Vanshika Construction, Narsinghpur V. Assistant Commissioner of Income Tax Circle 1(1), Jabalpur

ITA 123/JAB/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1708 (ITAT-JABALPUR)
• Duration Of Justice: 4 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 15-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india; Set aside
• Section: 143(3); 153

Judgement Text

1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR (through web-based video conferencing platform) BEFORE SHRI SANJAY ARORA, HON‟BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. No. 123/JAB/2018 (Asst. Year: 2014-15) I.T.A. No. 138/JAB/2018 (Asst. Year: 2014-15) Assessee by : Shri Sapan Usrethe, Advocate Revenue by : Shri U.B. Mishra, CIT-DR Date of hearing : 12/07/2022 Date of pronouncement : 29/07/2022 O R D E R Per Bench: These are cross appeals by the Assessee and the Revenue arising out of the appellate order dated 28/03/2018 by the Commissioner of Income Tax (Appeals)- 1, Jabalpur („CIT(A)‟, for short), partly allowing the assessee‟s appeal contesting it‟s assessment under section 143(3) of the Income Tax Act, 1961 („the Act‟ hereinafter) dated 28/12/2016 for Assessment Year (AY) 2014-15. Vanshika Constructions, Deori Rajmarg, Narsinghpur. [PAN : AADFV 8264 C] vs. Dy. Commissioner of Income Tax, Circle-1(1), Jabalpur. (Appellant) (Respondent) Dy. Commissioner of Income Tax, Circle-1(1), Jabalpur. vs. Vanshika Constructions, Deori Rajmarg, Narsinghpur. [PAN : AADFV 8264 C] (Appellant) (Respondent) ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 2 | P a g e 2. The Grounds raised by either side are in respect of the disallowances/ adjustments to the assessee‟s, a partnership firm in liquor business, apart from also of civil construction and transportation, returned income of Rs. 742.99 lacs, effected in assessment, since deleted or, as the case may be, confirmed in first appeal by the ld. CIT(A) per the impugned order. We shall, taking the assessee‟s appeals first, i.e., in the order argued before us, take up each. The Assessee’s Appeal 3.1 The assessee‟s first ground is in respect of confirmation of the assessment of the returned agricultural income of Rs. 9,73,088 as income from other sources by the assessing authority (AO) at Rs. 5,50,000, so that both the parties are in appeal. The basis for the said adjustment by the AO was a complete non-substantiation of it‟s claim of the said income as arising from agricultural operations, sale of receipt of Rs. 14,97,188, claimed to be the sale of Masoor Dal, from Krishi Upaj Mandi Samiti, Tendukeda, Dist. Narsinghpur, notwithstanding, even as the AO had by mistake, as was a common ground before us, regarded the entire of it (Rs. 14.97 lacs) as income. The part relief by the ld. CIT(A) was on the basis that the assessee had a past history of acceptance of agricultural income, beginning AY 2012-13 (at Rs. 4.61 lacs); AY 2013-14 (at Rs. 1.93 lacs), with the latter being per a sec. 143(3) order. Even for the subsequent year, i.e., AY 2015-16, the claim of agricultural income stood accepted u/s. 143(3) at Rs. 4.60 lacs. In this view of the matter; the agricultural land holding being not disputed, he estimated the agricultural income for the relevant year at Rs. 5.50 lacs. 3.2 The ld. CIT(A), in so doing, does not in any manner meet the AO‟s objections. True, the claim of agricultural income stands accepted for the earlier, and even for a later year (PB pgs.51-62). However, the same is sans any finding in the matter. There is no whisper on this aspect in the relevant orders, each of which stands perused, wherin the returned figure of agricultural income stands adopted as such. It is only where a claim has been subject to verification and accepted on ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 3 | P a g e examination, that the assessee could justifiably rely thereon. What value then, one may ask, the said ‘acceptance’? Even so, the same does not absolve the assessee to prove it‟s claims for the current year; each year being an independent unit of assessment, and the principle of res judicata, even otherwise inapplicable in absence of any adjudication in the matter, not applicable to the proceedings under the Act, which are quasi-judicial in nature. Shri Usrethe, the ld. counsel for the assessee, was unable to answer as to why the assessee, maintaining accounts, duly audited, wherein both the determinants of agricultural income (receipt & expenditure) stand booked (PB pgs.37-38), could not produce any evidence in respect of carrying out agricultural activities, including qua agricultural inputs. He was specifically asked by the Bench if the vouchers in this respect, i.e., material inputs; labour; electricity, etc. were available or produced for the other years being relied upon, to again no answer. Now, if these evidences were available for the other years – which makes them thus distinguishable, why could not the same be produced for the current year, which appears to be the first year when the same were called upon to by the assessing authority. And if not available, the acceptance of the assessee‟s claim for the relevant years has no evidentiary value. As regards the sale proceeds from Krishi Upaj Mandi Samiti, the same is again to no consequence as the sale of agricultural produce does not in any manner show that the same stands cultivated by the seller, for which the assessee ought to have produced the revenue record. The assessee‟s claim is wholly unproved. The returned income of Rs. 9.73 lacs is, accordingly, directed to be assessed as income from other sources. 3.3 We decide accordingly, also disposing Revenue‟s Ground 1. 4.1 The next (second) ground is in respect of addition in the sum of Rs. 170 lacs. The assessee‟s, who had given an unsecured loan to M/s. Vanshika Sugar and Power Industries Ltd. (VSPL), books reflected the balance of the lendee at Rs. 2134.74 lacs, while that of the latter reflected a credit balance of Rs. 2304.74 lacs, ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 4 | P a g e i.e., in excess by Rs. 170 lacs. In appeal, it was explained that while debtor (VSPL) had recorded all the sums advanced to it, it had, by mistake, in addition, also credited Rs. 167 lacs advanced by the assessee on behalf of it‟s partners, and another Rs. 3 lacs from others. This was found on comparing the accounts of the lender and the lendee in each other‟s books; all the transactions being through the banking channel. The debit to the partners‟ respective accounts in the assessee‟s accounts, at an aggregate of Rs. 167 lacs, was also shown. Further, the debtor- company had in the immediately succeeding year (i.e., fy 2014-15), reversed the excess credits, transferring the same (Rs. 167 lcas) to the accounts of the respective partners, who were also shareholders in the debtor-company. The explanation did not find favour, both with the ld. CIT(A) as well as, before him, the AO, as the amounts debited by the assessee to the partners‟ accounts (Rs. 167 lacs) had been transferred to the debtor‟s bank account through the assessee‟s bank account. 4.2 During hearing, Shri Usrethe would take us through each of the entries in the assessee‟s accounts, correlating the entries in the books of the lendee/debtor for the current as well as the succeeding year (depicting reversal of the excess credit allowed) as also the assessee‟s bank account. Even the credits for Rs. 3 lacs, not arising from the assessee‟s accounts, were located to their source/s, which amount was duly credited thereto, being Ravi Yantriki Udyog, Pune (Rs. 2 lacs) and M/s. Shareem Sales (Rs. 1 lac), with a corresponding reversal (debit) to the assessee‟s account. Shri Mishra, the ld. CIT-DR, could not rebut these entries, forming part of the assessee‟s regular accounts (creditor) and VSPL (debtor) (PB pgs.84-87, 90- 98 & 133-139), as well as the assessee‟s bank account for the current year (PB pgs.99-132). 5. We have heard the parties, and perused the material on record. 5.1 We are completely at loss to understand the Revenue‟s case. The very fact that the money credited by VSPL to the assessee‟s account in it‟s books, originates ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 5 | P a g e from the assessee‟s bank account; rather, ought to be the reason for regarding the source of investment or movable property (in the form of loan) as explained instead of unexplained. Further, the same, duly accounted for in their regular accounts, both by the debtor (lendee) (VSPL) and the creditor (lendor), what, then, is the issue? As regards the credit allowed to a different account/s, the same needs to be explained inasmuch as the same has implication with reference to the nature of the credit/s. While the assessee‟s accounts consider it as a part of the investment by the partner concerned, also a shareholder in the debtor-company, the latter‟s accounts regard it as that by the assessee. The same stands since resolved through the reversal entries passed by the lendee/debtor in the following year, allowing credit/s in it‟s respect to the respective partner/s. 5.2 The only concern and, further, for the reason that the source of the said credit/s is not referable to the assessee, is for the balance credit of Rs. 3 lacs. The ld. CIT(A) confirmed the same in the absence of any corroborative evidence furnished by the assessee. How could, one wonders, the assessee furnish one such, when, as per it, it has not made any investment, nor does the Revenue have any evidence in respect of the said investment as being by the assessee? The burden of proof in relation to a sum representing a transaction of the nature specified under s. 69/69A/ 69B/ 69C, etc., is on the Revenue. It is only when the Revenue has with it material exhibiting an investment/asset/expenditure, etc. qua the assessee, that the latter can be called upon by it to explain the nature and source thereof and, in the event of it being not satisfactorily explained, deem it as the assessee‟s income. In the instant case, the evidence relied upon, being a credit in the assessee‟s name in the books of a lendee, stands explained by the assessee – who cannot be called upon to prove a negative, as not attributable to it, and which stands identified by the debtor-lendee, a related concern, as being received from another, correcting it‟s accounts in admission of the mistake, corroborating the assessee‟s claim/s. There is thus no adverse material with the Revenue in its respect. ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 6 | P a g e 5.3 We, therefore, find no merit in the said addition and, accordingly, direct its deletion. We decide accordingly. This decides Ground Nos. 2 to 4 of the assessee‟s appeal. 6. Vide Ground # 5, the assessee contests the disallowance of labour expenses in the sum of Rs. 6.27 lacs, i.e., at 5% of the total expenditure claimed in its respect, being at Rs. 125.33 lacs. The disallowance by the AO was as he, on verification, found the expense vouchers to be unverifiable in part, being through self-made debit vouchers, with some of them being even unsigned. That is, the claim was not supported by proper bills or vouchers. The disallowance at 5% was accordingly made by him. And confirmed on the same basis; the assessee being unable to controvert the AO‟s finding of the labour expenditure being not supported by proper vouchers. The fact that the tax had been deducted would not by itself absolve the assessee from maintaining proper accounts. Even before us, the assessee‟s case continues to be the same, and which we find unacceptable for the same reasons as inform the order by the ld. CIT(A). We decide accordingly. 7. Ground # 6, which is even otherwise not an independent ground, was stated as not pressed by Shri Usrethe during hearing, and is accordingly dismissed as both invalid and not pressed. The Revenue’s Appeal 8. Ground # 2; Gd. 1 having been decided along-with the Assessee‟s appeal, of the Revenue‟s appeal is in respect of deletion of addition in the sum of Rs. 109.50 lacs, which has its genesis, as in the case of the difference in the balance in account of VSPL, in a difference in the balance with one, Smt. Manjula Chandel, Prop. M/s. Maa Reva Infrastructure (MRI), whose accounts reflected a credit balance of Rs. 109.50 lacs as on 31/03/2014, the year-end, in the assessee‟s account, and which in fact stood confirmed by Shri Ramlal, one of the partners of the assessee-firm, even as the assessee‟s accounts reflected no such loan or ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 7 | P a g e advance or debit balance in respect of the said firm. The assessee, on being confronted with the said confirmation, stated that the same was issued in confusion, without the account statement (of the assessee) in the books of MRI, confirmed as correct, having been in fact not supplied thereto. The AO found the said explanation unacceptable, and added the amount as unexplained debit (asset, expenditure, etc.). In appeal, the ld. CIT(A) found that the assessee had in fact reconciled the difference in accounts. The same was explained as comprised of three amounts, as under:- a) Rs. 30 lacs, being demand draft (DD) No. 608288, dated 23/03/2013, in favour of M.P. State Mining Corporation, Bhopal (MMC) b) Rs. 50 lacs, being DD No. 608287, dated 23/03/2013 favouring MMC c) Rs. 29.5 lacs, being cheque (No.482096) drawn on the assessee‟ bank account with State Bank of India (a/c No. xxxx 3799, from which account DDs were also purchased), dated 16/04/2014, favouring MRI toward, as stated, mining royalty payable to MMC. Further, all the amounts were debited in the assessee‟s accounts to the account of MMC, being, as stated, toward royalty instalments, though no expenditure in its respect had been claimed for the relevant previous year ((PB pgs.142-15, 153 & 154) . The ld. CIT(A) found that the difference was thus suitably reconciled, and the confirmation issued by it‟s partner (for and on behalf of firm) as being issued without verifying the accounts and, thus, retracted for bona fide reasons. The addition, in his opinion, if at all, should be made in the hands of Manjula Chandel (proprietor, MRI), and there was no warrant for invocation of s.68 in the hands of the assessee. Aggrieved, the Revenue is in appeal. 9. We have heard the parties, and perused the material on record. 9.1 We begin by reproducing the findings by the ld. CIT(A): (pgs. 27-28) “7.2.4 On perusal of the documents and other material placed on record, it is apparent that no sum is found credited in the books of accounts of the appellant, but the sum is found credited in the books of accounts of Smt. Manjula Chandel Prop: M/s. Maa Reva Infrastructure. On the other hand, the appellant has reconciled the figures of expenditure incurred for payments made to Mining ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 8 | P a g e Department. The confirmation earlier given by the appellant without verifying the book entries has been withdrawn for bon fide reasons. Therefore, I am inclined to accept the submission put forth on behalf of the appellant that if at all addition is to be made, it should be made in the case of Smt. Manjula Chandel, if she is not able to explain nature and source of credit. In any case, there having not been any credit entry in the books of account of the appellant, which the appellant could not explain, there is no warrant for the addition under s.68 of the IT Act in the hands of the appellant firm. The addition of Rs. 1,09,50,000/- on account unexplained cash credit under se.68 of the Act is, therefore, directed to be deleted.” 9.2 Our first observation in the matter is that his order is self-contradictory. Either the assessee has satisfactorily explained (reconciled) the difference, i.e., the credit entries in the accounts of MRI (to the assessee‟s account therein), or has validly retracted the confirmation (of the said balance). It cannot be both, as the impugned order states in the same breath. If the entries in the debtor‟s accounts do not have their origin in the assessee‟s accounts, or are otherwise not related to the assessee, and the confirmation was, as stated, issued „in a confused state of mind‟, so as to be of no consequence, where is the question of reconciling the said entries, which are simultaneously stated to be satisfactorily explained. 9.3 We further observe that the assessee has in fact owned each of the three entries which comprise the impugned credit thereto in the accounts of MRI, the proprietary concern of Manjula Chandel. Rather, the confirmation itself, and on the basis of which the credit was regarded as suitably explained, is rendered of no consequence as, despite each of the credits being admitted and originating from the assessee‟s bank account (with SBI/PB pgs. 145, 149, 153-154), the same has been, in the assessee‟s accounts, debited to account of MMC, so that it is either recoverable therefrom or to be adjusted against future dues, i.e., paid in advance thereto. There is no question of the assessee being allowed credit by a third party, to whom in fact the third amount (Rs. 29.5 lacs) has been paid by issuing cheque in it‟s favour, and which has banked the same, as evident from the copy of the assessee‟s account in it‟s books (PB pg.152), wherein the same is, as stated, in respect of royalty and, accordingly, debited in it‟s accounts to the account of ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 9 | P a g e MMC? Where, one may ask, is the question of the assessee handing over the drafts favouring MMC to MRI for the latter to account for the same? In other words, though the source of amount has been, without doubt, explained by the assessee, the nature of the transactions has definitely been not, and it is only on a satisfactory explanation qua both, the nature and source of the said sums, representing, as per the assessee, either an expenditure paid in advance or an asset, that deeming of the same as it‟s unexplained income (u/ss. 69/69A/69B/69C etc.) would not obtain. True, the AO mentioned it as u/s. 68, which is qua an unexplained credit in the assessee‟s accounts. The same would though be to no consequence. It is trite law that exercise of power would be referable to a jurisdiction which confers validity upon it, and not to a jurisdiction under which it would be nugatory (L. Hazari Mal Kuthiala vs. ITO [1961] 41 ITR 12 (SC)). As long as the action of the AO can be justified under a power whereunder the AO could lawfully act, a wrong reference to the power (i.e., the relevant section) would not vitiate the action (Hukumchand Mill Ltd. vs. State of MP [1964] 52 ITR 583 (SC)). 9.4 We, under the circumstances, consider it proper that the matter is restored back to the file of the AO for an adjudication afresh. Shri Usrethe would contend that the demand drafts being purchased in March, 2013, i.e., prior to relevant previous year, the same could not possibly be, even where unexplained, regarded as the assessee‟s deemed income for the current year, so that the set aside be restricted to only the payment of Rs. 29.50 lacs made per cheque during the year. There is nothing to show that the demand drafts had been encashed by MMC during the preceding year. Where so, the same would not have been recorded by MRI in it‟s books for the current year? Why, rather, did it credit the same to the assessee‟s account in the first place? While Sh. Usrethe would seek to shift the burden to MRI, that in our view is unfounded. As afore-noted, it is only on the assessee handing over the drafts thereto, that MRI recorded it in it‟s books. For all ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 10 | P a g e we know, it may have been allowed credit in respect of the said bank drafts by MMC, as in fact appears to be the case, even as explained during hearing, with the assessee making a further payment of Rs. 29.50 lacs thereto during the current year, debiting it, again, to the account of MMC, to no explanation. MMC could not possibly allow credit against the impugned sums to two parties, both of which record the same as payments thereto in their accounts. Quizzical indeed. None of the payments , it is apparent, have been realized by MMC during the preceding year. How has the amount been adjusted in the assessee‟s accounts in future, with even the account for the current year, i.e., f.y. 2013-14, being conspicuous by its absence, is also relevant. The matter requires a thorough and proper examination, also bringing on record, where and the extent required, evidence from both MMC & MRI; the assessee being wholly unable to explain the transactions and, as appears to us from his submisions by Shri Usrethe, in a confused state of mind. 9.5 In view of the foregoing; the matter being wholly indeterminate, we, vacating the findings by the first appellate authority, set aside the matter for fresh adjudication by the AO, who shall decide it in accordance with law upon issuing definite findings of fact, and after allowing the assessee a reasonable opportunity of being heard, as well as, as afore- stated, seeking evidence from MMC & MRI in the matter. We decide accordingly. 10. The third and final ground of the Revenue‟s appeal relates to the deletion of a disallowance for Rs. 6.40 lacs by the AO, i.e., to the extent of Rs. 6.25 lacs. The verification of the said payment, being bonus payable, recorded in the assessee‟s accounts on 30/06/2014, revealed that against the names of the employees mentioned at serial nos. 28, 29 & 30, etc. of the payment list, signatures of one, Vijay Razak, appeared in different patterns, so that clearly the same were fake and manipulated (PB pgs.160-161). The AO, accordingly, disallowed the entire expenditure, claimed at Rs. 6.40 lacs. The ld. CIT(A) agreed with the AO in principle, but found no reason to extend the disallowance to other names, no doubt ITA Nos. 123 & 138/JAB/2018 (AY: 2014-15) Vanshika Constructions 11 | P a g e in respect of which had been expressed by the AO. He, accordingly, restricted the disallowance to the payments against the names at serial nos. 28-30, allowing the assessee relief for Rs. 6.25 lacs. Even as we do not find the inference drawn by the ld. CIT(A) as infirm, in our view he ought to have under the circumstances caused further investigation in the matter, or conducted it himself; his powers being coterminous powers with the AO. We further observe that the payments, beginning serial no. 28, extend to serial no. 32, aggregating to Rs. 36,500, with none being for Rs. 5000, as presumed by the ld. CIT(A). We, accordingly, direct the deletion at Rs. 6.035 lacs, and confirm the disallowance at Rs. 36,500. We decide accordingly. 11. In the result, the assessee‟s appeal is partly allowed and that by the Revenue is partly allowed and partly allowed for statistical purposes. Order pronounced in open Court on July 29, 2022 Sd/- Sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member [ Dated: 29/07/2022 vr/- Copy to: 1. The Revenue: Dy. CIT, Circle-1(1), Jabalpur. 2. The Assessee: Vanshika Constrruction, Deori Rajmarg, Distt. Narsinghpur (MP). 3. The Principal Commissioner of Income Tax-1, Jabalpur. 4. The CIT(Appeals)-1, Jabalpur. 5. The CI T-D.R., I TAT, Jabalpur. 6. Guard File. By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur.