Shree M.D. Industries (Now known as M/s. Parameshwar Weaves), Surat V. The Income tax Officer, OSD-4, Range-2, Surat

ITA 1394/AHD/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2009 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 07-03-2022
• Assessment Year: 2003-2004
• Appeal Filed On: 23-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Assessee Lawyers: RASESH SHAH
• Keywords: Gift; Additional evidence; Set aside
• Section: 68; 148; 143(3); 133A; 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 1394/AHD/2016 (AY 2003-04) (Hearing in Virtual Court) ShreeM.D. Industries (now know as M/s Parameshwar Weaves) D-137, Uma Industrial Estate, Udhna Udhyognagar, Surat PAN : AAPFS 9634 K Vs Income Tax Officer OSD-4, Range-2, Surat Appellant / assessee Respondent / Revenue Assessee by Shri Rasesh Shah, CA Revenue by Ms Anupama Singla – Sr-DR Date of hearing 08.03.2022 Date of pronouncement 03.06.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. Commissioner of Income tax (Appeals)-II, Surat [for short to as “Ld. CIT(A)”] dated 23.03.2016for assessment year (AY) 2003-04, which in turn the assessment order under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 31.12.2008. The assessee has raised the following grounds of appeal:- “1.On facts and circumstances of the case, the learned CIT(A) has grossly erred in not appreciating the fact that this is the ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 2 1 st year of business of the firm and hence, the unexplained cash credit entries in the first year of business as added by the ITO cannot be the income since it is practically not possible to earn such huge profits i.e., even double than the turnover, in the first year of business and thus the additions for cash credits needs to be deleted on this ground itself. 2.On facts and circumstances of the case, the learned CIT(A) has grossly erred in not appreciating the fact that the impugned re-assessment proceedings in the case of the appellant firm, is ab-initio bad-in-law since, the individual partners of the appellant firm and related persons, who have introduced the capital and unsecured loans, respectively, have preferred a settlement petition before the Hon'ble Settlement Commission, in respect of the capital and loan introduced in the appellant firm and accordingly, the impugned reassessment order needs to be annulled out rightly. 3.On facts and circumstances of the case, the learned CIT(A) has grossly erred in upholding the addition u/s 68 of the Act for unexplained partners capital of Rs.1,98,50,000/-. As made by the ITO in the hands of the appellant firm, which is not only factually erroneous but also bad-in-law and hence, needs to be deleted. 4.On facts and circumstances of the case, the learned CIT(A) has grossly erred in restricting the addition of Rs.84,00,000/- to Rs.48,00,000-/, as made by the ITO, u/s 68 of the Act, alleging unexplained unsecured loans, which is absolutely erroneous and needs to be deleted. ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 3 5.On facts and circumstances of the case, the learned CIT(A) has grossly erred in upholding the lump-sum disallowance of Rs.1,00,000/- as made by the ITO, out of various expenses, by alleging that the same are not fully verifiable, which is erroneous and needs to be deleted. 6. On facts and circumstances of the case, the learned CIT(A) has grossly erred in passing the impugned set-aside appellate order, on an Ex-parte Basis, without granting the appellant a reasonable opportunity of being heard and without properly appraising the facts and merits of the assessee, as were available on record. 7.All the aforesaid grounds are without prejudice and independent to each and the appellant craves to add, amend, alter, substitute, modify any or all the above grounds of appeal, if necessary, on the basis of submissions to be made at the time of personal hearing.” 2. At the outset of hearing, the Ld. Authorized Representative (AR) for the assessee submits that, though the assessee has raised multiple grounds of appeal, however, there is only three substantial ground of appeal. Ground No. 1 to 3 relates to treatment of capital contribution of Rs. 1.98 Crore by partners under section 68, ground No. 4 relates addition of Rs. 48 lakhs under section 68 against unsecured loan and ground No.5 relates to lump sum disallowance of Rs.1.00 lakh of various expenses. The Ld. ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 4 AR for the assessee further submits that at this stage he is not pressing substantial ground No.5 due to smallness of amount and that the case is very old. Considering the submission of Ld. AR of the assessee substantial ground No.5 raised by assessee is dismissed as not pressed. 3. Brief facts of the case are that assessee- firm was engaged in the business of trading of grey cloth and finished fabrics. A survey under section 133A was conducted by Investigation Wing of Income Tax in the case of Shri Pankaj Danawala, CA who has admitted that he was creating un- explained capital / funds in the name of various persons by filing return of income of various persons. He further admitted that he was increasing opening capital and introducing un-explained gifts, loans and advances to various parties, concern and industries. During the course of survey, it was unearthed that such unexplained / capital has also been introduced in the name of assessee, Shri Mohanlal Dhanji Patel (M D Patel) as a main person of the group involved in such capital creation. Therefore, consequential survey was conducted on the premises of M ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 5 D Patel. During the course of survey, statement of Kirit M. Patel, son of M D Patel was recorded and was confronted with the evidence recovered in the survey on Pankaj Danawala. The assessee and its group was beneficiary of such capital creation. Later on, assessee group disclosed / admitted unaccounted income of Rs.5.0 crores. The Assessing Officer recorded that no break-up of such disclosure was furnished. During the survey, it was noted that assessee and its group used to maintain 150 bank accounts in the name of various persons and deposited unaccounted money in their business in those accounts. Later on the funds were transferred either to assessee or their sister concern. No regular assessment was made for the assessee for AY 2003-04. On the basis of such information and evidences the case of assessee was reopened under section 147. Notice under section 148 date 28.03.2008 was served on the assessee. During the course of assessment, the Assessing Officer asked to furnish the details of capital introduced in the partner’s account of Rs.1.98 cores. The assessee in response to show cause ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 6 notice submitted that he has filed petition before the Income Tax Settlement Commission Additional Bench, Mumbai for settlement of entire claim. The petition before Income Tax Settlement Commission was abated against which the assessee has filed Civil Writ Petition before Hon'ble jurisdictional High Court, wherein Settlement Commission was directed to dispose of petition of assessee. The Assessing Officer noted that the assessment is getting time barred, therefore, the Assessing Officer made addition of capital contribution at the hand of assessee under section 68. The Assessing Officer further noted that assessee credit of Rs.80 lakh in its books of account on account of unsecured loan from ten parties. The Assessing Officer made also addition of such unsecured loan as unexplained cash credit under section 68 in the assessment order dated 31.12.2008 passed under section 143(3)/147. 4. Aggrieved by the additions under section 68 the assessee filed appeal before Ld. CIT(A). Before ld CIT(A), the assessee filed detailed written submissions. Against the addition of ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 7 capital contribution the assessee stated that capital introduced by the partners cannot be treated as unexplained under the provision of section 68 as the partners has confirmed the introduction of such capital. There is no evidence that the capital introduced that such capital represented the unaccounted profit of the assessee. Additions have already been made in the hands of respective partners in their individual assessment. Moreover, the partners have filed petition before Income Tax Settlement Commission (ITSC) disclosing source of capital introduced by them in the firm. 5. On the additions of unsecured loan of Rs. 84 lakhs, the assessee stated that the assessee-firm commenced its business during the period under consideration and it was not possible to earn such huge profit in the first year of business. The assessee furnished the following details of unsecured loan and its status; Name of the lender Amount Rs. Rs.000/- 1 Kaushik Granites Pvt Ltd 10,00,000/- 2 M D International 15,00,000/- 3 Owned by M D Patel ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 8 i Ghughabhai H Balar 8,00,000/- ii Kailashben V Roy 8,00,000/- iii Venubhai V Roy 7,00,000/- iv Jagdishbhai Balar 7,00,000/- v Kailashben B Roy 6,00,000/- vi Chandrikaben J Roy 6,00,000/- vii Mamtaben Roy 10,00,000/- viii Rekhaben Balar 7,00,000/ 59,00,000/- Total 84,00,000/- 6. The assessee explained and submitted that for the loan Kaushik Granite Pvt Ltd., the assessee filed confirmation of party, name, address; PAN. For M D International, the assessee submitted that it is member of M D Group. for remaining lender mentioned at serial No 3 (i) to (viii) in para-5 above, the assessee submitted that they were mere name lender and M D Patel had disclosed such sums in his individual hand in the petition filed before ITSC for settlement of the various additions. It was brought to the notice that in the assessment of M D Patel a total sum of Rs 5.26 Crore has been added in the assessment order passed under section 143(3) r w s 147 dated 31.12.2008, which covers the capital contribution by partners of and unsecured loan of Rs. 59 lakhs. The assessee also ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 9 furnished the copy of assessment order passed in case of M D Patel by Income tax officer-ward-9(3) Surat for AY 2003- 04. 7. The ld CIT(A) after considering the submissions of the assessee the ld CIT(A) confirmed the addition of Capital contribution of Rs. 1.98 Crore by holding that until and unless the surrendered income is not accepted by ITSC, it cannot be said income introduced by the partners stand satisfactory explained. On the addition of unsecured loan, the ld CIT(A) held that out of Rs. 84 lakhs, Rs. 36 lakhs have already been assessed in the hand of M D Patel, the addition was restricted to Rs. 48 lakhs. The ld CIT(A) accepted the explanation of unsecured loan of following persons namely; 3(i) Ghughabhai H balar (HUF) Rs. 8.00 lakhs 3(ii) Smt Kailashben V Roy Rs.8.00 lakhs 3(iii) Smt Venuben V Roy Rs. 7.00 lakhs 3(iv) Jagdishbhai G,Balar Rs.7.00 lakhs 3(v) Smt Kailashben B Roay Rs. 6.00 lakhs Total Rs. 36.00 lakhs ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 10 8. Aggrieved by the order of Ld. CIT(A) both the parties filed appeal before the Tribunal and Tribunal restored both the appeal to Assessing Officer with the direction of addition of Rs.1.98 crores is difficult to resort conclusively unless the outcome of Settlement Commission proceedings are ascertained. Since the main issue was restored back and the other issue was connected with the proceedings before Settlement Commission. Therefore, all the issues were restored back to the file of Assessing Officer to decide afresh. It was also directed that in case of First Appellate Authority will take up the proceedings preferably after ascertaining of outcome of the Settlement Commission in case of outcome is not brought to the notice of First Appellate Authority then First Appellate Authority within reasonable period will be at liberty to proceed in accordance with law while vide order dated 27.08.2000 in ITA No.3401/Ahd/2009. 9. The Ld. CIT(A) in the setting aside appellate proceedings recorded that the assessee failed to submit any details regarding identity, creditworthiness and genuineness of ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 11 such transaction. Therefore, capital introduced by the partner will have to be treated as reinstated. On the addition of Rs.48 lakhs, the Ld. CIT(A) retreated the same view as taken in the first round of appeal. Aggrieved again, the assessee has filed present appeal before the Tribunal. 10. We have heard the submissions of Ld. Authorized Representative (AR) of assessee and Ld. Sr. Departmental Representative (Sr-DR) of the Revenue and have gone through the orders of authorities below carefully. The Ld. AR of the assessee submits that substantial ground No.1 is covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in the case of PCIT Vs Vaishnodevi Refoils & Solvex (2018) 89 ttaxmann.com 80 (Guj), wherein it was held that capital introduced by one partner of the firm, in view of the fact that it is duly reflected in books of account maintained by the concerned partner and confirmed by such partner the impugned addition is liable to be set aside. The Ld. AR for the assessee submits that there is no dispute about the capital introduced by such partner which is duly reflected in the books of account ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 12 maintained by such partner. Thus, the addition of Rs.1.98 lakh is to be liable to be deleted. 11. On the second ground which relates to addition of Rs.48 lakh Ld. AR for the assessee submits that submitted that for the loan Kaushik Granite Pvt Ltd., the assessee filed confirmation of party, name, address; PAN. For M D International, the assessee submitted that it is member of M D Group. The group has already filed petition before ITSC for settlement of the various additions. The additions made at the hand of M D Patel of Rs 5.26 Crore under section 143(3) rws 147 dated 31.12.2008, covers the unsecured loan of Rs. 59 lakhs. The ld AR for the assessee submits that the issue of unsecured loan may be restored to the file of assessing officer to verify the facts, if the unsecured loan of Rs. 59 Lakhs is already owned by M D Patel, the entire addition of unsecured loan be deleted. 12. On the other hand the ld. Sr DR for the revenue submits that the assessee-firm is claiming that the entire capital created by Pankaj Danawala is owned by M D Patel and he has filed petition before ITSC. The proceedings before ITSC ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 13 has not attained finality, therefore, unless until such the surrendered income is not accepted by ITSC it cannot be said income introduced by the partners stand satisfactory explained. On the addition of unsecured loan the ld. DR for the revenue submits that she has the same line of submission that neither the surrendered income has attained finality nor the assessee has filed evidence that M D Patel has owned all the transaction of his group. 13. We have considered the rival submissions of the parties and have gone through the assessment order and the orders of ld CIT(A)’s in both the rounds. Substantial Ground No. 1 relates to addition of capital contribution. We find that three partners of assessee-firm who contributed capital, are close family members. Thus, they are not stranger and their identity is not in dispute. The partners have not disputed the capital contribution. Further it is not in dispute that the partners who had contributed capital have filed petition before ITSC Mumbai and their settlement petition has not been dismissed or the proposal is not declined. We find that the Jurisdictional High Court in PCIT Vs Vaishnodevi ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 14 Refoils & Solvex (supra) held that when the assessee furnished the details of capital introduced by partners of the firm and the partner has confirmed such contribution, it could be concluded that the assessee has discharged its onus cast upon it. If the assessing officer was not convinced about the creditworthy of the partner, who made capital contribution, enquiry had to be made against such partner and not against firm. Thus, in view of the facts and the legal position, that when the addition under section 68 is liable to be set aside. In the result, substantial ground No. 1 of the appeal is allowed. 14. Substantial ground No. 2 relates to the addition of unsecured loans. We find that the ld CIT(A) in the setting aside appellate proceedings recorded that the assessee failed to submit any details regarding identity, creditworthiness and genuineness of such transaction thus, the addition of Rs.48 lakh was upheld again. Before us, the ld AR for the assessee vehemently argued that for the loan Kaushik Granite Pvt Ltd., the assessee filed confirmation of party, name, address; PAN. For M D International, the ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 15 assessee submitted that it is member of M D Group. And that the assessee group has already filed petition before ITSC for settlement of the various additions owning all capital formation and other transaction which is also included in the additions of unsecured loan of Rs. 59 lakhs. 15. On careful perusal of the order of lower authority, we are of the view that the transaction of unsecured loan can be divided in two parts. First part relates to the unsecured loan of Rs. 10.00 lakhs from Kaushik Granites Pvt Ltd and second part/ transaction are of M D International of Rs. 15.00 lakhs and/ or other transactions from three other lenders which is allegedly owned by M D Patel. So far as the transaction of Kaushik Granites Pvt Ltd is concerned, the assessee filed complete details like confirmation of party, name, PAN and address. The assessee has discharged his primary onus in first round of appeal before ld CIT(A),by proving the identity, credit worthy and genuineness of transaction, however, same was not accepted (admitted) by ld CIT(A) by taking view that documents filed at appellate stage cannot be admitted as the assessee does not fulfil the ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 16 conditions of Rule 46A of Income- tax Rules. So far as second part of transaction of loan is concerned, the assessee throughout the proceedings is claiming that all the transaction of such loan is owned by M D Patel in the petition filed before ITSC Mumbai. Therefore, such transaction cannot be taxed twice, i.e. in the hand of M D Patel as well as in the hand of assessee. 16. Thus, considering the submissions of ld. AR for the assessee, this issue is restored back to the file of assessing officer to verify the fact that if the unsecured loan is owned by M D Patel in his petition file before ITSC, the additions be deleted. So far as transaction of loan from Kaushik Granites Pvt Ltd is concerned, the assessee has filed complete details like confirmation of party, name, PAN and address, hence, we admit the said documents as additional evidence being relevant for determination of the issue in hand, and also restore this part of the issue direct to the assessing officer to consider those evidence and pass speaking order in accordance with law. Needless to direct that this case relates to AY 2003-04, the assessing officer shall pass the ITA No.1394/AHD/2016 (A.Y.03-04) Shree M.D.Industries (now know M/s Parameshwar Weaves) 17 order as early as possible, off course after granting due opportunity to the assessee. The assessee is also directed to provide all information and necessary evidences and documents to the assessing officer and not to linger on the proceedings. In the result, this ground of appeal is allowed for statistical purpose. 17. In the result, the appeal of the assessee is partly allowed. Order pronounced 03/06/2022 in the open court and result was also placed on the Notice Board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 03/06/2022 Dkp. Out Sourcing Senior P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)-Surat-II 4. CIT 5. DR 6. Guard File True copy/ By order // True Copy // Assistant Registrar/Sr.P.S, ITAT, Surat True copy/