ITO, CHENNAI V. Southern Metals & Alloys, CHENNAI

ITA 1365/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73674 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OMKARESHWAR CHIDRA
• Assessee Lawyers: S SRIDHAR
• Keywords: Unexplained cash credit; Business income
• Section: 143(3); 68; 263

Judgement Text

, / / / , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ! ' #$ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO.1365/MDS/2013 ( / ASSESSMENT YEAR :2006-07) THE INCOME TAX OFFICER, BUSINESS WARD-XII(2), KANNAMMAL BUILDING 7 TH FLOOR, 611, ANNA SALAI, CHENNAI-600 006. VS. M/S. SOUTHERN METALS & ALLOYS, NO.6, MADHAVARAM HIGH ROAD, PERAMBUR, CHENNAI-600 011. PAN AACFS0515L ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. OMKARESHWAR CHIDRA, CIT /RESPONDENT BY : MR. S.SRIDHAR, ADVOCATE / DATE OF HEARING : 16TH JANUARY, 2014 ! /DATE OF PRONOUNCEMENT : 31 ST JANUARY, 2014 ( / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, CHENNA I DATED 15.03.2013 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE IN THE GROUNDS OF APPEAL OF THE R EVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN ITA NO.1365/MDS/2013 2 DELETING ADDITION MADE ON ACCOUNT OF UNPROVED SUNDR Y CREDITORS. THE ASSESSEE FILED RETURN ON 31.10.2006 DECLARING LOSS OF ` 7,56,090/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 30.12.2008 ACCEPTING THE LOSS RET URNED. SUBSEQUENTLY, COMMISSIONER OF INCOME TAX PASSED UND ER SECTION 263 OF THE ACT ON 24.03.2011 SETTING ASID E THE ASSESSMENT ORDER DATED 30.12.2008 AND DIRECTED TO INVESTIGATE THE ISSUES AFRESH. CONSEQUENT TO THE O RDER PASSED UNDER SECTION 263 OF THE ACT, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 263 DETERMINING INCOME AT ` 1,01,52,339/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER MA DE ADDITION OF ` 1,09,08,429/- TREATING CERTAIN UNPROVED CREDITORS AS BOGUS AND ASSESSED SUCH UNPROVED CREDITS AS INCO ME OF THE ASSESSEE. THE ASSESSING OFFICER MADE ADDITION S TATING THAT THOUGH THE ASSESSEE FIRM HAS BEEN GIVEN SEVERA L OPPORTUNITIES TO PROVE THE GENUINENESS OF THE CREDI TORS, THE DETAILS WERE NOT FILED BY THE ASSESSEE AS CALLED FO R. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) AF TER EXAMINING THE BALANCE SHEETS OF THE ASSESSEE AS ON ITA NO.1365/MDS/2013 3 31.03.2006, 31.03.2005 AND 31.03.2004 CAME TO THE CONCLUSION THAT UNPROVED / UNEXPLAINED CREDITORS AR E THE OPENING BALANCES COMING FROM THE EARLIER FINANCIAL YEARS AND THEREFORE THESE CREDITS CANNOT BE CONSIDERED AS UNP ROVED CREDITS FOR THE ASSESSMENT YEAR UNDER APPEAL I.E. 2 006-07, THUS, HE DELETED THE ADDITION AGAINST WHICH THE REV ENUE IS IN APPEAL BEFORE US. 3. THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS WITH REGARD TO CREDITORS IN S PITE OF SEVERAL OPPORTUNITIES. THE ASSESSEE HAS PRODUCED DE TAILS ONLY BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS ). THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT IN THE ABS ENCE OF ANY PROPER EXPLANATION / DETAILS FILED BY THE ASSES SEE, THE ASSESSING OFFICER WAS RIGHT IN CONCLUDING THAT CRED ITS ARE BOGUS. 4. IN THE ALTERNATIVE, THE DEPARTMENTAL REPRESENTAT IVE SUBMITS THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) ITA NO.1365/MDS/2013 4 SHOULD HAVE CONSIDERED THE SAME AS TAXABLE IN THE H ANDS OF THE ASSESSEE UNDER SECTION 41(1) OF THE ACT. RELIAN CE IS PLACED ON THE DECISION OF BANGALORE BENCH OF THIS T RIBUNAL IN THE CASE OF SURESH KUMAR T.JAIN VS. ITO (128 ITD 7 4). 5. THE COUNSEL FOR THE ASSESSEE SUPPORTING THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITS TH AT ALL THESE BALANCES ARE OPENING BALANCES OF EARLIER YEAR S AND THESE CREDITS WERE NOT INTRODUCED IN THE BOOKS OF A CCOUNT DURING THE ASSESSMENT YEAR UNDER APPEAL AND IN SUCH CIRCUMSTANCES, NO ADDITION CAN BE MADE AS UNPROVED CREDITS. HE ALSO SUBMITS THAT THE ASSESSEE HAS NOT PROVIDED ANY NEW INFORMATION BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) IN VIOLATION OF PROVISIONS OF SECTION 46A OF THE ACT. 6. IN RESPECT OF ALTERNATIVE CLAIM THAT THESE AMOU NTS SHOULD BE TAXED UNDER SECTION 41(1) OF THE ACT, THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS PLEA IS ENTIRELY A NEW PLEA WHICH IS RAISED FOR THE FIRST TIME BEFORE THIS TRIB UNAL AND THE ASSESSING OFFICER NEVER EXAMINED THE ISSUE OF TAXAB ILITY OF THE ITA NO.1365/MDS/2013 5 CREDITS UNDER THE PROVISIONS OF SECTION 41(1) OF TH E ACT AND NO DISCUSSION HAS BEEN MADE BY THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER. IN SUCH CIRCUMSTANCES, A NEW PLE A CANNOT BE MADE BEFORE THE TRIBUNAL, WHERE THE FACTS WERE N OT BORNE OUT FROM RECORDS. HE PLACES RELIANCE ON THE DECISI ON OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. S.A. BUILDERS (93 DTR 256), COPY OF WHICH IS PLACED ON RECORD. 7. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE CASE LAW RELIED ON. THE ASSESS ING OFFICER MADE ADDITION STATING THAT THESE CREDITORS WERE NOT PROVED BY THE ASSESSEE AND NO INFORMATION REGARDING THESE CRE DITS WERE FILED IN SPITE OF SEVERAL OPPORTUNITIES. THE COMMIS SIONER OF INCOME TAX (APPEALS) AFTER EXAMINING BALANCE SHEETS AND DETAILS OF CREDITORS OUTSTANDING AS ON 31.03.2006 F OUND THAT ALL THESE CREDITS WERE OPENING BALANCES AND THE ASS ESSEE HAS NOT INTRODUCED ANY OF THESE CREDITS DURING THE ASSESSMENT YEAR 2006-07 AND THEREFORE ADDITION CANN OT BE ITA NO.1365/MDS/2013 6 MADE AS UNPROVED CREDITS IN THE ASSESSMENT YEAR 200 6-07 OBSERVING AS UNDER:- THE CONTENTIONS OF THE ASSESSEE ARE EXAMINED CAREFULLY. THE ONLY ISSUE INVOLVED IN THIS APPEALS IS THE ASSESSING OFFICER'S ACTION OF BRINGING THE CREDIT B ALANCES OF RS.L,09,08,429/- APPEARING IN THE NAMES OF 33 CR EDITORS IN THE ASSESSEE'S BOOKS AS ON 31 . 03 . 2006. THE ASSESSING OFFICER IN HIS, ORDER OBSERVED THAT THERE ARE SEVER AL CREDITORS OUTSTANDING AS ON 31 . 03.2006. WHEN ASKED FOR THE DETAILS AND CONFIRMATIONS FOR 44 CREDITORS (WHE RE THE TOTAL OUTSTANDING BALANCES ARE RS . L,34,52,486), THE ASSESSEE COULD FURNISH THE DETAILS AND CONFIRMATION LETTERS FROM ONLY 8 CREDITORS (WHOSE TOTAL OUTSTANDING BALANCES ARE RS . 25,44,04 7 ). REGARDING THE BALANCE OF 33 CREDITORS, DESPITE SEVERAL OPPORTUNITIES, THE ASSESSEE COULD N OT PROVE THE GENUINENESS OF THE CREDITORS OUTSTANDING AMOUNT ING TO RS.L,09,08,429/ -. HENCE THE ASSESSING OFFICER TREATED THE SAME AS UNEXPLAINED AND UNPROVED CREDITORS AND BROU GHT TO TAX. THOUGH THE ASSESSING OFFICER HAS NOT SPECI FICALLY MENTIONED, THE SECTION UNDER WHICH THESE AMOUNTS AR E BROUGHT TO TAX, ARE THE PROVISIONS OF SEC . 68 OF THE ACT . THE PROVISIONS OF SEC . 68 OF THE ACT DEALS WITH UNEXPLAINED CASH CREDITS . AS PER SEC.68 OF THE ACT, IF ANY AMOUNT IS FOUND TO BE CREDITED IN THE BOOKS OF THE ASSESSEE IN ANY PR EVIOUS YEAR AND THE ASSESSEE FAILS TO EXPLAIN THE SOURCES, THE AMOUNT SO CREDITED CAN BE BROUGHT TO TAX AS THE INC OME OF THE, ASSESSEE OF THAT PREVIOUS YEAR IN WHICH THE CR EDITS ARE ENTERED . THE PROVISIONS OF SEC.68 A R E REPRODUCED AS UNDER:- CASH CREDITS . SEC . 68 . WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AN D THE ASSESSEE OFFERS NO . EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HI M IS NOT: IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME - TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR, (EMPHASIS SUPPLIED) FROM THE ABOVE PROVISIONS OF SEC.68, IT IS CLEAR THAT THE UNEXPLAINED AND UNPROVED CREDITS/CREDITORS CA N BE BROUGHT TO TAX AS THE INCOME OF THE YEAR IN WHICH THE CREDITS/CREDITORS ARE, SO INTRODUCED . ITA NO.1365/MDS/2013 7 WHEREAS, IN THE INSTANT CASE, NONE OF THE 33 CREDIT ORS, WHICH ARE THE SUBJECT MATTER OF ADDITION, ARE THE C REDITS / CREDITORS INTRODUCED IN THE FINANCIAL YEAR 2005-06. THESE AMOUNTS REPRESENT THE OPENING BALANCES AS ON 01 . 04.2005 AND ARE COMING FROM THE EARLIER FINANCIAL YEARS. IN FACT , THESE DETAILS ARE CLEARLY AVAILABLE IN THE LIST OF THE SUNDRY CREDITORS SHOWN IN THE BALANCE SHEETS (AS 01 . 03 . 2006, 31 . 03 . 2005, 31 . 03.2004 ETC) ENCLOSED ALONG WITH THE RETURNS OF INCOME FILED FOR A.YS. 2006-07, 2005-06,2004-05 AND SO ON. AS COULD BE SEEN FROM THE LIST OF THE SUNDRY CR EDITORS, AS CONTAINED THE AUDITED BALANCE SHEETS OF THE ASSESSE E OF FINANCIAL YEARS 2003-04, 200-05 AND 2005-06, THE BALANCES OUTSTANDING IN THE 33 CREDITORS, WHICH ARE UN DER CONSIDERATION, ARE AS UNDER: DETAILS OF THE SUNDRY CREDITORS (OUTSTANDING BALANC ES AS ON 31 . 03.2006, 31 . 03.2005, 31 . 03.200 4 : (THE OUTSTANDING BALANCES OF TH E ABOVE 33 CREDITORS ARE ALONE CONSIDERED HERE AND THE BALANCE OF THE CREDITORS AR E EXCLUDED) S . NO PARTY NAME 31 . 03 . 2006 31 . 03.2005 31 . 03.2004 1 ACT INDIA(SIGAL) 15,000 15,000 15,000 2 BINDAL AGENCIES 9,284 9,28 4 9,284 3 BS.REFINED METALS AND ALLOYS 7,21,085 7,21,085 7,21,085 4 GEEP BATTERIES (INDIA) P LTD 36,286 36 , 286 - 5 GROUP 4 SECURITIES '256 256 256 6 IT! LTD 2,17 , 755 2,17,755 2,17,755 ':/ IVP LTD 1,78,004 1,78,004 1 , 78,004 8 KARNATAKA METALS& ALLOY CASTING 13,55,214 13,55,214 13,55,214 9 MICO/BANGALORE/PUR 23,25,835 23,25,835 23,25,835 10 MINI STAR ENGINEERING CORPORATION 116 116 - 11 M.M.FORGINGS 14,66,195 14,66,195 . 14,66,195 12 PONDY DIE CASTINGS P LTD . 1 , 42,279 1,42,279 1,42,279 13 RAJESWARI METAL IMPEX P LTD 82,294 82,294 82,294 14 RAJESWARI METTALUGICALS LTD 7 , 47,375 7,47,375 7,47,375 15 RAMAN & CO 66,304 66,304 66,304 16 RKT TRANSPORTS 56 , 400 56,40 0 56,400 17 ROYAL STITCHES P LTD 7 , 47,597 7 , 47,597 - 18 SHARDAL CASTING LTD 3,73,897 3,73,897 3,73,897 ITA NO.1365/MDS/2013 8 19 TROKIA COMPONENTS P LTD 1,427 1,42 7 - 20 SOUTHERN PRESSURE CASTING 35,396 35,396 35,396 21 SOUTERN PRESSING P LTD 45,000 45,000 45,000 22 SRI BALAJ I VALVES P LTD 9,'632 9 , 63 2 9,632 23 SURAMANIYA AND CO 1,51,050 1,51,050 1,51,050 24 . SUNDARAM INDUSTRIES 66,602 66,602 66,602 25 TVS SUZUKI LTD 7,52,835 7 , 52,835 7,52,835 26 UCAL FUEL FUEL SYSTEMS MM (PUR) 34,348 34,348 - 27 UCAL FUEL FUEL SYSTEMS PUR 7 ,32,333 7 , 32,333 7,32,333 28 UNITED METALS 1,33,000 1,33 , 000 1,33,000 29 . ZWG CATINGS P LTD 3,05 , 492 3,05,492 3,05 , 492 30 TVS MOTOR COMPANY LTD-HOSUR 34,373 34,373 - 31 VAISHNAVI METALS 114 ! 114 - 32 VRW REFERACTORIES 65,117 65,117 65,117 33 ALCAST INDIA LTD 543 543 - TOTAL' 1,09,08,439 1,09,08,439 1,00,53,635 THE ABOVE DETAILS CLEARLY PROVE THAT THE SUNDRY CRE DITORS, WHICH ARE CONSID E RED AS UNPROVED /UNEXPLAINED CREDITORS ARE THE OPENING CREDIT BALANCES COMING FROM THE EARLIER FINANCIAL YEARS. THEY ARE NOT THE . CREDITS / CREDITORS INTRODUCED IN THE FINANCIAL YEAR 2005-06 RELEVANT TO THE A . Y . 2006-:07 UNDER CONSIDERATION. HENCE THESE CREDITORS/CREDITS CANNOT BE CONSIDERED AS UNEXPLAINED/UNPROVED CREDITORS/CREDIT S OF THE F.Y.2005-06 AS DEFINED UNDER THE PROVISIONS OF SECT ION 68 OF THE ACT. THEREFORE THE ABOVE CREDITORS/CREDITS WHIC H ARE THE OPENING BALANCES OF THE FINANCIAL YEAR 2005-06 CANN OT BE BROUGHT TO TAX IN THE ASSESSMENT OF A.Y.2006-07 U/ S. 68 OF THE ACT. FOR THIS PURPOSE RELIANCE IS ALSO PLACED ON TH E DECISION OF SUPREME COURT IN THE CASE OF BALADIN RAM V. CIT (7 1 ITR 427) WHERE THE APEX COURT HELD THAT WHERE CASH CRED IT RELATES TO UNDISCLOSED INCOME, THE AMOUNT OF SUCH CASH CRED IT SHOULD BE ASSESSED IN THE AY IMMEDIATELY FOLLOWING THE 31 ST MARCH. FURTHER RELIANCE IS ALSO PLACED ON THE FOLLOWING JU DICIAL DECISIONS: CIT VS. DHARAMCHAND ANANDKUMAR [(1980) 128 ITR 219 ] IT WILL BE SEEN THAT THE SECTION HAS APPLICATION WH ERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESS EE MAINTAINED FOR ANY PREVIOUS YEAR. IF THE AMOUNT SO CREDITED IS FOUND TO BE THE BUSINESS INCOME OF THE ASSESSEE FOR WHICH THE BOOKS OF ACCOUNT ARE MAINTAINED, THE INCOME DISCOVERED FROM THE CREDIT ITA NO.1365/MDS/2013 9 ENTRIES WOULD BE TAKEN TO THE INCOME OF THE PREVIOU S YEAR FOR WHICH THE ACCOUNTS ARE MAINTAINED. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTI FIED IN INVOKING THE PROVISIONS OF SECTION 68 IN RESPECT OF THE SUNDRY CREDITORS WHICH ARE NOT INTRODUCED DURING THE F.Y.2 005-06 BUT COMING FROM THE EARLIER FINANCIAL YEARS (AS OPENING BALANCES). HENCE THE ADDITION OF ` 1,09,08,429/- MADE BY THE ASSESSING OFFICER IS DELETED. THE ASSESSEE SUCCEEDS IN ITS AP PEALS. 8. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE FIND THAT THESE CREDITS WE RE ALL OPENING BALANCES AND THEY WERE NOT INTRODUCED DURIN G THE ASSESSMENT YEAR 2006-07. THE REVENUE ALSO DID NOT CONTROVERT WITH EVIDENCE THE FINDINGS OF THE COMMI SSIONER OF INCOME TAX (APPEALS) TO SHOW THAT THESE CREDITS WER E INTRODUCED DURING THE ASSESSMENT YEAR UNDER APPEAL AND THE CREDITS HAVE TO BE CONSIDERED AS UNPROVED DURING TH IS ASSESSMENT YEAR. IN THE CIRCUMSTANCES, WE UPHOLD T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELE TING THE ADDITION MADE UNDER SECTION 68 OF THE ACT. 9. IN RESPECT OF ALTERNATIVE CLAIM, WE FIND THAT TH E ASSESSING OFFICER NEVER EXAMINED THE ISSUE OF APPLI CABILITY OF PROVISIONS OF SECTION 41(1) OF THE ACT WHILE COMPLE TING THE ITA NO.1365/MDS/2013 10 ASSESSMENT. IT WAS NEVER THE CONTENTION OF THE ASSE SSING OFFICER THAT THERE IS CESSATION OF LIABILITY AND TH E AMOUNTS ARE TAXABLE UNDER SECTION 41(1) OF THE ACT. THE DECISI ON RELIED ON BY THE DEPARTMENTAL REPRESENTATIVE IN THE CASE OF S URESH KUMAR T.JAIN (SUPRA) MAY NOT BE APPLICABLE TO THE F ACTS OF THE PRESENT CASE SINCE IN THAT CASE THE ASSESSING OFFIC ER HAS EXAMINED ALL THE CREDITORS AND HELD THAT SOME OF TH E CREDITORS ARE BOGUS AND ARE LIABLE TO BE ASSESSED UNDER SECT ION 68 OF THE ACT AND SOME OF THE BROUGHT FORWARD CREDITORS B ALANCES WERE TREATED AS CESSATION OF TRADING LIABILITY UNDE R SECTION 41(1) OF THE ACT. HERE IN THE CASE ON HAND, THE ASS ESSING OFFICER HAS NEVER EXAMINED THE TRADE CREDITORS AND THE APPLICABILITY OF THE PROVISIONS OF SECTION 41(1) AS CESSATION OF LIABILITY. IN THE ABSENCE OF ANY INVESTIGATION MADE BY THE ASSESSING OFFICER TO FIND OUT IF THERE IS ANY CESSA TION OF LIABILITY AT THE STAGE OF COMPLETION OF ASSESSMENT , THE PLEA NOW RAISED BY THE ASSESSING OFFICER FOR THE FIRST T IME BEFORE US CANNOT BE ENTERTAINED. HOWEVER, THE ASSESSING OFFIC ER IS NOT PRECLUDED TO INVOKE THE PROVISIONS OF SECTION 41(1) OF THE ACT IN ANY OTHER ASSESSMENT YEAR IN RESPECT OF THE TRAD E CREDITS IN ITA NO.1365/MDS/2013 11 CASE OF CESSATION OF LIABILITY. THEREFORE, WE REJE CT THE ALTERNATIVE PLEA OF THE REVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 31 ST DAY OF JANUARY, 2014 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) (CHALLA NAGEN DRA PRASAD) ACCOUNTANT MEMBER JUDI CIAL MEMBER CHENNAI, DATED THE 31 ST JANUARY, 2014. SOMU COPY TO: (1) APPELLANT (4) CIT (A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.