CARPET AND TEXTILE HOUSE, Jaipur V. ACIT, Jaipur

ITA 1379/JPR/2010

• Counselvise Citation: 137923114 RSA 2010
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Search and seizure; Additional evidence
• Section: 143(3); 68

Judgement Text

1 ITA 1379-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 1379/JP/2010 ASSTT. YEAR : 2007-08. M/S. CARPET & TEXTILES HOUSE, VS. THE ACIT, CIRCLE 5, 1, NATWARA HOUSE, OLD AMER ROAD, JAIPUR. SUBASH CHOWK, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHENDRA GARGIEYA RESPONDENT BY : SHRI SUNIL MATHUR DATE OF HEARING : 09.08.2011 DATE OF PRONOUNCEMENT : 02.09.2011. ORDER DATED : 02/09/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2007-08. 2. THE FOLLOWING THREE EFFECTIVE GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN ITS APPEAL :- 1) THAT THE LD. CIT (A)-II, HAS GROSSLY ERRED IN CO NFIRMING THE ADDITION OF RS. 2,19,97,125/- IN THE HANDS OF THE A SSESSEE FIRM U/S 68 OF THE I.T. ACT, 1961 WHEREAS THE SAME WAS FULLY EXPLAINED IN THE BOOKS OF ACCOUNT OF THE FIRM AND FROM A VERIFIA BLE SOURCE. 2) THAT THE LD. CIT (A)-II HAS FURTHER IGNORED THE FACT THAT RS. 2,19,97,125/- IS THE VALUE OF STOCKS WHICH WAS INTR ODUCED BY SHRI MAHESH KUMAR DANGAYACH PARTNER OF THE FIRM AS HIS C APITAL CONTRIBUTION IN THE ASSESSEE FIRM ON 30.03.2006 I.E . DURING THE 2 ASSESSMENT YEAR 2006-07, WHEREAS THE SAME AMOUNT IS ADDED IN THE HANDS OF THE ASSESSEE FIRM U/S 68 OF THE I.T. ACT, 1961 WHILE FRAMING THE ASSESSMENT ORDER U/S 143(3) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2007-08. THE CASH CREDIT IS IN THE BOOKS OF THE PARTNER AND NOT IN THE BOOKS OF THE ASSESSEE FIRM. 3) THAT THE LD. CIT (A)-II HAS FURTHER ERRED TO TAK E A NOTE OF THE ADDITIONAL DOCUMENTARY EVIDENCES FILED AT THE TIME OF HEARING TO PROVE THE VALUE AND SOURCE OF THE STOCKS WHICH WERE INTRODUCED BY SHRI MAHESH KUMAR DANGAYACH PARTNER IN THE ASSESSEE FIRM AS HIS CAPITAL CONTRIBUTION DURING THE ASSESSMENT YEAR 200 6-07. 3. IDENTICAL GROUNDS WERE TAKEN BEFORE LD. CIT (A) ALSO WHICH HAS BEEN TABULATED IN THE ORDER OF LD. CIT (A) AT PAGE 1. 4. THE BRIEF FACTS NOTED BY LD. CIT (A) AT PAGE 2 O F HIS ORDER ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH WAS CONSTITUTED ON 30.3.2006 AND ASSESSMENT YEAR UNDER CONSIDERATION WAS THE FIRST YEAR OF APPELLANTS BUS INESS. AFTER GOING THROUGH THE CAPITAL ACCOUNT OF THE PARTNER SH. MAHESH DANGAYACH THE AO HAS NOTICED THAT RS. 2,19,97,125/- WERE CREDITED IN HIS CAPITAL ACCOUNT AS OPENING STO CK AS INTRODUCTION OF CAPITAL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE ORDER SHE ET ENTRY DATED 26.11.2009, 4.12.2009 AND 9.12.2009 THE APPELLANT WAS REQUIRED TO FURNISH THE DETAILS/EVIDENCE/SOURCES OF THE AFORESAID CREDIT ON ACCOUNT OF OPENING STOCK BUT TH E AR OF ASSESSEE FAILED TO FURNISH ANY EXPLANATION/DOCUMENTARY EVIDENCE FOR THE SAID CAPIT AL INTRODUCTION IN THE FORM OF STOCK. THEREAFTER, THE EXPLANATION FURNISHED WAS REPRODUCE D IN THE BODY OF ASSESSMENT ORDER BUT IT HAS NOT BEEN CONSIDERED SATISFACTORY BECAUSE THE FIGURES GIVEN BY ASSESSEE FOR CLOSING STOCK IN TWO FIRMS NAMELY M/S. ANIL EXPORTS AND M/S . ANIL RUGS IN WHICH HE WAS PARTNER PRIOR TO DISSOLUTION OF THESE FIRMS AS ON 31.3.2005 WERE COMPLETELY ON ESTIMATE BASIS AND NO BALANCE SHEET OR DISSOLUTION DEED WERE PRODUCED IN ORDER TO AUTHENTICATE THE CLAIM. UNDER THESE CIRCUMSTANCES, THE AR OF THE ASSESSEE W AS REQUIRED ON 4.12.2009 TO PRODUCE 3 SH. MAHESH DANGAYACH AND SMT. RAJMI DANGAYACH THE P ARTNERS OF THE FIRM BUT THEY WERE NOT PRODUCED. HE WAS ALSO REQUIRED TO PRODUCE SH. A NIL KHANDELWAL AND SH. SANJAY KHANDELWAL WHO WERE REPORTED TO BE PARTNERS IN ERST WHILE FIRMS IN WHICH SH. MAHESH DANGAYACH WAS SAID TO BE THE PARTNER AND FROM WHERE THE STOCK IS CLAIMED TO HAVE BEEN TRANSFERRED ON DISSOLUTION OF THESE FIRMS NAMELY M/ S. ANIL EXPORTS AND M/S. ANIL RUGS. HOWEVER, THE AR FAILED TO PRODUCE THESE PERSONS. AG AIN VIDE ORDER SHEET ENTRY DT. 9.12.2009 A CLEAR OPPORTUNITY WAS GIVEN TO PRODUCE THESE PERSONS AND IN CASE OF FAILURE AN OPPORTUNITY WAS ALSO GIVEN TO TREAT SUCH INTRODU CTION OF STOCK AS OPENING CAPITAL AS UNEXPLAINED CREDIT. HOWEVER, ON THE APPOINTED DATE OF 14.12.2009 NO EXPLANATION/DOCUMENTARY EVIDENCE WERE FILED AND THE SE PARTNERS WERE ALSO NOT PRODUCED AND UNDER THESE CIRCUMSTANCES HAVING LEFT WITH NO O PTION THE AO HAS TREATED SUCH INTRODUCTION OF STOCK BY SH. MAHESH DANGAYACH THE P ARTNER OF THE FIRM AS UNEXPLAINED CREDIT FOR WHICH AN ADDITION OF RS. 2,19,97,125/- H AS BEEN MADE. 5. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT THE FIR M WAS CONSTITUTED ON 30.3.2006 AND, THEREFORE, THIS CAPITAL CONTRIBUTION WAS IN F. Y. RELEVANT TO A.Y. 2006-07. HE HAD FURTHER CLARIFIED THAT EARLIER A SEARCH WAS CONDUCT ED AT THE BUSINESS AND RESIDENTIAL PREMISES OF THE PARTNERS OF M/S. ANIL EXPORTS AND M /S. ANIL RUGS ON 28.1.2004 BECAUSE OF WHICH THE BOOKS OF ACCOUNTS FOR THE F.Y. 2004-05 AND 2005-06 COULD NOT BE COMPLETED AND THESE FIRMS HAD TO APPROACH THE SETTLEMENT COMM ISSION OF THEIR CASES UPTO ASSESSMENT YEAR 2004-05. FOR THE A.Y. 2005-06 THES E FIRMS HAVE FILED THEIR RETURN OF INCOME ON ESTIMATE BASIS AND ESTIMATED BALANCE SHEE T WERE ALSO FILED ACCORDING TO WHICH AS ON 31.3.2005 THE STOCK OF BOTH THE FIRMS WAS AT RS. 2,68,48,894/-. IF THE ASSESSED PROFIT FOR A.Y. 2006-07 OF THESE FIRMS AT RS. 39,43 ,770/- IS ADDED THEN CAPITAL OF SH. 4 MAHESH KUMAR DANGAYACH AS ON 31.3.2006 COMES RS. 1, 31,10,012/- AND CAPITAL OF OTHER GROUP NAMELY ANIL KHANDELWAL GROUP COMES RS. 58,47, 037/-. SINCE IT WAS DECIDED THAT MAHESH KUMAR DANGAYACH TOOK OVER THE PHYSICAL STOCK OF BOTH THE FIRMS AS ON 30.6.2006 THEREFORE, SAID STOCK AS INTRODUCED BY SH. MAHESH K UMAR DANGAYACH AS HIS CAPITAL CONTRIBUTION AT RS. 2,19,97,125/- ON 30.6.2006. HE HAD ALSO RELIED UPON RAJASTHAN HIGH COURT JUDGMENT IN THE CASE OF KEWAL KRISHAN & PARTN ER ACCORDING TO WHICH CAPITAL CONTRIBUTION MADE BY PARTNER ON 1 ST DAY CANNOT BE ADDED IN THE HANDS OF THE FIRM. SHRI SHEKHAWAT IN HIS FURTHER SUBMISSION GIVEN ON 9.9.20 10 HAS ARGUED THAT THE COPY OF PARTNERSHIP DEED WAS FILED BEFORE AO AND THE RETURN OF INCOME BY ERSTWHILE FIRMS FOR A.Y. 2005-06 AND 2006-07 WERE FILED ON ESTIMATE BAS IS. HE HAD ALSO RELIED UPON EARLIER SURVEY IN THESE TWO FIRMS IN F.Y. 1996-07 AND AT TH AT TIME ALSO STOCK OF RS. 1,96,29,303/- WAS FOUND. HE HAD ALSO FURNISHED A COPY OF SALES TA X ASSESSMENT ORDER FOR F.Y. 2005-06 AND 2006-07 FOR ANIL EXPORT AND ANIL RUGS. HE HAD ALSO FILED A COPY OF REPORT FORWARDED BY CIT CENTRAL JAIPUR UNDER RULE 9 DT. 18.6.2009 AN D A REQUEST WAS MADE TO DELETE THE SAID ADDITION AS MADE BY AO OF RS. 2,19,97,125/-. 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) REJECTED THE GROUNDS OF THE ASSESSEE BY GIVING HIS FINDING AT PAGES 3 TO 5 AS UNDER :- I HAVE CONSIDERED FACTS OF THE CASE AND ARGUMENTS TAKEN BY SH. SHEKHAWAT QUITE CAREFULLY. IT IS A FACT THAT TH E A.Y. 2007-08 IS THE FIRST YEAR OF THE APPELLANT FIRM AND NO RETURN OF INCOME FOR PRECEDING A.Y. WAS FILED. IT IS AN ADMITTED FACT TH AT NO COPY OF DISSOLUTION DEED OF M/S. ANIL EXPORT AND ANIL RUGS WAS FILED. IT IS ALSO A FACT THAT AFTER SEARCH AND SEIZURE ACTION ON 22.1.2004 NO PROPER BOOKS OF ACCOUNTS OF M/S. ANIL EXPORTS AND A NIL RUGS WERE MAINTAINED AND PREPARED. THE APPELLANT IS TOTALLY S ILENT FOR THE 5 MAINTENANCE OF BOOKS OF ACCOUNTS AND TRADING ACTIVI TY FROM DATE OF SEARCH AND UPTO 31.3.2004 THOUGH THE PETITIONS WERE FILED BEFORE HONBLE SETTLEMENT COMMISSION UPTO A.Y. 2004-05. EV EN AS PER REPORT UNDER RULE 9 THE VALUE OF THE STOCK WITH M/S . ANIL EXPORTS AND M/S. ANIL RUGS AS ON 29.1.2004 WAS RS. 1,88,78, 320/-. IT IS ALSO AN ADMITTED FACT THAT THOUGH IN F.Y. 2004-05 A ND 2005-06 THE TURNOVER IS CLAIMED EXCEEDING RS. 40 LAC BUT THERE ARE NO BOOKS OF ACCOUNTS AND OBVIOUSLY THERE IS NO TAX AUDIT FOR TH E A.Y. 2005-06 AND 2006-07. UNDER THESE CIRCUMSTANCES EVEN IF THE SALES IS VERIFIABLE BEING THE EXPORT SALE FOR THESE 2 A.YRS. BUT UNLESS THE PURCHASES ARE FULLY VERIFIABLE WITH PROPER BILLS AN D BOOKS OF ACCOUNTS THERE CAN BE NO WORKING OF CLOSING STOCK A S ON LAST DAY OF F.Y. 2005-06 IN THE CASE OF M/S. ANIL EXPORTS AND M /S. ANIL RUGS. ADMITTEDLY, THERE WERE DISPUTES BETWEEN THE PARTNER S AND OBVIOUSLY UNDER THESE CIRCUMSTANCES THE EXISTING ST OCK AS ON THE DATE OF SEARCH IS REQUIRED TO BE DISPOSED OFF RESUL TING INTO SALE AND POSSIBLY DISTRESS SALE ALSO. IT IS THE APPELLANT F IRM WHICH IS CLAIMING THAT SH. MAHESH DANGAYACH HAS BROUGHT IN T HE STOCK OF M/S. ANIL EXPORTS AND ANIL RUGS AS INTRODUCTION OF CAPITAL IN THIS NEW FIRM THEN CERTAINLY IT IS FOR THE FIRM TO SUBST ANTIATE THE CLAIM BY NECESSARY EVIDENCE AND DOCUMENT. NOT A SINGLE PI ECE OF DOCUMENT WAS MADE AVAILABLE IN ASSESSMENT PROCEEDIN GS INSPITE OF NUMBER OF OPPORTUNITIES GIVEN AND EVEN THE PARTNERS WERE NOT PRODUCED BEFORE ASSESSING OFFICER FOR THEIR EXAMINA TION. THERE IS NO EVIDENCE THAT THE SAID STOCK WAS CREDITED IN THE BOOKS OF ACCOUNTS OF A.Y. 2006-07 SINCE THERE ARE NO BOOKS O F ACCOUNTS OF THE FIRM AND NO RETURN OF INCOME FILED OF THE APPEL LANT FIRM FOR A.Y. 2006-07 AND IT IS THE A.Y. UNDER CONSIDERATION IN WHICH THE SAID CREDIT WAS SHOWN IN THE CAPITAL ACCOUNT OF SH. MAHESH KUMAR DANGAYACH WITHOUT ANY EVIDENCE OF SUCH STOCK BROUGH T IN BY HIM AS HIS CAPITAL CONTRIBUTION. HONBLE RAJASTHAN HIG H COURT IN THE 6 CASE OF CIT V/S KISHORILAL SANTOSHILAL, 216 ITR 9 H AS HELD THAT IF IN THE FIRMS BOOKS THE CREDIT IS SHOWN IN THE NAME OF PARTNERS AND THERE IS NO SATISFACTORY EXPLANATION THEN IT WILL B E DEEMED TO BE THE INCOME OF THE FIRM. HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V/S ASHOK TIMBER IND. 125 ITR 336 AND IN THE CA SE OF BASANTIPUR TEA CO. P. LTD. V/S CIT, 180 ITR 261 HAS HELD THAT CASH CREDIT CAN BE ASSESSED EVEN ON THE FIRST DAY OF THE ACCOUNTING YEAR U/S 68 OF I.T. ACT. UNDER THESE CIRCUMSTANCES AND WITH SUCH FACTUAL AND LEGAL DISCUSSION IN MY CONSIDERED VIEW THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING SAID ADDITION OF RS . 2,19,97,125/- U/S 68 OF I.T. ACT WHICH IS HEREBY CONFIRMED BY REJ ECTING RELEVANT GROUND OF APPEAL. 7. NOW THE ASSESSEE IS IN APPEAL HERE BEFORE THE TR IBUNAL. 8. THE CASE WAS FIXED FOR HEARING ON 12.7.2011 ON W HICH DATE THE CASE WAS HEARD IN PART AS CERTAIN DETAILS WERE REQUIRED FROM THE LD. COUNSEL OF THE ASSESSEE. FINALLY, THE CASE WAS FIXED FOR HEARING ON 9.8.2011. OUT OF THE DETAILS REQUIRED, CERTAIN DETAILS WERE FILED BY THE ASSESSEE. HOWEVER, NO CAPITAL ACCOUNTS WERE FILED IN RESPECT OF THE PARTNERS IN ERSTWHILE FIRM FROM WHERE THE ASSESSEE IS CLAIMING THAT STOCK HAS BEEN TRANSFERRED IN THE ACCOUNT OF SHRI MAHESH KUMAR DANGAYACH, THE PARTNER OF THE ASSESSEE FIRM. THE LD. COUNSEL OF THE ASSESSEE HAS ALSO FILED AN APPLICATI ON UNDER RULE 29 OF ITAT RULES, 1963 FOR ADMITTING ADDITIONAL EVIDENCES WHICH ARE IN THE SHAPE OF AFFIDAVITS OF WITNESSES WHO AS PER APPLICATION PLAYED IMPORTANT ROLE IN ARRIVIN G AT CONCILIATION AND ARBITRATION BETWEEN ANIL KHANDELWAL GROUP AND MAHESH DANGAYACH GROUP (P ARTNERS IN THE ASSESSEE FIRM). THE LD. COUNSEL OF THE ASSESSEE HAS ALSO FILED MODI FIED WRITTEN SUBMISSIONS WITH A REQUEST THAT EARLIER WRITTEN SUBMISSIONS MAY BE IGNORED AND THIS MODIFIED WRITTEN SUBMISSION 7 MAY BE TAKEN INTO CONSIDERATION. FURTHER, RELIANCE WAS PLACED IN 256 ITR 351 (AP) AND 51 DTR 241 (DEL.). 9. ON THE OTHER HAND, THE LD. D/R STRONGLY SUPPORTE D THE ORDERS OF THE AUTHORITIES BELOW. IT WAS FURTHER SUBMITTED THAT THE ARGUMENT ADVANCED BY HIM ON 12.7.2011 SHOULD ALSO BE TAKEN INTO CONSIDERATION. IT WAS REMINDED BY LD. D/R THAT THE LD. COUNSEL OF THE ASSESSEE HAS FILED A CAPITAL ACCOUNT ON 12.7.2011 A ND THAT CAPITAL ACCOUNT IS TOTALLY DIFFERENT FROM ORIGINALLY FILED IN THE PAPER BOOK. IT WAS FURTHER SUBMITTED THAT ADDITIONAL EVIDENCES SHOULD NOT BE ADMITTED AT THIS STAGE AS, AS PER RULE 29 OF ITAT RULES ASSESSEE CANNOT FILE ANY ADDITIONAL EVIDENCE EXCEPT ANY EVID ENCE REQUIRED BY THE BENCH. THE RELEVANT PORTION OF RULE 29 WAS ALSO READ BY LD. D/ R. IT WAS FURTHER SUBMITTED THAT THIS IS NOT A TRANSFER ENTRY BUT IS A CREDIT ENTRY IN THE C APITAL ACCOUNTS PREPARED BY THE ASSESSEE FIRM IN THE NAME OF PARTNER SHRI MAHESH KUMAR DANGA YACH AND, THEREFORE, THE ASSESSEE FIRM IS BOUND TO EXPLAIN THE CREDIT ENTRY. IT WAS FURTHER SUBMITTED THAT STOCKS WERE BELONGING TO TWO OTHER FIRMS AND THOSE TWO OTHER F IRMS HAVE NOT BEEN DISSOLVED AND, THEREFORE, THERE IS NO QUESTION OF TRANSFERRING ANY STOCK. NO EVIDENCE WHATSOEVER HAS BEEN FILED TILL DATE IN RESPECT TO TRANSFER OF STOC K IN THE HANDS OF THE PARTNER OF THE ASSESSEE FIRM OR IN THE HANDS OF THE ASSESSEE FIRM. NO BALAN CE SHEETS OF TWO PARTNERSHIP FIRMS AS REQUIRED BY THE BENCH HAVE BEEN FILED BY THE LD. A/ R. IT IS WELL SETTLED POSITION IN LAW THAT IN A PARTNERSHIP FIRM NO STOCK OR ASSETS CAN B E TRANSFERRED WITHOUT DISSOLUTION OF THE FIRM OR WITHOUT THE CONSENT OF OTHER PARTNERS. THE RE IS NO IOTA OF EVIDENCE IN RESPECT OF DISSOLUTION OF THE FIRM OR TRANSFER OF STOCKS. EVE N IF THE AFFIDAVITS OF THE WITNESSES ARE ACCEPTED, THEN ALSO IT CANNOT BE HELD THAT ANY STOC K HAS BEEN TRANSFERRED. THE AFFIDAVITS OBTAINED NOW CAN BE HELD AS AN AFTER THOUGHT AS, AS PER THESE AFFIDAVITS ALSO THEY HAVE 8 STATED THAT THE DISPUTE WAS SETTLED AND STOCKS RELA TING TO THE FIRM WAS ASSIGNED TO THE PARTNERS OF THE ASSESSEE FIRM. HOWEVER, THEY HAVE NOT STATED IN THEIR AFFIDAVITS THAT STOCK WAS HANDED OVER TO THE PARTNERS OF THE ASSESSEE FIR M. IT WAS FURTHER SUBMITTED THAT COPIES OF ACCOUNTS OF STOCKS OF TWO ERSTWHILE PARTNERSHIP FIRMS ARE PLACED AT PAGES 32 AND 33 OF THE PAPER BOOK AND AS PER THIS STATEMENT THE STOCK STILL LYING WITH THEM AND THESE STATEMENTS ARE OF DATED 31.3.2006. THEREFORE, IT C ANNOT BE SAID THAT ON 30 TH MARCH, 2006 THE STOCK WAS TRANSFERRED BY THOSE FIRMS TO THE ACC OUNT OF THE ASSESSEE FIRM. IT WAS FURTHER SUBMITTED THAT ASSESSEE WAS ONLY 40% PARTNE R AND HOW THE ENTIRE STOCK WAS GIVEN TO THE ASSESSEE IS ALSO NOT KNOWN. 10. IN REPLY, THE LD. COUNSEL OF THE ASSESSEE STATE D THAT THE LD. CIT D/R HAS READ PART OF RULE 29 OF ITAT RULES. IN LATER PART OF RULE 29 OF ITAT RULES IT HAS BEEN PROVIDED THAT ASSESSEE MAY BE ALLOWED TO FILE ADDITIONAL EVI DENCE. HOWEVER, IT IS FOR THE BENCH WHETHER THOSE EVIDENCES CAN BE ADMITTED OR NOT. TH EREFORE, ASSESSEE HAS REQUESTED TO ADMIT THE ADDITIONAL EVIDENCE AND IT IS UPTO THE TR IBUNAL TO ADMIT THESE ADDITIONAL EVIDENCE OR NOT. 11. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND TAKING INTO CONSIDERATION THE MATERIAL ON WHICH OUR ATTENTION WAS DRAWN AND ALSO THE WRITT EN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE, THE APPEAL OF THE ASSESSEE IS BEING DISPO SED OFF IN THE FOLLOWING MANNER. 12. FIRST SUBMISSION OF THE ASSESSEE IS THAT SECTIO N 68 DOES NOT APPLY ON THE FACTS OF THE PRESENT CASE. IN OUR VIEW, THE ASSESSEE COULD NOT EXPLAIN THE AMOUNT CREDITED IN THE NAME OF THE PARTNER IN THE ACCOUNTS OF THE FIRM. TH EREFORE, THE ADDITION HAS BEEN RIGHTLY MADE BY THE AO UNDER SECTION 68. THE LD. CIT (A) HA S ALSO CONFIRMED THE ACTION OF THE 9 AO PLACING RELIANCE ON THE DECISION OF JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS. KISHORILAL SANTOSHILAL, 216 ITR 9 (RAJ.) WHEREIN IT IS HELD THAT IF IN THE FIRMS BOOK CREDIT IS SHOWN IN THE NAME OF PARTNER AND THERE IS NO SAT ISFACTORY EXPLANATION, THEN IT CAN BE ADDED UNDER SECTION 68. THEREFORE, WITHOUT GOING I NTO DETAIL, WE HOLD THAT ADDITION UNDER SECTION 68 HAS BEEN RIGHTLY MADE. 13. SECOND ARGUMENT OF THE LD. COUNSEL IS THAT FIRM HAS STARTED BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION AND THE STOCK W HICH HAS BEEN CREDITED IN THE BOOKS OF ACCOUNT OF THE FIRM WAS TRANSFERRED ON ACCOUNT OF D ISTRIBUTION OF STOCKS OF ERSTWHILE PARTNERSHIP FIRMS WHERE THE SHRI MAHESH KUMAR DANGA YACH WAS PARTNER, WAS TRANSFERRED ON 1.4.2006 AND NOT ON 31.3.2006. AN AFFIDAVIT OF SHRI U.S. SHEKHAWAT, THE EARLIER COUNSEL OF THE ASSESSEE FIRM HAS BEEN FILED AS ADDI TIONAL EVIDENCE ALONG WITH AN APPLICATION UNDER RULE 29 OF ITAT RULES. THE SUBMI SSIONS MADE BY LD. COUNSEL OF THE ASSESSEE, IN OUR VIEW, ARE NOT WELL FOUNDED/REASONE D. IN EARLIER WRITTEN SUBMISSIONS FILED ON 12.7.2011 THE LD. COUNSEL OF THE ASSESSEE HAS AD MITTED THAT CAPITAL ACCOUNT OF SHRI MAHESH KUMAR DANGAYACH AS ON 31.3.2006 WAS FILED BE FORE THE AO WHICH IS THE STARTING POINT AND AS PER CLAUSE 15 OF THE PARTNERSHIP DEED, PARTNERS WERE TO MAINTAIN BOOKS OF ACCOUNT AS ON 31 ST MARCH EVERY YEAR AND, THEREFORE, THE STOCK WAS TRA NSFERRED ON 31.3.2006 AND NO ADDITION CAN BE MADE FOR THE YEAR UNDER CONSIDERATION. 13.1. NOW IN THE MODIFIED WRITTEN SUBMISSION, THE L D. COUNSEL OF THE ASSESSEE HAS TAKEN A DIFFERENT STAND THAT IN FACT IT WAS DUE TO MISTAK E OF EARLIER COUNSEL THE STOCK WAS TRANSFERRED AS ON 31.3.2006 BUT IT WAS IN FACT TRAN SFERRED ON 1.4.2006 WHICH PERTAINS TO THE YEAR UNDER CONSIDERATION. IF THESE CONTENTIONS OF LD. A/R ARE ACCEPTED THEN STAND OF THE ASSESSEE THAT NO ADDITION CAN BE MADE IN THE YE AR UNDER CONSIDERATION FAILS AS, AS PER 10 MODIFIED SUBMISSION IT IS NOW STATED THAT THE STOCK WAS TRANSFERRED IN THIS YEAR I.E. ON 1.4.2006 AND THEREFORE, ADDITION HAS TO BE CONSIDER ED IN THIS YEAR. 13.2. FOR THE SAKE OF CLARIFICATION, IT IS WROTH ME NTIONING THAT IN THE GROUND OF APPEAL TAKEN BEFORE LD. CIT (A), IT WAS MENTIONED THAT THE STOCK WAS TRANSFERRED ON 30.3.2006 AND, THEREFORE, NO ADDITION CAN BE MADE DURING THE YEAR UNDER CONSIDERATION. HERE ALSO, IN THE GROUNDS OF APPEAL THIS VERY ISSUE HAS BEEN R AISED THROUGH GROUND NO. 2 THAT THE VALUE OF STOCK WHICH WAS INTRODUCED BY SHRI MAHESH DANGAYACH, PARTNER OF THE FIRM HAS CAPITAL CONTRIBUTION IN THE FIRM ON 30.3.2006 I.E. DURING THE ASSESSMENT YEAR 2006-07 AND NOT DURING THE ASSESSMENT YEAR 2007-08. NOW TAKING THE STAND THAT EARLIER COUNSEL BY MISTAKE IT HAS BEEN STATED THAT THE STOCK WAS TRANS FERRED ON 1.4.2006 AND NOT ON 31.3.2006, IN OUR VIEW, IS A WRONG STAND. CONTRADI CTORY STAND HAS BEEN TAKEN AT DIFFERENT STAGES. ACCORDINGLY, GROUND NO. 2 TAKEN HERE BEFOR E THE TRIBUNAL IS REJECTED AND WE HOLD THAT ADDITION IS LIABLE TO BE MADE IN THE YEAR UNDER CONSIDERATION. EVEN AND OTHERWISE, THE FIRM WAS CONSTITUTED ON 30.3.2006 AN D NO SEPARATE BOOKS OF ACCOUNT WERE MADE AS ON 31.3.2006 AS THE BUSINESS ACTIVITY OF TH E FIRM WAS STARTED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, WHATEVER, ENTRY HAS BEEN PASSED IN THE BOOKS OF ACCOUNT THAT RELATE TO THE YEAR UNDER CONSIDERATION. THERE FORE, FOR THIS REASON ALSO THE AO HAS RIGHTLY CONSIDERED THE AMOUNT OF CREDIT IN THE BOOK S OF ACCOUNT OF THE FIRM IN THE YEAR UNDER CONSIDERATION. 14. NEXT ARGUMENT OF THE LD. COUNSEL OF THE ASSESSE E IS THAT IN VIEW OF THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. KEWAL KRISHAN & PARTNERS, 18 DTR 121 (RAJ.) DATED 12.1.2009 WHEREIN IT HAS BEEN HELD THAT CAPITAL CONTRIBUTION MADE BY THE PARTNER ON THE FIRST DAY OF COMMENCEMENT OF BUSINES S COULD NOT BE ADDED IN THE HANDS OF 11 THE FIRM UNDER SECTION 68. RELIANCE IS ALSO PLACED ON VARIOUS OTHER CASES AND IN RESPECT TO THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CAS E OF CIT VS. KISHORILAL SANTOSHILAL, 216 ITR 9 (RAJ.) IT HAS BEEN STATED THAT THIS DECIS ION IS OF EARLIER DATE, THEREFORE, THE LATER DECISION SHOULD NOT BE TAKEN INTO CONSIDERATION AS THE LATEST DECISION SHOULD BE TAKEN INTO CONSIDERATION I.E. IN CASE OF CIT VS. KEWAL KRISHAN & PARTNER (SUPRA). 14.1. IN THIS REGARD WE ARE OF THE VIEW THAT THIS N EEDS A RE-VERIFICATION. THE ASSESSEE IS CLAIMING THAT STOCK OF ERSTWHILE PARTNERSHIP FIRMS I.E. M/S. ANIL EXPORTS AND M/S. ANIL RUGS WAS DISTRIBUTED AMONG THE PARTNERS AND AS PER AGREEMENT THE ENTIRE STOCK WAS GIVEN TO THE PARTNER OF THE PRESENT FIRM. NO IOTA OF EVI DENCE IN SUPPORT OF THIS CONTENTION HAS BEEN FILED, NEITHER DISSOLUTION DEED OF ERSTWHILE F IRM HAS BEEN FILED. NO ANY OTHER EVIDENCE SHOWING DISTRIBUTION OF ASSETS HAS BEEN FI LED. UNDISPUTEDLY, THE STOCK WHICH HAS BEEN CLAIMED TO BE TRANSFERRED TO THE PRESENT A SSESSEE FIRM RELATES TO THE ERSTWHILE TWO FIRMS. COPIES OF CLOSING STOCK OF BOTH THE FIRMS A RE PLACED ON RECORD AND AS PER THOSE COPIES OF ACCOUNTS OF CLOSING STOCK AS ON 31.3.2006 THE STOCK HAS BEEN SHOWN IN THE HANDS OF THOSE ASSESSEE FIRMS. THEREFORE, WITHOUT DISTRIBUTION OR WITHOUT CONSENT OF THE PARTNERS, STOCK CANNOT BE TAKEN AWAY OF ERSTWHILE T WO PARTNERSHIP FIRMS. IT IS WELL SETTLED POSITION IN LAW THAT IN CASE OF THE FIRM WITHOUT DI STRIBUTION OF ASSETS, THE ASSETS CANNOT BE TRANSFERRED. THE PARTNER SHRI MAHESH DANGAYACH WAS 40% PARTNER IN THOSE FIRMS AND HOW THE ENTIRE STOCK HAS BEEN SHARED BY HIM IS ALSO NOT KNOWN, 14.2. WE FURTHER NOTED THAT AS PER CAPITAL ACCOUNT OF SHRI MAHESH DANGAYACH, COPY IN THE PAPER BOOK AT PAGES 37 TO 39 OPENING CAPITAL IS SHOWN AT RS. 2,20,07,125/- AND WHEREAS, AS PER CAPITAL ACCOUNT FILED NOW BY LD. A/ R, OPENING CAPITAL IS SHOWN AT RS. 10,000/- ONLY. THERE IS LARGE CONTRADICTION IN BOT H THE CAPITAL ACCOUNTS. AS STATED ABOVE, 12 PARTNER OF FIRM IS TAKING CONTRADICTORY STAND AT DI FFERENT STAGES. THESE CAPITAL ACCOUNTS CANNOT BE RELIED UPON OR TAKEN INTO CONSIDERATION A S NO SATISFACTORY EXPLANATION HAS BEEN GIVEN FOR DIFFERENCE IN THE OPENING BALANCES. 14.3. NOW THE LD. COUNSEL OF THE ASSESSEE HAS FILED AN APPLICATION UNDER RULE 29 OF ITAT RULES ALONG WITH FOUR AFFIDAVITS OF SHRI SITAR AM KUMAWAT, SHRI UMED SINGH KARANSAR, SHRI UMESH DIXIT AND SHRI BRIJ RAJ SINGH, COPIES OF WHICH ARE PLACED AT PAPER BOOK PAGES 98 TO 104 AND THEY HAVE STATED THAT THEY WERE WITNESSES OF THE AGREEMENT AND A SETTLEMENT WAS ARRIVED AT AND IT WAS DECIDED THAT SHRI MAHESH DANGAYACH SHALL BE GETTING STOCK BECAUSE OF LACK OF LIQUID FUNDS OF RS . 2,19,97,125/-. HOWEVER, HE SHALL MAKE SUITABLE PAYMENT TO THE OTHER GROUP. NEITHER ANY EVIDENCE HAS BEEN FILED THAT ASSESSEE HAS MADE PAYMENT TO THE OTHER PARTNERS FOR TAKING THE STOCK NOR ANY EVIDENCE HAS BEEN BROUGHT ON RECORD THAT THESE FOUR PERSONS WERE , IN FACT, WITNESSED THE AGREEMENT AND THEY WERE PARTY TO THE SETTLEMENT AMONG THE PARTNER S OF THE ERSTWHILE TWO FIRMS. NEITHER THERE IS ANY CONSENT LETTER FROM OTHER PARTNERS OF THE ERSTWHILE PARTNERSHIP FIRMS. THEREFORE, AUTHENTICITY OF SUCH AFFIDAVITS FILED NO W CANNOT BE ASCERTAINED. THEREFORE, THESE ADDITIONAL EVIDENCES ARE NOT ADMITTED AS THEY ARE NOT OF ANY USE. IN OUR VIEW, THESE ARE SELF SERVING DOCUMENTS TO HOLD THAT STOCK OF RS . 2,19,97,125/- WAS TAKEN BY THE ASSESSEE RELATING TO ERSTWHILE PARTNERSHIP FIRMS. AS STATED EARLIER, WITHOUT DISTRIBUTION OF THE ASSETS OF A FIRM, NO ASSET CAN BE TAKEN AWAY NE ITHER ANY DETAILS OF STOCK WAS FILED THAT ASSESSEE WAS HAVING STOCK WHICH WAS PART OF STOCKS OF TWO ERSTWHILE PARTNERSHIP FIRM AND THE SAME HAS BEEN TRANSFERRED HERE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM. THEREFORE, IN VIEW OF THESE FACTS AND CIRCUMSTANCES IT IS AMPLY PROVED THAT ASSESSEE COULD NOT EXPLAIN THE SOURCE OF CAPITAL INTRODUCED IN THE PARTNERSHIP FIRM. 13 15. NOW THE QUESTION REMAINS THAT WHETHER THIS CAN BE ADDED IN THE HANDS OF THE FIRM OR NOT. SINCE THERE IS CONTRADICTORY STAND TAKEN A T DIFFERENT TIMES HERE BEFORE THE TRIBUNAL AND IT IS DIFFICULT TO HOLD THAT WHETHER THE STOCK, IN FACT, TRANSFERRED BELONGING TO THE PARTNERS OR SOMEBODY ELSE, ONUS IS ON THE FIRM. FI RM IS NOT A PERSON AS IT IS AN ARTIFICIAL ENTITY, THEREFORE, THIS FACT HAS TO BE VERIFIED FRO M WHICH SOURCE THIS STOCK HAS COME IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM. TO ASCERTAIN THIS FACT, MATTER IS RESTORED TO THE FILE OF THE AO TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO FILE EVIDENCES IN RESPECT OF THE CAPITAL IN SHAPE OF STOCK INTRODUCED IN THE BOOKS OF ACCOUN TS OF THE FIRM. IF THE AO HOLDS THAT THIS STOCK WAS TRANSFERRED BY THE PARTNERS AND THIS WAS THE FIRST DAY OF STARTING OF THE PARTNERSHIP BUSINESS AND NO ADDITION CAN BE MADE IN THE HANDS OF THE FIRM, THEN THE AO CAN MAKE ADDITION IN THE HANDS OF THE PARTNER BY TA KING RECOURSE OF PROVISIONS OF LAW. IT IS WORTH MENTIONING HERE THAT THE DECISION OF HONB LE RAJASTHAN HIGH COURT IN THE CASE OF KEWAL KRISHAN & PARTNER (SUPRA) BY WHICH IT HAS BEE N HELD THAT IF CAPITAL IS INTRODUCED ON 1 ST DAY OF THE BUSINESS OF THE FIRM, THEN NO ADDITION CAN BE MADE IN THE HANDS OF THE FIRM BUT ADDITION CAN BE MADE IN THE HANDS OF THE PARTNE R IN WHOSE NAME THE CAPITAL IS INTRODUCED. THIS FACTOR HAS TO BE TAKEN INTO CONSI DERATION BY THE AO WHILE DECIDING THE ISSUE AFRESH AS STATED ABOVE. ACCORDINGLY WE SET A SIDE THIS ISSUE TO THE FILE OF AO TO EXAMINE IN THE LIGHT OF THE OBSERVATION OF OURS ABO VE AND PASS A FRESH ORDER AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE. WE ORDER ACCORDINGLY. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISPOS ED OFF IN THE MANNER STATED ABOVE. 17. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 02 .09.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER 14 JAIPUR, D/ COPY FORWARDED TO :- M/S. CARPET AND TEXTILE HOUSE, JAIPUR. THE ACIT, CIRCLE-5, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 1379/JP/2010) BY ORDER, AR ITAT JAIPUR.