Raghavendra Textiles, Hyderabad V. ITO, Suryapet

ITA 1488/HYD/2013

• Counselvise Citation: 148822514 RSA 2013
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 11-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1488/HYD/2013 ASSESSMENT YEAR 2005-06 M/S. RAGHAVENDRA TEXTILES, BHONGIR, NALGONDA DISTRICT. VS. INCOME TAX OFFICER SURYAPET NALGONDA DISTRICT (APPELLANT) (RESPONDENT) FOR ASSESSEE: MR. S. RAMA RAO FOR REVENUE: MR. SOLGY JOSE T. KOTTARAM DATE OF HEARING: 26.06.2014 DATE OF PRONOUNCEMENT: 04.07.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE AGAINST THE ORDER OF THE CIT(A)-XVIII, MUMBAI, CAMP AT HYDERABAD DATED 26.08 .2013. ASSESSEE HAS RAISED THREE GROUNDS, OUT OF WHICH, ON LY GROUND NO.2 IS MATERIAL ON THE ISSUE OF CONFIRMATION OF AD DITION OF RS.4,53,560/-. 2. BRIEFLY STATED, ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS . 75,090/- AND FILED AUDITED ACCOUNTS ALONG WITH THE FORM 3CB. AS SEEN FROM THE P & L ACCOUNT, IT HAS SALES OF ABOUT RS.1.93 CRORES. IN T HE COURSE OF SCRUTINY ASSESSMENT, A.O. NOTICED THAT ASSESSEE HAS DEFICIT CASH BALANCE ON TWO OCCASIONS DURING THE YEAR I.E., ON 08.10.2004 THERE WAS A DEFICIT OF RS.2,69,453/- AND ON 25.10.2004 THERE WAS A DEFICIT OF RS.4,53,533/-. TH EREFORE, A.O. RE-DREW THE DAY-TO-DAY CASH BALANCE IN THE PRE SENCE OF 2 ITA.NO.1488/HYD/2013 M/S. RAGHAVENDRA TEXTILES, HYDERABAD MR. R. MARKENDEYA, MANAGING PARTNER AND SRI SRISAIL AM, HIS ACCOUNTANT AND REVISED BALANCES WAS EXTRACTED IN PA GE 3 OF THE ASSESSMENT ORDER. THE TOTAL DEFICIT WAS WORKED OUT TO RS.2,69,454 + RS.1,84,106. A.O. TOOK THE TOTAL DEFI CIT OF RS.4,53,560/- AND ASKED FOR EXPLANATION OF THE MANA GING DIRECTOR. HE COULD NOT GIVE ANY EXPLANATION TO THE DEFICIT CASH BALANCE. ACCORDINGLY, AS THE ASSESSEE HAS SPENT THE AMOUNTS IN THE BOOKS OF ACCOUNTS, THIS AMOUNT WAS BROUGHT T O TAX AS UNEXPLAINED CASH AVAILABLE. 3. ASSESSEE TOOK THE MATTER TO THE LD. CIT(A) AND BEFORE HIM FURNISHED AFFIDAVITS FROM PARTNERS STATING THAT THEY HAVE ADVANCED FUNDS ON TEMPORARY ACCOMMODATION. THE DETA ILS ARE AS UNDER : SL NO NAME ON 08.10.2004 ON 25.10.2004 TOTAL 1. MR. R. MARKENDEYA (SELF) RS.60,000 RS.40,000 RS.1,00,000 2. SMT. R. KANYAKUMARI W/O. R. MARKENDEYA RS.40,000 RS.25,000 RS. 65,000 3. MR. R. SIVAPRASAD S/O. R. MARKENDEYA RS.60,000 RS.40,000 RS.1,00,000 4. MR. R. SANTOSHKUMAR S/O. R. MARKENDEYA RS.60,000 RS.40,000 RS.1,00,000 5. MR. M. CHANDRAMOULI S/O. M. NARAYANA RS.50,000 RS.40,000 RS. 90,000 LD. CIT(A) SENT THE ABOVE AFFIDAVITS FOR VERIFICATI ON TO THE A.O. WHO SUBMITTED TO THE LD. CIT(A), AS DISCUSSED IN PA RA 3.3 OF THE ORDER, THAT IT WAS AN AFTERTHOUGHT. FOLLOWING T HE SAME, LD. CIT(A) CONFIRMED THE ADDITION BY STATING AS UNDER : 3.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT, ORDER OF THE A.O. AND FACTS OF THE CASE CAREFULLY, IT IS NOTICED THAT ON THIS ISSUE ALSO MY PREDECESSOR HAS CALLED FOR REMAND REPORT OF A.O., THE A.O. VIDE LETTER DATED 1 3.09.2010 SUBMITTED ITS REMAND REPORT, GIST OF WHICH IS REPRO DUCED AS UNDER:- 3 ITA.NO.1488/HYD/2013 M/S. RAGHAVENDRA TEXTILES, HYDERABAD 'THE OTHER DISALLOWANCE MADE IS ON ACCOUNT OF THE D EFICIT CASH BALANCES WORKED OUT ON TWO PARTICULAR DATES AMOUNTING TO RS.4,53,560/- I.E., ON 8.10.2004 RS.2,69,454/- AND ON 25.10.2004 RS.1,84,106/-. THE ASSESSEE EXPLAINED THAT AS THE PAYMENTS WERE MADE BY THE PARTNERS. TO THIS EFFECT COPIES OF AFFIDAVITS, STATED TO HAVE BEEN SUBMITTED BEFORE THE CIT(A), HAVE BEEN FURNISHED. IT WAS STATED IN THE SAID AFFIDAVITS THA T ON BEHALF OF THE FIRM THE EXPENDITURE HAD BEEN FURNISH ED BY THE PARTNERS. IT WAS FURTHER STATED THAT AS THERE W AS NO REGULAR ACCOUNTANT, THE ENTRIES COULD NOT BE MADE I N THE BOOKS, IT COULD NOT BE EXPLAINED IMMEDIATELY AT THE TIME OF COMPLETION OF SCRUTINY ASST., AND REQUESTED TO ALLO W IT NOW. AS VERIFIED FROM THE DAY BOOK, ON 08.10.2004 (PAGE- 161) AND 25.10.2004 (PAGE-173) THERE APPEARS THE DEFICIT BALANCES AND THE SUBSEQUENT ENTRIES MADE IN THE NAM ES OF PARTNERS TO MEET THE DEFICIENCIES. THERE WERE CO NTRA ENTRIES ON 04.11.2004 (PAGE-182) TO PARTNERS ACCOUN TS. (COPIES OBTAINED AND PLACED ON RECORD). IT APPEARS THAT THE 'PAYMENT OF AMOUNTS BY PARTNERS ' IS AN AFTERTHOUGHT OF THE ASSESSEE BEFORE THE CIT(A) AS IT COULD NOT BE EXPLAINED AT THE TIME OF COMPLETION OF SCRUT INY ASST. HAD IT BEEN SO HAPPENED, IT COULD HAVE BEEN EXPLAIN ED DURING THE COURSE OF ASST. PROCEEDINGS AS THE ASSES SMENT RELEVANT TO THE F. Y. 2004-05 WAS COMPLETED ON 28.03.2007 AND THERE WAS A GAP OF ABOUT TWO YEARS. AS THE ASSESSEE FAILED TO DO SO BEFORE THE A. O. AT TH E TIME OF COMPLETION OF ASST., IT WAS SUBMITTED BEFORE THE CI T(A) IN THE GUISE OF AFFIDAVIT. IN THESE CIRCUMSTANCES, IN MY OPINION, THE DEFICIT CASH BALANCES OBSERVED BY THE A. O. IS CORRECT AND NEEDS DISALLOWANCE AS IT WAS DONE. ' FROM THE PERUSAL OF THE REMAND REPORT, IT IS CLEAR THAT THE AFFIDAVITS SUBMITTED BEFORE THE CIT(A) WAS AN AFTER THOUGHT EXERCISE BECAUSE THE ASSESSEE ITSELF HAS ADMITTED T HAT IT WAS NOT HAVING A REGULAR ACCOUNTANT, THEREFORE, THE ENTRIES WERE NOT MADE IN THE BOOKS OF ACCOUNT. NO R EPLY WAS FILED BEFORE THE A.O. DURING THE SCRUTINY ASSES SMENT PROCEEDINGS EXCEPT THESE AFFIDAVITS NO OTHER EVIDEN CE WAS SUBMITTED TO PROVE THAT THE PAYMENTS WERE MADE BY T HE PARTNERS ON BEHALF OF THE FIRM. IN ABSENCE OF ANY DOCUMENTARY EVIDENCE SUBMITTED BEFORE THE A.O. AND BEFORE ME TO CORROBORATE THE FACTS MENTIONED IN THE AFFIDAVITS, THEREFORE, IT IS HELD THAT THE APPELLAN T HAS 4 ITA.NO.1488/HYD/2013 M/S. RAGHAVENDRA TEXTILES, HYDERABAD FAILED TO PROVE THE DISCREPANCY AS PER THE BOOKS OF ACCOUNT, THUS, ADDITION MADE BY THE A.O. IS UPHELD AND GROUND OF APPEAL IS DISMISSED. 4. BEFORE US, LD. COUNSEL EXPLAINED THE FACTS AND SUBMITTED THAT REVENUE DID NOT ENQUIRE FROM THE PER SONS WHO ADVANCED FUNDS AND THERE WAS GENUINE ADVANCE MADE B Y THOSE PARTIES TO THE FIRM. THEREFORE, THE DEFICIENCY WORK ED OUT BY THE A.O. SHOULD BE DELETED. IT WAS HIS SUBMISSION THAT PARTNERS ARE ALSO HAVING INDIVIDUAL BUSINESSES AND ACCOUNTANT DI D NOT ENTER THE AMOUNTS PROPERLY THEREBY, CERTAIN DISCREP ANCIES HAVE COME IN THE BOOKS. SINCE THE AFFIDAVITS WERE NOT CO NTROVERTED, ON THE STRENGTH OF THE AFFIDAVITS THE AMOUNTS SHOUL D BE DELETED. 5. LD. D.R. SUBMITTED THAT THERE IS NO TRUTH IN TH E SUBMISSIONS OF THE ASSESSEE AND RELIED ON THE FINDI NGS OF THE A.O. THAT IT IS AN AFTERTHOUGHT TO BRING EVIDENCE W HEREAS, AT THE TIME OF ASSESSMENT, NO EXPLANATION WAS FURNISHED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND EXAMINED THE DETAILS ON RECORD ALONG WITH THE AFFID AVITS. IT IS AN ADMITTED FACT THAT ASSESSEE FURNISHED THE AUDITE D BOOKS OF ACCOUNTS ALONG WITH THE AUDIT REPORT. THEREFORE, TH IS SORT OF CASH DISCREPANCIES SHOULD NOT HAVE ARISEN. MOREOVER , A.O. METICULOUSLY VERIFIED THE CASH DEFICIENCIES IN THE BOOKS AND ARRIVED AT A PEAK DEFICIT OF RS.4,53,560/- ON WHICH THERE IS NO DISPUTE. ASSESSEES EXPLANATION WAS THAT THE AMOUNT S ARE ADVANCED BY THE PARTNERS ON THE RELEVANT DATES OF RS.2,70,000/- ON 18.10.2004 AND RS.1,85,000/- ON 25.10.2004. HOWEVER, THE ACTUAL CASH DEFICIT AS WOR KED OUT BY THE A.O. IN PAGE 2 WAS AT RS.4,53,553/- ON 25.10.20 04. ASSESSEE BECAUSE OF THE WORKING OF THE A.O. IN DIFF ERENT MANNER IN PAGE 3 OF THE ORDER, TRIED TO EXPLAIN THE AMOUNT AS 5 ITA.NO.1488/HYD/2013 M/S. RAGHAVENDRA TEXTILES, HYDERABAD ADVANCED IN THOSE DAYS AS WORKED OUT BY THE A.O. WH ICH IS INDEED AN AFTERTHOUGHT. ACTUALLY, AS PER THE WORKIN G OF THE A.O. EXTRACTED IN PAGE 3 OF THE ORDER, HE ARRIVED A T DEFICIT AT RS.2,69,454/- ON 18.10.2004 AND WITHOUT ADJUSTING T HIS DEFICIT, REWORKED OUT FURTHER DEFICIT ON 25.10.2004 AT RS.1,84,106/- AND ADDED THESE TWO AMOUNTS TO ARRIVE AT THE PEAK DEFICIT AT RS.4,53,560/-. BECAUSE OF THIS WORKING OF A.O. ASSESSEE EXPLAINED THAT IT HAS TAKEN RS.2,70,000/- ON 08.10.2009 AND FURTHER AMOUNT ON 25.10.2004. THUS, THE A.OS CONTENTION THAT IT IS AN AFTERTHOUGHT CAN EAS ILY BE DISCERNIBLE FROM THE EXPLANATION GIVEN BY THE ASSES SEE. 6.1 MOREOVER, WHEN THIS DEFICIT WAS WORKED -OUT AND POINTED OUT TO THE PARTNER IN THE COURSE OF ASSESSM ENT PROCEEDINGS, HE DID NOT EXPLAIN ANYTHING AT THAT PO INT OF TIME. AS SEEN FROM THE AFFIDAVITS FILED, NOT ONLY MAIN PA RTNER ADVANCED AMOUNTS BUT HIS WIFE AND CHILDREN WHO ARE ALSO PARTNERS ALSO EXPLAINED THAT THEY ADVANCED FUNDS. I F THE FUNDS ARE TAKEN FROM THE FAMILY MEMBERS OF MR. R. MARKEND EYA, IT IS SURPRISING TO NOTE THAT HE DID NOT GIVE ANY EXPLANA TION ON THE DAY OF ENQUIRY. THIS INDICATES THAT EXPLANATION WAS AN AFTERTHOUGHT. EVEN IF ONE WERE TO CONSIDER THAT THO SE PERSONS HAD INDEED ADVANCED THE FUNDS ON THOSE DAYS, THAT M AY EXPLAIN THE DEFICIT CASH BALANCE. BUT FURTHER FACT OF REPAYMENT OF THE SAME AMOUNTS DURING THE SAME FINANCIAL YEAR, MAKES IT PAYMENT OUTSIDE BOOKS OF ACCOUNTS, AS THE PAYMENTS ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS. AFFIDAVIT GIVEN BY SMT. R. KANYAKUMARI PLACED AT PAGE 24 OF THE PAPER BOOK, PA RA-2 IS AS UNDER : I AM ONE OF THE PARTNERS OF M/S. RAGHAVENDRA TEXTI LES AND AS SUCH I AM ACQUAINTED WITH THE FACTS OF THE CASE. THE SAID FIRM IS CARRYING ON BUSINESS IN PRODUCTION AND SALE OF 6 ITA.NO.1488/HYD/2013 M/S. RAGHAVENDRA TEXTILES, HYDERABAD TEXTILES. AS AND WHEN THE FIRM NEEDED FUNDS FOR ITS ACTIVITIES, I FROM OUT OF MY OWN SOURCES, PROVIDED THE SAME FOR TEMPORARY ACCOMMODATION. ON 8.10.2004, I HAVE GIVEN AN AMOUNT OF RS.40,000/- (RS. FORTY THOUSAND ONLY) TO THE APPELLANT FIRM. AGAIN ON 25.10.2004, I HAVE GIVEN A N AMOUNT OF RS.25,000/- (RS. TWENTY FIVE THOUSAND ONL Y). THE AGGREGATE OF THE TWO AMOUNTS I.E., RS.65,000/- SAME WAS RETURNED TO ME DURING THE SAME FINANCIAL YEAR. ( EMPHASIS SUP PLIED) 6.2. SIMILAR AFFIDAVITS WERE FURNISHED BY THE OTHE R PERSONS/ PARTNERS STATED ABOVE. AS CAN BE SEEN FROM THE ABOVE, THERE IS A CONFIRMATION THAT THEY HAVE ADVAN CED FUNDS AND ALSO THAT THE ENTIRE AMOUNT ADVANCED BY THEM WA S RETURNED DURING THE SAME FINANCIAL YEAR. IF THE AMO UNTS ARE RETURNED BY THE ASSESSEE TO THE RESPECTIVE PARTNERS AS ADMITTED, THESE ARE ALSO NOT RECORDED IN THE BOOKS OF ACCOUNTS WHICH INDICATES THAT THE AMOUNT WAS RE-PAID OUT OF THE AMOUNT EARNED BY THE FIRM, OUTSIDE THE BOOKS OF ACC OUNTS. THEREFORE, IN THE ANXIETY TO EXPLAIN THAT THE DEFIC IT CASH BALANCE WAS SUPPORTED BY ADVANCE FROM THE PARTNERS, ASSESSEE IN A WAY COMMITTED AND COMPOUNDED THE PROBLEM IN AD MITTING THE REPAYMENT OF THE AMOUNTS IN THE SAME FINANCIAL YEAR. THIS PAYMENT OUTSIDE THE BOOKS CALLS FOR AN ADDITION. LO OKING AT EITHER WAY, ASSESSEE FIRM MUST HAVE HAD THE AMOUNTS TO THE EXTENT OF ADDITION MADE BY THE A.O. AVAILABLE OUTSI DE BOOKS OF ACCOUNTS, SO THAT IT COULD FINANCE THE EXPENDITURE RECORDED IN THE BOOKS. THEREFORE, EVEN IF IT IS ACCEPTED THAT P ARTNERS HAD ADVANCED FUNDS, THE ADDITION CANNOT BE DELETED BECA USE SAME AMOUNT WAS ALSO ADMITTED TO HAVE BEEN REPAID TO THE M, OBVIOUSLY, OUTSIDE BOOKS OF ACCOUNTS. 6.3. SINCE BOOKS OF ACCOUNTS WERE AUDITED AND DE FICIT CASH WAS IDENTIFIED ON THE BASIS OF ENTRIES IN BOOKS OF ACCOUNT, EXPLANATION THAT ACCOUNTANT DID NOT ENTER THE ENTRI ES OF CASH 7 ITA.NO.1488/HYD/2013 M/S. RAGHAVENDRA TEXTILES, HYDERABAD RECEIPT PROPERLY CAN NOT BE ACCEPTED AS A BONAFIDE EXPLANATION. EVEN THOUGH THE AO DID NOT VERIFY THE STATEMENTS/ A FFIDAVITS FILED BY PARTNERS, THE AFFIRMATIONS MADE THERE IN I TSELF CONFIRMS THAT CASH WAS AVAILABLE WITH ASSESSEE OUTSIDE BOOKS OF ACCOUNT AS DISCUSSED ABOVE. IN VIEW OF THIS, WE AGREE WITH THE A.O. AND LD. CIT(A) FINDINGS THAT THE EXPLANATION OF THE ASS ESSEE IS AN AFTERTHOUGHT AND THERE WAS NO PROPER EXPLANATION FO R THE CASH DEFICIT IN THE BOOKS OF ACCOUNTS. SINCE THE AMOUNTS WERE SPENT WITHOUT THERE BEING ANY EXPLAINED SOURCE OF THE AMO UNT, ADDITION OF THE ABOVE AMOUNT IS CALLED FOR AND ACCO RDINGLY, THE SAME IS CONFIRMED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.07.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 4 TH JULY, 2014 VBP/- COPY TO 1. M/S. RAGHAVENDRA TEXTILES, 1-3-169/5, VIDYANAGAR , BHONGIR, NALGONDA DISTRICT C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, H.NO.3-6- 643, ST. NO.9, HIMAYATNAGAR, HYDERABAD 500 029. 2. INCOME TAX OFFICER, SURYAPET. 3 & 4. CIT(A)-18, ROOM NO.20, 3 RD FLOOR, B-WING, MITTAL COURT, NARIMAN POINT, MUMBAI, HAVING CONCURRENT JURISDICTI ON OF (4) CIT(A)-VI, HYDERABAD - 2 COPIES 5 & 6 CIT-5/6, HYDERABAD 2 COPIES 7. D.R. B BENCH, ITAT, HYDERABAD.