I.T.O.-Ward-1(2), Gwalior V. M/s Shastri Construction Co., Gwalior

ITA 143/AGR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60130 (ITAT-AGRA)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOHAIL AKHTAR
• Keywords: Unexplained cash credit; Business income; Assessment record; Capital receipt
• Section: 131; 69; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 143/AGRA/2011 ASSTT. YEAR : 2007-08 INCOME-TAX OFFICER, VS. M/S. SHARTHI CONSTRUCTI ON CO. WARD 1(2), GWALIOR. SHIV NAGAR, GOSHIPURA, NEAR RAILWAY STATION, GWALIOR. (PAN : ABHFS 6829B) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOHAIL AKHTAR, JR. D.R. RESPONDENT BY : NONE DATE OF HEARING : 19.04.2012 DATE OF PRONOUNCEMENT OF ORDER : 27.04.2012 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), GWALIOR DATED 25.02.2011 FOR THE ASSESSMENT YEAR 20 07-08 ON THE FOLLOWING GROUND : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(APPEAL) HAS ERRED IN :- 1. DELETING THE ADDITION OF RS.26,50,575/- U/S. 6 8 OF THE INCOME TAX ACT MADE ON ACCOUNT OF INITIAL CAPITAL INTRODUC ED BY THE PARTNERS TREATED AS UNEXPLAINED CASH CREDIT BY THE AO. ITA NO.143/AGRA/2011 2 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FIRM HAS COME INTO EXISTENCE VIDE PARTNERSHIP DEED DATED 29.09.2006 RE LEVANT TO THE ASSESSMENT YEAR UNDER APPEAL FOR CARRYING OUT THE BUSINESS OF CONST RUCTION OF ROADS AND OTHER GOVERNMENT CONTRACTS ETC. THE FIRM HAS FOUR PARTNER S, NAMELY, SHRI MANOJ SHASHTRI, SHRI BALLABH PANDEY, SHRI SADIK KHAN AND SHRI NARAI N PRAKASH VIJAYWARGIYA. SMT. KUSUM LATA SHASHTRI W/O SHRI MANOJ SHASTRI HAS BEEN INTRODUCED TO THE FIRM VIDE AMENDED DEED DATED 25.01.2007 WHEREAS SHRI NARAIN P RAKASH VIJAYWARGIYA HAS RETIRED FROM THE FIRM. THE AO FOUND THAT THE PARTNE RS HAVE INTRODUCED INITIAL CAPITALS WHICH WERE, HOWEVER, TREATED AS UNEXPLAINE D CASH CREDITS BECAUSE THE ASSESSEE COULD NOT PROVE THE SOURCE OF CAPITAL INTR ODUCED BY EACH PARTNER THROUGH DOCUMENTARY EVIDENCES. WHATEVER EXPLANATION WAS GIV EN BY THE ASSESSEE WAS NOT BELIEVED BY THE AO. THE AO, THEREFORE, TREATED THE INITIAL CAPITAL INTRODUCED BY THE PARTNERS AS UNEXPLAINED AND ADDITION WAS, ACCORDING LY, MADE. 3. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT NO C ONTRACT WORK HAS BEEN ALLOTTED TO THE FIRM DURING THE RELEVANT FINANCIAL YEAR. HOWEVER IT HAS APPLIED FOR CONTRACT WORK FROM MPRRDA, BIDING OF WHICH WAS UNDE R PROCESS UPTO THE END OF THE FINANCIAL YEAR. TO MAKE SECURITY DEPOSIT WITH T HE CONCERNED AGENCIES, FDRS WERE TO BE DEPOSITED AND SINCE NO BANK ACCOUNT WAS OPENED BY THE FIRM DURING THE YEAR, THEREFORE, ALL THE FDRS WERE MADE THROUGH BAN K ACCOUNT OF ONE OF THE ITA NO.143/AGRA/2011 3 PARTNERS, NAMELY SHRI MANOJ SHASTRI AND IN THE SAID BANK ACCOUNT, ALL THE PARTNERS HAVE MADE CONTRIBUTION, FROM WHICH FDRS WERE MADE I N FAVOUR OF THE GOVERNMENT DEPARTMENT. COMPLETE BOOKS OF ACCOUNT AN D RELEVANT DETAILS WERE PRODUCED BEFORE THE AO FOR VERIFICATION ALONGWITH P AN, INCOME-TAX RETURNS, COMPUTATION OF INCOME AND BANK PASSBOOK OF EACH PAR TNER TO EXPLAIN THE SOURCE OF CAPITAL CONTRIBUTION MADE BY THEM. IT WAS, THEREFOR E, PLEADED THAT THE ADDITION IS UNJUSTIFIED. 4. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF TH E ASSESSEE AND THE MATERIAL ON RECORD, DELETED THE ADDITION. HIS FINDINGS IN PA RA 3.2 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 3.2 APPELLANT'S SUBMISSIONS ALONGWITH ASSESSMENT O RDER HAVE BEEN CONSIDERED CAREFULLY. ASSESSMENT RECORDS HAVE ALSO BEEN PERUSED. THE APPELLANT HAS SUBMITTED VIDE LETTERS DTD. 10.12.09, 11.12.09, 18.12.09 AND 22.12.09, ALL THE DETAILS AS ASKED FOR BY THE A.O. IN SUPPORT OF ITS SUBMISSIONS MADE REGARDING C APITAL CONTRIBUTION. ALL THE PARTNERS ARE FOUND TO BE REGU LAR INCOME TAX PAYERS AND HAVE SUBMITTED COPY OF LAST TWO RETURNS FILED BY EACH ALONGWITH PAN CARD, COMPUTATION, BANK STATEMENT ETC . IN RESPECT OF MR. MANOJ SHASTRI, HIS AUDITED ACCOUNTS ALONGWITH B ALANCE SHEET AND AUDIT REPORT HAVE ALSO BEEN PRODUCED. ON THE LAST D ATE OF HEARING, I.E. 22.12.09, THE APPELLANT HAS SUBMITTED CASH FLOW STA TEMENT OF ITS PARTNERS. VIDE ORDER SHEET ENTRY OF THE SAME DATE, A.O. HAS DISCUSSED THE CASE WITH THE APPELLANT'S A. R. NO FURTHER QUER Y HAS BEEN RAISED BY THE A.O. REGARDING ANNUAL CASH FLOW STATEMENT OF EA CH OF THE PARTNER SUBMITTED BY THE APPELLANT. THUS, A.O. WAS NOT CORR ECT IN REJECTING THE CASH FLOW STATEMENT ONLY ON THE GROUND THAT DAY-TO- DAY DETAILS OF CASH TRANSACTIONS HAVE NOT BEEN GIVEN, WHEN IN FACT, THE Y HAVE NEVER BEEN ASKED FOR BY THE A.O. DURING THE ENTIRE COURSE OF A SSESSMENT ITA NO.143/AGRA/2011 4 PROCEEDINGS. DURING THE COURSE OF APPEAL PROCEEDING S, THE APPELLANT HAS BEEN ASKED TO GIVE DAY-WISE CASH FLOW STATEMENT OF EACH OF ITS PARTNER EVIDENCING THE DEPOSITS MADE BY THEM ON VAR IOUS DATES. DESPITE BEING GIVEN VARIOUS OPPORTUNITIES W.E.F. 3. 5.10 TILL 21.2.2011, THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE CASH BOO K OF SHRI SADIK KHAN. REQUIRED DETAILS IN CASE OF OTHER THREE PERSO NS, HAVE BEEN SUBMITTED AND ALSO BEEN PERUSED. AS STATED EARLIER, THERE IS NO BANK ACCOUNT IN THE NAME OF THE APPELLANT FIRM DURING THE YEAR UNDER CONSIDERATIO N. A.O. HAS TREATED THE CAPITAL OF RS. 26,04,000/- INTRODUCED BY SHRI MANOJ SHASTRI AS UNEXPLAINED MAINLY ON THE GROUND THAT HE HAS NOT BE EN ABLE TO EXPLAIN THE DEPOSITS MADE IN HIS SAVING BANK AS WELL AS OVE R-DRAFT ACCOUNT. AS PER PROVISIONS OF SEC. 68 OF THE I T. ACT, IT IS ME NTIONED THAT WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE IN ANY PREVIOUS YEAR, THE SAME MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR, IF THE EXPLANATION O FFERED BY THE ASSESSEE IS TREATED AS UNSATISFACTORY BY THE A.O. T HUS, THE SAME SHOULD BE FOUND CREDITED IN THE BOOKS OF THE APPELL ANT FIRM TO BE TREATED AS UNEXPLAINED INCOME OF THE FIRM ITSELF BA NK ACCOUNT OF PARTNER CANNOT SAID BE TO BE PART OF BOOKS OF ACCOU NTS OF THE APPELLANT FIRM. IT HAS BEEN HELD BY HON 'BLE SUPREME COURT IN CASE OF CIT VS. ORISSA CORPORATION PVT. LTD. (1986) 159 ITR 78(SC) THAT WHERE AN ASSESSEE GIVES NAMES AND ADDRESSES OF THE ALLEGED C REDITORS, WHO ARE INCOME TAX ASSESSEES AND THE A.O. APART FROM ISSUIN G SUMMONS U/S. 131 TO CREDITORS DOES NOT PURSUE THE MATTER FURTHER , THEN THE ADDITION OF CASH CREDIT U/S. 68 TO THE ASSESSEES INCOME CAN NOT BE MADE, AS THE ASSESSEE HAS DISCHARGED THE BURDEN U/S 68. IN THE I NSTANT APPEAL, A.O. HAS NOT EVEN ISSUED ANY NOTICE/SUMMON TO ANY OF THE PARTNER/CREDITOR BEFORE REJECTING THE DETAILED SUBMISSIONS AND EVIDE NCES GIVEN BY THE APPELLANT FROM TIME TO TIME. IN MY VIEW, THE APPELL ANT HAS BEEN ABLE TO FULLY DISCHARGE ITS ONUS REGARDING IDENTITY AND CRE DITWORTHINESS OF ITS CREDITORS ALONGWITH GENUINENESS OF TRANSACTIONS EXC EPT FOR SHRI SADIK KHAN. HAVING SAID THAT, IT STILL CANNOT BE ASSESSED AS UNEXPLAINED CREDIT U/S. 68 OF THE I.T. ACT IN THE HANDS OF THE APPELLANT FIRM, AS HON 'BLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. JAISWA L MOTOR FINANCE (1983) 141 ITR 706 HAS HELD THAT IF THERE ARE CASH CREDIT ENTRIES IN THE BOOKS OF A FIRM, IN WHICH THE ACCOUNTS OF THE INDIV IDUAL PARTNERS EXISTS, AND IT IS FOUND AS A FACT THAT CASH WAS REC EIVED BY THE FIRM FROM ITS PARTNERS, THEN, IN THE ABSENCE OF ANY MATERIAL TO INDICATE THAT THEY ITA NO.143/AGRA/2011 5 WERE THE PROFITS OF THE FIRM, IT COULD NOT BE ASSES SED IN THE HANDS OF THE FIRM. THE SAME VIEW HAS ALSO BEEN TAKEN BY JURISDIC TIONAL HON 'BLE MP. HIGH COURT IN CASE OF CIT VS. METACHEM INDUSTRI ES (2000) 245 ITR 160 THAT ONCE IT IS ESTABLISHED THAT THE AMOUNT HAS BEEN INVESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN INDIV IDUAL, 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 MOMENT THE FIRM GIVES SATISFACTORY EXPLANATION AND A. O. HAS HIMSELF ACCE PTED THE FACT THAT THE PARTNERS HAVE MADE DEPOSITS IN THEIR RESPECTIVE CAPITAL ACCOUNTS, THEN THE BURDEN OF THE FIRM IS DISCHARGED AND IN TH AT CASE THAT CREDIT ENTRY CANNOT BE TREATED TO BE THE INCOME OF THE FIR M FOR THE PURPOSE OF INCOME TAX. BY RELYING ON DECISION OF HON 'BLE ALLA HABAD HIGH COURT IN CASE OF SUNDAR LAL JAIN VS. CIT (1979) 117 ITR 3 16, IT HAS BEEN HELD THE CREDIT IN THE ACCOUNT OF A PARTNER IS NOT A LOAN TO THE FIRM AND IS NOT ASSESSABLE IN THE HANDS OF THE FIRM. IT IS O PEN TO THE A.O. TO UNDERTAKE FURTHER INVESTIGATION WITH REGARD TO THAT INDIVIDUAL WHO HAS DEPOSITED THIS AMOUNT. SO FAR AS THE RESPONSIBILITY OF THE APPELLANT FIRM IS CONCERNED, IT IS SATISFACTORILY DISCHARGED RESPECTFULLY FOLLOWING THESE DECISIONS, ADDITION OF RS.26,50,575 /- MADE IN THE CASE OF THE APPELLANT FIRM ON ACCOUNT OF CAPITAL CONTRIB UTION BY ITS PARTNERS IS, ACCORDINGLY, HEREBY, DELETED. HOWEVER, IT IS O PEN TO THE AO TO TAKE APPROPRIATE ACTION U/S 69 O/THE IT ACT, AS DEEMED F IT AND AS PER PROVISIONS OF INCOME TAX ACT, AGAINST THE PARTNER V IZ. SHRI SADIK KHAN, WHICH IN MY VIEW HAS NOT BEEN ABLE TO SATISFA CTORILY EXPLAIN THE CASH DEPOSITS MADE IN THE FIRM. 5. THE LD. DR RELIED UPON THE ORDER OF THE AO. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. THE ASSESSEE IS , THEREFORE, PROCEEDED EXPARTE. 6. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS ADMITTED FACT THAT T HE ADDITION WAS MADE BY THE AO IN RESPECT OF INITIAL CAPITAL INTRODUCED BY THE PARTNE RS IN THE ASSESSEE FIRM. THE FIRM ITA NO.143/AGRA/2011 6 CAME INTO EXISTENCE DURING THE ASSESSMENT YEAR UNDE R APPEAL ITSELF AND NO BUSINESS ACTIVITIES HAVE BEEN CARRIED OUT. HE ALSO ACCEPTED THE BUSINESS INCOME AT NIL INCOME. ACCORDING TO THE SUBMISSIONS OF THE ASSESSE E, NO WORK WAS ALLOTTED TO THE ASSESSEE FIRM FOR CONSTRUCTION. THEREFORE, THE ASSE SSEE FIRM REMAINED AT THE STAGE OF FORMATION. THE ISSUE IS, THEREFORE, SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENTS OF HONBLE ALLAHABAD HIGH COURT IN TH E CASE OF JAISWAL MOTOR FINANCE (SUPRA) AND SUNDER LAL JAIN (SUPRA) AS WELL AS THE DECISION OF HONBLE M.P. HIGH COURT IN THE CASE OF METACHEM INDUSTRIES (SUPRA). WE MAY FURTHER NOTE HERE THAT THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGINEERING AND CONSTRUCTION CO., 83 ITR 187 IS ALS O RELEVANT TO DECIDE THE ISSUE, IN WHICH IT WAS HELD AS UNDER : THE ASSESSEE, AN ENGINEERING-CONSTRUCTION COMPANY , COMMENCED ITS BUSINESS IN MAY, 1943. IN ITS ACCOUNT S THERE WERE SEVERAL CASH CREDIT ENTRIES IN THE FIRST YEAR OF IT S BUSINESS TOTALING RS.2,50,000. THOUGH THE EXPLANATION REGARDING THE C ASH CREDIT ENTRIES WAS FOUND TO BE FALSE, THE APPELLATE TRIBUNAL HELD THAT THESE CASH CREDITS COULD NOT REPRESENT THE INCOME OR PROFITS O F THE ASSESSEE AS THEY WERE ALL MADE VERY SOON AFTER THE COMPANY COMM ENCED ITS ACTIVITIES : HELD, THAT THE INFERENCE DRAWN FROM THE FACTS PROV ED WAS A QUESTION OF FACT AND THE TRIBUNALS FINDING ON THAT QUESTION WAS FINAL. A CONSTRUCTION COMPANY TOOK TIME TO EARN PROFITS AN D IT COULD NOT HAVE EARNED A HUGE PROFIT WITHIN A FEW DAYS AFTER T HE COMMENCEMENT OF ITS BUSINESS. HENCE, IT WAS REASONABLE TO ASSUME THAT THE CASH CREDIT ENTRIES REPRESENTED CAPITAL RECEIPTS THOUGH FOR ONE REASON OR ANOTHER THE ASSESSEE HAD NOT COME OUT WITH THE TRUE STORY AS REGARDS THE SOURCE OF THE RECEIPTS. ITA NO.143/AGRA/2011 7 ON CONSIDERATION OF THE FACTS OF THE CASE IN THE LI GHT OF FINDING OF THE LD. CIT(A) AND THE ABOVE DECISIONS, WE DO NOT FIND ANY MERIT I N THE APPEAL OF THE REVENUE. SAME IS, ACCORDINGLY, DISMISSED. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY