ITO, Puducherry V. Shri S.Muthukumarasamy, Pondicherry

ITA 1147/CHNY/2012

• Counselvise Citation: 114721714 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: V JAGADISAN
• Keywords: Unexplained cash credit; Income from undisclosed sources; Proportionate interest

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1147/MDS/2012 & C.O. NO.118/MDS/2012 (IN I.T.A. NO.1147/MDS/2012) ' (' / ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER, WARD I(2), D.P. THOTTAM, MUTHIALPET, PUDUCHERRY 605 003. V. SHRI S. MUTHUKUMARASAMY, NO.35, BHARATHIDASAN STREET, MUTHIALPET, PONDICHERRY 605 003. PAN : AJLPM 6936 H (*+/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) *+ , - / APPELLANT BY : SH. P. RADHAKRISHNAN, JCIT ./*+ , - / RESPONDENT BY : SH.V. JAGADISAN, FCA 0 , 1$ / DATE OF HEARING : 24.06.2015 2!( , 1$ / DATE OF PRONOUNCEMENT : 03.07.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, CH ENNAI, DATED 15.02.2012 AND PERTAINS TO ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS FILED CROSS-OBJECTION TO SUPPORT THE O RDER OF THE 2 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 CIT(APPEALS). SINCE COMMON ISSUE ARISES IN THE APP EAL AND THE CROSS-OBJECTION, WE HEARD BOTH TOGETHER AND DISPOSI NG OF THE SAME BY THIS COMMON ORDER. 2. SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRE SENTATIVE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS WITH REGARD TO DISALLOWANCE OF PROPORTIONATE INTEREST ON THE FU NDS DIVERTED FOR NON-BUSINESS PURPOSE. THE LD. D.R. SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DIVERTED THE BO RROWED FUNDS FOR NON-BUSINESS PURPOSE BY MAKING INTEREST-FREE DEPOSI TS TO VARIOUS PERSONS. ACCORDING TO THE LD. D.R., THE INTEREST P AYMENT WAS CALCULATED @ 16% IN RESPECT OF THE FUNDS WHICH WERE DIVERTED. THE CIT(APPEALS), HOWEVER, RESTRICTED THE DISALLOWANCE TO ` 62,315/- INSTEAD OF ` 7,56,800/-. ACCORDING TO THE LD. D.R., THE CIT(APP EALS) OUGHT NOT TO HAVE RESTRICTED THE INTEREST TO 11.5%. HE OUGHT TO HAVE CHARGED INTEREST @ 16% ON THE ENTIRE AMOUNT DIVERTE D. THE LD. D.R. FURTHER SUBMITTED THAT THE CIT(APPEALS) HAS AL SO REDUCED ` 11,40,100/- ON THE GROUND THAT THE OPENING BALANCE OF CAPITAL AS ON 01.04.2006 IS ` 11,40,100/-. ACCORDING TO THE LD. D.R., THE CIT(APPEALS) OUGHT TO HAVE CONFIRMED THE ADDITION M ADE BY THE ASSESSING OFFICER. 3 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 3. ON THE CONTRARY, SHRI V. JAGADISAN, THE LD. REPR ESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAD INTER EST-FREE CAPITAL TO THE EXTENT OF ` 15,27,009/- FOR THE ASSESSMENT YEAR 2007-08. THE OPENING BALANCE AS ON 1.04.2006 IS ` 11,40,100/-. THEREFORE, THE INTEREST-FREE FUND AVAILABLE FOR MAKING ADVANCE IS TO THE EXTENT OF ` 11,40,100/-. THIS AMOUNT OF ` 11,40,100/- WAS CONFIRMED BY THE CIT(APPEALS) AS ADVANCED FROM CAPITAL BALANCE. THE CIT(APPEALS) RESTRICTED THE DISALLOWANCE ONLY IN RESPECT OF THE FUNDS DIVERTED FOR NON-BUSINESS PURPOSES FROM THE BORROWED FUNDS. THE ASSESSEE ADMITTEDLY PAID @ 11.5% AS INTEREST, THEREFORE, WHA T COULD BE DISALLOWED IS ONLY INTEREST PORTION @ 11.5% ON THE BORROWED FUNDS DIVERTED. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY RESTRICTED THE DISALLOWANCE TO ` 62,315/- INSTEAD OF ` 7,56,800/-. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. WHAT IS T O BE DISALLOWED IS IN RESPECT OF THE EXPENDITURE WHICH WAS NOT INCURRE D FOR THE PURPOSE OF BUSINESS. IF THE ASSESSEE MADE ADVANCE FROM THE FUNDS AVAILABLE WITH HIM, THEN THERE IS NO QUESTION OF DI SALLOWANCE. THE AVAILABILITY OF FUNDS TO THE EXTENT OF ` 15,27,009/- INCLUDING THE CURRENT YEARS PROFIT OF ` 3,85,910/- IS NOT IN DISPUTE. THE OPENING BALANCE AS ON 1.4.2006 WAS ` 11,40,100/-. THEREFORE, THE 4 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 CIT(APPEALS) FOUND THAT TO THE EXTENT OF ` 11,40,100/-, THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE. IN RESPECT OF THE REMAINING PORTION, THE CIT(APPEALS) FOUND THAT THE INTEREST H AS TO BE CHARGED ONLY AT 11.5% WHEN THE ASSESSEE IS PAYING INTEREST AT 11.5% ON THE BORROWED FUNDS. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INTEREST HAS TO BE CONSIDERED ONLY AT 11.5% AND NOT AT 16%. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY RESTRICTED AT ` 62,315/-. THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS) AND ACCORDINGLY, THE IS CONFIRMED. 5. THE NEXT ISSUE IS WITH REGARD TO UNEXPLAINED CAS H CREDIT TO THE EXTENT OF ` 2,50,000/-. 6. SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRE SENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS RECEIVED A SUM OF ` 25,000/- FROM M/S KHANNA BROTHERS AND ANOTHER SUM OF ` 25,000/- FROM M/S KHANNA & CO. HOWEVER, M/S KHANNA BROTHERS AND M/S KHANNA & CO. INFORMED THE ASSESSIN G OFFICER THAT THEY GAVE FUNDS ONLY TO M/S SPECTRUM MARUTHI SPARES AND NOT TO THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER TREATED THE SAME AS UNACCOUNTED CASH CREDIT IN THE HANDS OF THE ASSESSE E. SIMILARLY, A SUM OF ` 6,90,000/- OUT OF WHICH ` 4,40,000/- WAS CLAIMED TO HAVE 5 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 BEEN RECEIVED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE EXPLAINED THAT ` 2,40,000/- WAS CREDITED IN THE BOOKS ON ACCOUNT OF TRANSFER OF FUNDS FROM THE ASSESSEES OWN BANK ACCO UNT AT UNION BANK OF INDIA. FOR THE BALANCE ` 2,00,000/-, THE ASSESSEE EXPLAINED THAT THE AMOUNT WAS RECEIVED FROM ONE SMT. T. RAMAL AKSHMI BY ACCOUNT PAYEE DEMAND DRAFT. ON THE EXAMINATION, TH E ASSESSING OFFICER FOUND THAT THE EXPLANATION OF THE ASSESSEE THAT HE RECEIVED ` 2,00,000/- FROM SMT. T. RAMALAKSHMI IS NOT TENABLE. THE CIT(APPEALS), HOWEVER, FOUND THAT THE LOAN WAS RECE IVED BY WAY OF ACCOUNT PAYEE DEMAND DRAFT, HENCE, IT IS A VERIFIAB LE TRANSACTION. ACCORDINGLY, HE DELETED THE SAME. THE LD. D.R. SUB MITTED THAT THE DETAILS OF ACCOUNT PAYEE DEMAND DRAFT WERE NOT PROD UCED BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS PRODUCED A DDITIONAL EVIDENCE BEFORE THE CIT(APPEALS) AND THEREFORE, THE ASSESSING OFFICER HAD NO OCCASION TO CONSIDER THE SAME. THER EFORE, THERE WAS A CLEAR VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962. 7. ON THE CONTRARY, SHRI V. JAGADISAN, THE LD. REPR ESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS A PART NER IN M/S SPECTRUM MARUTHI SPARES. IN FACT, M/S KHANNA BROTH ERS AND M/S KHANNA & CO. GAVE ` 25,000/- EACH TO THE ASSESSEE. HOWEVER, THIS CHEQUE WAS ISSUED IN THE NAME OF M/S SPECTRUM MARUT HI SPARES. 6 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 THE ASSESSEE BEING ONE OF THE PARTNERS OF THE FIRM, THE CIT(APPEALS) FOUND THAT THE GENUINENESS OF THE RECE IPT WAS ESTABLISHED, THEREFORE, HE DELETED THE ADDITION. A CCORDING TO THE LD. REPRESENTATIVE, WHEN M/S KHANNA BROTHERS AND M/S KH ANNA & CO. ADMITTED THAT THEY PAID ` 25,000/- EACH TO M/S SPECTRUM MARUTHI SPARES, WHERE THE ASSESSEE IS A PARTNER, THERE IS N O REASON TO MAKE ANY FURTHER ADDITION. REFERRING TO THE ADDITI ON OF ` 2,00,000/-, THE LD. REPRESENTATIVE SUBMITTED THAT SMT. T. RAMAL AKSHMI ADVANCED A LOAN OF ` 2,00,000/- BY ACCOUNT PAYEE DEMAND DRAFT. THEREFORE, THE CIT(APPEALS) DELETED THE ADDITION. ACCORDING TO THE LD. REPRESENTATIVE, THERE IS NO QUESTION OF DOUBTIN G THE GENUINENESS OF THE TRANSACTION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSES SING OFFICER ADDED ` 50,000/- WHICH WAS CLAIMED TO HAVE BEEN RECEIVED FR OM M/S KHANNA BROTHERS AND M/S KHANNA & CO. THE ASSESSEE CLAIMS THAT THE ADVANCES WERE MADE TO HIM. HOWEVER, THE CHEQUE WAS ISSUED IN THE NAME OF M/S SPECTRUM MARUTHI SPARES. THE FA CT REMAINS THAT THERE WAS A TRANSFER OF FUNDS FROM M/S KHANNA BROTH ERS AND M/S KHANNA & CO. TO M/S SPECTRUM MARUTHI SPARES WHERE T HE ASSESSEE IS A PARTNER. THEREFORE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION 7 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 THAT THE CIT(APPEALS) HAS RIGHTLY DELETED THE ADDIT ION. THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 9. NOW COMING TO THE ADDITION OF ` 2,00,000/- SAID TO HAVE BEEN RECEIVED FROM SMT. T. RAJALAKSHMI, IT IS NOT IN DIS PUTE THAT THE ASSESSEE HAS RECEIVED THE FUNDS THROUGH ACCOUNT PAY EE DEMAND DRAFT. THE ONLY CONTENTION OF THE LD. D.R. IS THAT THE DETAILS WERE PRODUCED BEFORE THE CIT(APPEALS). HOWEVER, HE HAS NOT TAKEN ANY SPECIFIC GROUND WITH REGARD TO VIOLATION OF RULE 46 A. THE FACT REMAINS THAT THE ASSESSING OFFICER MADE AN ADDITION OF ` 2,00,000/- AND THE CIT(APPEALS) FOUND THAT THE PAYMENT WAS MAD E THROUGH DD AND THEREFORE, THERE IS NO QUESTION OF ANY ADDIT ION. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, T HE SAME IS CONFIRMED. 10. NOW COMING TO THE ADDITION OF ` 8,50,000/-, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS NOT ADMITTED IN THE RETURN OF INCOME THE EXPENDITURE OF ` 8,50,000/-, WHICH WAS SAID TO BE INCURRED FOR RENOVATION OF HOTEL. IN THE ABSENCE O F ANY EXPLANATION BY THE ASSESSEE, THE SAME WAS ADDED. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD. D.R. POINTED OUT THAT THE ASS ESSEE OFFERED AN 8 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 ADDITIONAL AMOUNT OF ` 13,56,817/- AS UNACCOUNTED INCOME GENERATED FROM UNACCOUNTED SALES. THE ASSESSEE IS ENTITLED ONLY FOR 50% OF THE PROFIT IN THE FIRM. OUT OF THIS AMO UNT OF ` 13,56,817/-, A SUM OF ` 1,94,202/- WAS FOUND DURING THE COURSE OF SURVEY AN D ` 6,70,914/- WAS ALREADY ALLOWED TO BE TELESCOPED BY THE CIT(APPEALS). THEREFORE, THE AVAILABILITY OF BALAN CE WAS ` 4,91,701/- . THE ASSESSEE BEING A PARTNERS OF 50% SHARE, ACCO RDING TO THE LD. D.R., AT THE BEST, A SUM OF ` 2,40,851/- MAY BE AVAILABLE FOR INVESTMENT IN THE HOTEL RENOVATION. THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN DELETING THE ADDITION. 11. ON THE CONTRARY, SHRI V. JAGADISAN, THE LD. REP RESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ADDITIONAL INCOME OFFERED BY THE PARTNERSHIP FIRM WAS ` 13,56,817/-. THE INCOME TELESCOPED WAS ` 4,46,781/-. REFERRING TO THE ORDER OF THIS TRIBUNA L IN I.T.A. NO.959/MDS/2012 DATED 14.02.2013, THE LD. REPRESENT ATIVE SUBMITTED THAT IN THE CASE OF M/S SPECTRUM MARUTHI SPARES, THE TRIBUNAL FIXED THE UNEXPLAINED SALES AT ` 28,00,369/-. THEREFORE, THE 50% OF THE SHARE OF THE ASSESSEE COMES TO ` 14,00,185/-. THE ACTUAL INVESTMENT WAS ONLY ` 8,50,000/-. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY DELETED THE ADDITION. 9 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE TRIBUNAL HAS FIXED UNACCOUNTED SALES AT ` 28,00,369/- IN THE CASE OF M/S SPECTRUM MARUTHI SPARES. IF THAT IS TRUE, THE ASSESSEE IS ENTITLED FOR ` 14,00,185/-. THEREFORE, THE CIT(APPEALS) HAS RIGHT LY ALLOWED THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL D O NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 14. IN VIEW OF THE ABOVE DISCUSSION, THIS TRIBUNAL DO NOT FIND ANY MERIT IN THE CROSS-OBJECTION FILED BY THE ASSESSEE. ACCORDINGLY, THE CROSS-OBJECTION ALSO STANDS DISMISSED. ORDER PRONOUNCED ON 3 RD JULY, 2015 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 3 RD JULY, XC2015. KRI. 10 I.T.A. NO.1147/MDS/12 C.O. NO.118/MDS/12 , .156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ./*+ /RESPONDENT 3. 0 81 () /CIT(A)-XII, CHENNAI-34 4. 0 81 /CIT, PONDICHERRY 5. 69 .1 /DR 6. :' ; /GF.