN TAKEN. IN VIEW OF TH E ABOVE DISCUSSION, WE ARE INCLINED TO REVERSE THE ORDER OF THE CIT(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 14. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11 TH MARCH, 2013. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 11 TH MARCH, 2013 TPRAO IT A NO. 1026/HYD/2010 M/S. GAYATRI ASSOCIATES ================== 8 COPY FORWARDED TO: 1. THE INCOME TAX OFFICER, WARD - 10(2), ROOM NO. 514, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. GAYATRI ASSOCIATES, H. NO. 10 - 2 - 274/3, FLAT NO. 301, STREET NO. 3, WEST MARREDPALLY, SECUNDERABAD- 500 026. 3. THE CIT(A), TIRUPATI 4. THE CIT - 5 , HYDERABAD. 5. T HE DR B BENCH, ITAT, HYDERABAD.