M/s. Sethu Sales Corporation, Tumkur V. ITO, Tumkur

ITA 1282/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51388 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P H NARGUNDKAR
• Assessee Lawyers: RAVINDRA T
• Keywords: Unexplained investment; Income from undisclosed sources; Source of fund
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.1282/BANG/2010 ASSESSMENT YEAR : 2006-07 M/S. SETHU SALES CORPORATION, SIRA ROAD, PAVAGADA 561 202. TUMKUR DIST. PAN : AAWFS 6750P VS. THE INCOME TAX OFFICER, WARD 2, TUMKUR. APPELLANT RESPONDENT APPELLANT BY : SHRI RAVINDRA T., C.A. RESPONDENT BY : SHRI P.H. NARGUNDKAR, ADDL.CIT(DR) DATE OF HEARING : 21.11.2011 DATE OF PRONOUNCEMENT : 14.12.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 21.07.2010 OF THE CIT(APPEALS)-II, BANGALORE FOR THE ASSESSMEN T YEAR 2006-07. 2. THE FIRST ISSUE VIDE GROUND NOS.1 & 2 IN THIS AP PEAL RELATES TO THE ADDITION OF Q 1,80,000. ITA NO.1282/BANG/10 PAGE 2 OF 9 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FILED RETURN OF INCOME ON 31.10.2006 DECLARING AN INCOME OF Q 6,556. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE AO NOTICED FROM THE BANK STATEMENT THAT THE ASS ESSEE RECEIVED FUNDS TRANSFER FOR Q 2,00,000 ON 19.4.2005 AND CREDITED INTO THE VYSYA C O- OPERATIVE BANK CC A/C WITH NO.265 AND CASH WITHDRAW AL OF Q 2,00,000 WAS MADE ON 18.4.2005. HE FURTHER OBSERVED THAT B OTH THE ABOVE ENTRIES I.E., FUNDS TRANSFER IN BANK ACCOUNT AND WITHDRAWA L OF CASH HAD BEEN ACCOUNTED AT Q 20,000 EACH. ON QUESTIONING, THE ASSESSEE SUBMITTED TO THE AO AS UNDER: AS COULD BE SEEN FROM THE BOOKS OF ACCOUNT, THIS IS A COMPENSATING ERROR OCCURRED WHILE PASSING THE ABOVE ENTRIES. INSTEAD OF PASSING 2,00,000, EACH ENTRY ONE DEBIT A ND OTHER CREDIT FOR RS.20,000 HAS BEEN PASSED. THIS IS A COMPENSAT ORY ERROR AND HAS NOT EFFECT ON ACCOUNTS. 4. THE AO AFTER CONSIDERING THE ABOVE SUBMISSION O F THE ASSESSEE OBSERVED THAT THE EXPLANATION HOLDS GOOD TO THE EXT ENT THAT IT WAS COMPENSATORY ERROR AND HAD NOT AFFECTED THE BALANCE OF THE ACCOUNTS, BUT THE CONTENTION THAT THE SAME HAD NO EFFECT ON THE I NCOME OF THE ASSESSEE WAS NOT TO BE ACCEPTED. THE AO MADE THE ADDITION O F Q 1,80,000. 5. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A PPEALS) AND MADE THE FOLLOWING WRITTEN SUBMISSIONS: A SUM OF RS.1,80,000/- WAS ADDED ON ACCOUNT OF AN ENTRY PASSED BY THE ACCOUNTANT BY MISTAKE. THE APPELLANTS ACCOU NTANT WHILE WRITING THE BOOKS OF ACCOUNTS HAD WRITTEN A SUM OF RS.20,000 IN P1ACE OF THE CORRECT AMOUNTS OF RS.2 LAKHS. THIS WR ONG AMOUNT WAS ENTERED INTO THE BOOKS OF ACCOUNTS IN RESPECT O F BOTH THE DEPOSIT AND THE WITHDRAWAL AMOUNT INTO/FROM THE BAN K ACCOUNT. ITA NO.1282/BANG/10 PAGE 3 OF 9 THIS WAS ONLY A COMPENSATING ERROR AND THUS WOULD N OT AFFECT THE BOOKS OF ACCOUNT. THE LEARNED ASSESSING OFFICER HAS FOUND A NEW THEORY AND STATES THE DIFFERENCE OF RS.1.80 LAKHS I S ASSESSABLE AS UNDISCLOSED ASSET. IN THIS REGARD, IT IS HUMBLY SUBMITTED THAT THERE I S NO UNDISCLOSED ASSET IN THE INCOME TAX ACT. THE APPELLANT HAS DISC LOSED ALL HIS/ITS ASSETS. EVEN UNDER SEC. 69, A SUM IS ASSESS ABLE, ONLY IF THE INVESTMENT IS UNEXPLAINED. IN SEC. 69B ALSO, A SUM IS ASSESSABLE, ONLY WHERE IN ANY FINANCIAL YEAR, THE ASSESSEE HAS MADE INVESTMENTS OR IS FOUND TO BE THE OWNER OF ANY BULL ION, JEWELLERY OR OTHER VALUABLE ARTICLE AND THE ASSESSING OFFICER FINDS THAT THE AMOUNT EXPANDED ON MAKING SUCH INVESTMENTS OR IN AC QUIRING SUCH BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE E XCEEDS THE AMOUNT R-RECORDED IN THIS BEHALF IN THE BOOKS OF AC COUNTS MAINTAINED BY THE ASSESSEE FOR ANY SOURCE OF INCOME , AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT SUCH EXCESS AM OUNT OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION O F THE ASSESSING OFFICER IS NOT SATISFACTORY, THE EXCESS AMOUNT MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YE AR. IN THIS CASE, THE APPELLANT HAD NOT MADE ANY INVESTMENT WHICH WAS UNDISCLOSED. THE SOURCE FOR WITHDRAWAL OF THE AMOUN T HAS BEEN EXPLAINED BY HIM; IT WAS ONLY A MISTAKE WHILE RECOR DING SUCH ENTRY IN THE BOOKS OF ACCOUNTS AND THEREFORE CANNOT BE BROUGHT TO TAX UNDER SEC. 69/69B. THE BANK STATEMENT AND THE R ELEVANT ENTRY IN THE BOOKS OF ACCOUNTS ARE PRODUCED HEREWITH FOR YOUR HONOURS KIND PERUSAL. 6. THE LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT IN THE BANK STATEMENT AN AMO UNT OF Q 2,00,000 WAS SHOWN AS WITHDRAWAL, HOWEVER IN THE CASH BOOK E NTRY WAS MADE AS Q 20,000 ONLY. THUS THE ASSESSEE OMITTED TO ENTER AN AMOUNT OF Q 1,80,000. ACCORDING TO HIM, THE ASSESSEE HAD NOT PRODUCED ANY DETAIL OR RECONCILIATION STATEMENT TO SHOW THAT THE REMAINING AMOUNT HAD BEEN REVERSED IN THE CASH BOOK OR REDEPOSITED INTO THE B ANK. HE FURTHER OBSERVED THAT IF THERE WAS CORRESPONDING ERROR, THE N CORRESPONDING POSTING SHOULD HAVE ALSO BEEN MADE IN THE CASH BOOK IN THE LATER STAGE ALSO, ITA NO.1282/BANG/10 PAGE 4 OF 9 HOWEVER, SUCH ENTRY WAS TOTALLY MISSING. THE LD. C IT(A) ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO. NOW THE ASS ESSEE IS IN APPEAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ENTRY IN QUESTION WAS A COMPENSATORY ENTRY BECAUSE THE ASSESSEE WRONG LY ENTERED A SUM OF Q 20,000 INSTEAD OF Q 2,00,000 IN THE CASH BOOK, WHICH WAS DEPOSITED ON 19.4.2005 AND WITHDRAWN ON 18.4.2005. IN SUPPORT O F THE ABOVE CONTENTION HE ALSO PRODUCED A COPY OF THE BANK STATEMENT WHICH IS PLACED ON RECORD, IT WAS SUBMITTED THAT THE SAME COPY OF BANK ACCOUNT WAS PRODUCED BEFORE THE AUTHORITIES BELOW. IT WAS CONTENDED THAT THERE WAS ONLY A MISTAKE IN RECORDING THE ENTRY IN THE CASH BOOK WHICH WAS COMP ENSATORY IN NATURE BECAUSE ON BOTH THE DAYS I.E.,18.4.2005 AND 19.4.20 05 ENTRY OF Q 20,000 WAS MADE INSTEAD OF Q 2,00,000 IN THE CASH BOOK, SO IT NEITHER AFFECTED THE INCOME OR EXPENSES. 8. IN HIS RIVAL SUBMISSIONS, THE LD. DR STRONGLY SU PPORTED THE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE WITHDR EW A SUM OF Q 2 LAKHS ON 18.4.2005 VIDE CHEQUE NO. 247225, BUT THE SAID AMOU NT WAS WRONGLY ENTERED IN THE CASH BOOKS AS Q 20,000. ON THE NEXT DAY, A SUM OF Q 2 LAKHS WAS TRANSFERRED TO THE H.O. AND THE AMOUNT AG AIN WAS WRONGLY ENTERED AS Q 20,000 IN THE CASH BOOK. IN THE PRESENT CASE, IT IS NOT CLEAR AS TO WHETHER THE ASSESSEE DEPOSITED THE CASH IN THE B ANK ON 19.4.2005 OR IT WAS A TRANSFER ENTRY FOR A SUM OF Q 2 LAKHS BY THE BANK FROM ONE ACCOUNT TO ANOTHER ACCOUNT, REGARDING THIS NEITHER THE AO NOR THE LD. CIT(APPEALS) HAD ITA NO.1282/BANG/10 PAGE 5 OF 9 THROWN ANY LIGHT, SO THE FACTS ARE NOT CLEAR. IN O THER WORDS, IT IS NOT CLEAR AS TO WHETHER THE SAME CASH WHICH WAS WITHDRAWN BY THE ASSESSEE ON 18.4.2005 HAD BEEN DEPOSITED IN THE BANK ON 19.4.20 05, HAD IT BEEN SO, THEN THE MISTAKE WAS ONLY IN WRITING THE AMOUNT, HO WEVER, IF NO CASH DEPOSIT WAS MADE IN THE BANK ON 19.4.2005, THEN THE CASE WOULD HAVE BEEN DIFFERENT. AS WE HAVE ALREADY POINTED OUT THA T THE FACTS IN THIS CASE ARE NOT CLEAR, WE THEREFORE DEEM IT APPROPRIATE TO REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDIC ATION IN ACCORDANCE WITH THE LAW, AFTER PROVIDING DUE AND REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 10. THE NEXT ISSUE VIDE GROUND NO.3 RELATES TO THE SUSTENANCE OF ADDITION OF Q 6 LAKHS OUT OF Q 16,25,000 MADE BY THE AO. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE PARTNERS OF THE ASSESSEE VIZ., S/SHRI E. SHANKARANARAYANA, E. SATISH KUMAR, SMT. E. PADMAVAT HAMMA AND E. SETHURAM INTRODUCED CAPITAL FROM ANOTHER FIRM VIZ. , M/S. SETHU FOOD CORPORATION OF WHICH THE SAME PERSONS WERE PARTNERS AND THE FIRM WAS DEALING IN THE SAME BUSINESS. THE ASSESSEE HAD ALS O FILED CAPITAL ACCOUNTS OF THE PARTNERS IN THE BOOKS OF THE FIRM M /S. SETHU FOOD CORPORATION AND THE COPY OF THE ASSESSEE FIRMS LED GER IN M/S. SETHU FOOD CORPORATION. THE ASSESSING OFFICER POINTED OUT THA T FOR THE A.Y. 2006-07 NO PARTNER HAD FILED THE RETURN AND THAT THE CAPITA L AND THE SOURCES OF INCOME WERE NOT VERIFIABLE. THE AO HELD THE INTROD UCTION OF CAPITAL TO BE UNEXPLAINED INVESTMENT AND MADE THE ADDITION OF RS. 16,25,000. 11. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT( APPEALS), WHO CONSIDERED THE AMOUNT OF Q 6,25,000, Q 2 LAKHS, Q 1 LAKH AND Q 1 LAKH ITA NO.1282/BANG/10 PAGE 6 OF 9 INTRODUCED BY S/SHRI E. SHANKARANARAYANA, E. SATISH KUMAR, SMT. E. PADMAVATHAMMA AND E. SETHURAM RESPECTIVELY AS EXPLA INED AND SUSTAINED THE ADDITION OF REMAINING AMOUNT OF Q 6 LAKHS FOR THE REASONS STATED AT PAGES 10 TO 14 OF THE IMPUGNED ORDER. NO W THE ASSESSEE IS IN APPEAL. 12. THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE FIRM RECEIVED CAPITAL CONTRIBUTION FROM THE PARTNERS, SO THERE WAS NO OCCASION TO EARN THE INCOME FROM UNDISCLOSED SOURCES BY THE ASS ESSEE FIRM. IT WAS FURTHER STATED THAT NO ADDITION COULD HAVE BEEN MAD E IN THE HANDS OF THE FIRM ON ACCOUNT OF CAPITAL CONTRIBUTION MADE BY THE PARTNERS. 13. IN HIS RIVAL SUBMISSIONS, THE LD. DR STRONGLY S UPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY GONE THROUGH THE MATERIAL ON RECORD. IN THE PRESENT CAS E, IT IS NOT IN DISPUTE THAT THE ASSESSEE FIRM RECEIVED CAPITAL CONTRIBUTION BY ITS PARTNERS, THAT CONTRIBUTION CANNOT BE CONSIDERED AS INCOME EARNED BY THE ASSESSEE FIRM FROM UNDISCLOSED SOURCES. 15. ON A SIMILAR ISSUE, THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAISWAL MOTOR FINANCE 141 ITR 706 (ALL) HAS HELD AS UNDER: IF THERE ARE CASH CREDIT ENTRIES IN THE BOOKS OF A FIRM, IN WHICH THE ACCOUNTS OF THE INDIVIDUAL PARTNERS EXIST, AND IT IS FOUND AS A FACTS AND CIRCUMSTANCES THAT CASH WAS RECEIVED BY THE FIRM FROM ITS PARTNERS, THEN, IN THE ABSENCE OF ANY MATERIAL TO INDICATE THAT THEY WERE THE PROFITS OF THE FIRM, IT COULD NOT BE ASSESSED IN THE HANDS OF THE FIRM. ITA NO.1282/BANG/10 PAGE 7 OF 9 16. SIMILARLY THE HON'BLE ALLAHABAD HIGH COURT IN T HE CASE OF INDIA RICE MILLS VS. CIT [1996] 85 TAXMAN 227 (ALL) HAS HELD AS UNDER: THE TRIBUNAL SHOULD HAVE TAKEN NOTE OF THE FACTS A ND CIRCUMSTANCES THAT ALL THE DEPOSITS REPRESENTED THE CAPITAL CONTRIBUTION OF THE PARTNERS IN THE FIRM AND THEY W ERE MADE BEFORE THE FIRM STARTED ITS BUSINESS. IT WAS FOR T HE PARTNERS TO EXPLAIN THE SOURCE OF THE DEPOSITS AND IF THEY FAIL ED TO DISCHARGE THE ONUS THEN SUCH DEPOSITS COULD BE ADDED IN THE H ANDS OF THE PARTNERS ONLY. THE TRIBUNAL ERRONEOUSLY CAME TO TH E CONCLUSION THAT THE DEPOSITS REPRESENTED THE UNDISCLOSED INCOM E OF THE ASSESSEE FIRM. THE COMMISSIONER (APPEALS) HAD RIGHT LY HELD THAT UNEXPLAINED DEPOSITS IN NO CASE COULD BE THE INCOME OF THE ASSESSEE FIRM, BECAUSE THE FIRM STARTED ITS BUSINES S ONLY AFTER THE CREDITS HAD BEEN MADE IN ITS BOOKS. 17. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE PATN A HIGH COURT IN THE CASE OF CIT & ANOTHER VS. MD. PERWEZ AHMAD AND OTHERS [2004 ] 268 ITR 381 BY HOLDING AS UNDER: THE TRIBUNAL AFTER HAVING CONSIDERED THE MATERIALS ON RECORD HAS FOUND THAT SECTION 68 OF THE I.T. ACT, 1961, IS NOT ATTRACTED IN THE CASE FOR THE REASON THAT IN THIS CASE CREDIT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE-FIRM IS ON ACCOUNT OF INTRODUCTION OF CAPITAL BY THE PARTNERS AND THE FIRM HAS FAILED TO PROVE THE AMOUN T CREDITED IN THE BOOKS OF ACCOUNT AND AS SUCH IT WOULD BE ASSESS ED IN THE HANDS OF THE PARTNERS AS UNEXPLAINED INVESTMENT. 18. ON A SIMILAR ISSUE, THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT(A) VS. METACHEM INDUSTRIES [2000] 245 ITR 160 HAS HELD AS UNDER:- 'ONCE IT IS ESTABLISHED THAT THE AMOUNT HAS BEEN IN VESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN INDIVIDUAL , THEN THE RESPONSIBILITY OF THE ASSESSEE IS OVER. WHETHER THA T PERSON IS AN INCOME-TAX PAYER OR NOT AND WHERE HE HAD BROUGHT TH IS MONEY FROM, IS NOT THE RESPONSIBILITY OF THE FIRM. THE MO MENT THE FIRM GIVES A SATISFACTORY EXPLANATION AND PRODUCES THE P ERSON WHO HAS DEPOSITED THE AMOUNT, THEN THE BURDEN OF THE FIRM I S DISCHARGED AND IN THAT CASE THAT CREDIT ENTRY CANNOT BE TREATE D TO BE THE INCOME OF THE FIRM FOR THE PURPOSES OF INCOME-TAX. ITA NO.1282/BANG/10 PAGE 8 OF 9 19. ON A SIMILAR ISSUE THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. BARNA ELECTRO CORPORATION [2001] 252 ITR 34 4 AFFIRMED THE VIEW OF THE TRIBUNAL BY HOLDING THAT:- 'THE TRIBUNAL DELETED THE ADDITION ON THE GROUND TH AT THOUGH THERE WAS NO EVIDENCE TO SHOW THAT ON THE DATE OF I NVESTMENT, THE PARTNERS HAD SUFFICIENT FUNDS IN THEIR POSSESSION T O PROVE THAT THE INVESTMENTS WERE MADE FROM THAT AMOUNT IN THE CAPIT AL ACCOUNT, SINCE THESE PARTNERS ADMITTED TO HAVE MADE THESE IN VESTMENTS IN THE ASSESSEE-FIRM AND SINCE THERE WAS NO MATERIAL T O INDICATE THAT THE CASH CREDITS WERE THE PROFIT OF THE FIRM, THEY COULD NOT BE ASSESSED AS THE FIRM'S INCOME AND THAT THE UNEXPLAI NED INVESTMENTS COULD BE ASSESSED IN THE INDIVIDUAL HAN DS OF THE PARTNERS UNDER SECTION 69 INCOME-TAX ACT, IF THAT W AS PERMISSIBLE.' 20. IN THE PRESENT CASE ALSO THE AMOUNT IN QUESTION WAS DEPOSITED BY THE PARTNERS AS THEIR CAPITAL, SO IT COULD NOT BE ADDED IN THE HANDS OF THE ASSESSEE FIRM AS UNDISCLOSED INCOME. AT THE MOST, IT CAN BE CONSIDERED IN THE HANDS OF INDIVIDUAL PARTNERS OF THE ASSESSEE FI RM AND IF THE PARTNERS ARE UNABLE TO EXPLAIN SATISFACTORILY, THEN THE ADDITION , IF ANY, CAN BE MADE IN THEIR INDIVIDUAL HANDS, BUT NOT IN THE HANDS OF THE FIRM. WE THEREFORE DELETE THE ADDITION SUSTAINED BY THE LD. CIT(APPEALS). 21. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF DECEMBER, 2011. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 14 TH DECEMBER, 2011. DS/- ITA NO.1282/BANG/10 PAGE 9 OF 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.