M/S.VIBGYOR TEXOTECH PRIVATE LIMITED, MUMBAI V. ACIT-8(3)(2), MUMBAI

ITA 1514/MUM/2018

AI Insights

This case involves cross appeals by M/s. Vibgyor Texotech Ltd and the ACIT-8(3)(2), Mumbai, concerning the reassessment of income for the assessment years 2008-09 and 2011-12. The primary issues revolved around the validity of the reassessment notice under section 148 of the Income Tax Act, 1961, and the subsequent additions made to the assessee's income, including estimated profits and unexplained loans. The tribunal examined the legal grounds challenging the reassessment and the merits of the additions made by the Assessing Officer. The tribunal's decision referenced several precedents and statutory provisions, ultimately upholding some of the additions while remanding others for further examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299287 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 07-09-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2018
• Other Referred Cases: Jet Airways vs. ACIT, Rajesh Javeri Stock Brokers Pvt. Ltd. vs. CIT, Raymond Woollen Mills Ltd. vs. CIT, M/s Pradeep Singh Wazir vs. CIT, Smt. Shoba Gupta vs. ITO, CIT vs. Devi Prasad Viswanath Prasad, CIT vs. Maduri Rajaiahgari Kistaiah, CIT vs. G. M. Chennabasappa, CIT vs. Janab Mohd. Suleman, Karnal Motors vs. CIT, Anantharam Veerasingaiah & Co. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; TDS; Set aside
• Section: 147; 68; 144; 143(3); 142(1); 10AA; 40(a)(ia); 250; 143(2); 72; 13; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, AM AND MS. KAVITHA RAJAGOPAL, JM 1. I TA N o. 151 4 / M U M/ 2 01 8 ( A ss e s s me n t Y ear : 2 00 8- 09 ) & 2 . I TA N o. 489 / M U M/ 2 01 9 ( A ss e s s me n t Y ear : 2 01 1- 12 ) M/s. Vibgyor Texotech Ltd, 309, Navyug, T. J. Road, Sewree, Mumbai-400 015 V s. ACIT-8(3)(2), Mumbai PA N /G I R N o . A A D C V9 04 1N (Appellant) : (Respondent) 3. I TA N o. 148 3 / M U M/ 2 01 8 ( A ss e s s me n t Y ear : 2 00 8- 09 ) ACIT-8(3)(2), Mumbai V s. M/s. Vibgyor Texotech Ltd, 309, Navyug, T. J. Road, Sewree, Mumbai-400 015 PA N /G I R N o . A A D C V9 04 1N (Appellant) : (Respondent) Assessee by : None Revenue by : Shri Vranda U. Matkari D a te o f H e a r in g : 08.09.2023 D ate of P ro n o u n c e me n t : 27.09.2023 O R D E R PER KAVITHA RAJAGOPAL, J M: 1. These are cross appeals filed by the assessee and the revenue, challenging the order of the learned Commissioner of Income Tax (Appeals)-14, Mumbai [in short Ld. CIT(A)] passed u/s 250 of the Income Tax Act, 1961 (‘the Act') pertaining to the Assessment Year (‘A.Y.’ for short) 2008-09. This matter was earlier heard on 19.04.2023 and was posted for further clarification on 08.09.2023 2 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. on which date the learned counsel for the assessee had not appeared and, hence, we proceed to hear the learned Departmental Representative ('ld.DR' for short) for the Revenue and dispose of this present appeal. 2. As the facts are identical in all these appeals, we hereby pass a consolidated order by taking ITA No. 1514/Mum/2018 as a lead case for the sake of convenience. 3. The assessee vide submission dated 09.12.2019 filed revised grounds of appeal which are as follows:- 1. The order of the Assessing Officer and of the First Appellate Authority is against law, facts and circumstances of the case. 2. The First Appellate Authority has erred in estimating the net profit at 3% when the assessee has produced data showing that the Textile Industry was passing through a very bad phase over a period of five years and was making an average net loss of 4% on turnover. 3.3. The First Appellate Authority is not justified in directing the Assessing Officer to examine the claim of the assessee with regard to interest payment when the accounts are rejected and profits are estimated. 4. The First Appellate Authority has grossly erred in sustaining the disallowance of Rs. 5,53,92,352/- u/s. 40(a)(ia) of the Income Tax Act when the books of accounts are rejected and income is estimated. Further when the department has not brought evidence with respect to details of these payments and payees, the disallowance ought to be deleted. 5. The First Appellate Authority is not justified in sustaining the addition of Rs. 7,23,82,604/- for the simple reason that it is not appearing as a loan in the Balance Sheet as at 31-03-2008. As the Profit and Loss Account and Balance Sheet has been rejected by the department and profits are estimated, no addition should have been made on the basis of unaudited book figures whether given to the bank or not. 6. When Books of Accounts are rejected and profits are estimated, the First Appellate Authority should not have upheld any addition with respect to fixed assets when department has not given any depreciation allowance. 7. In the light of the decision rendered by the ITAT Amritsar Bench in (2015) 60 Taxmann.com 447.(Amritsar-Trib.), the Assessment order is void ab initio as it has been framed under Section 143(3) r.w.s.147 instead of Section 144, 3 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. 8. For these and other grounds that may be raised at the time of hearing the income tax demand may kindly be deleted. ADDITIONAL GROUNDS OF APPEAL 9. The issue of notice u/s. 148 is invalid for various reasons. 10. The appellant reserves the right to add amend or alter any or all grounds of appeal Section 264A. 11. The Assessing Officer has erred in adding Rs.26,35,198/- as interest income. FURTHER ADDITIONAL GROUNDS 12. The Assessment Order is void ab initio as the notice and assumption of jurisdiction by ACIT 8(3)(2) was illegal. 13. The assessee is eligible for exemption u/s. 10AA hence if loss is assessed into profit then such exemption should given. 14. Additions on issues other than the issues of reopening are not sustainable if there is no addition on the issue of reopening. 4. The assessee has also filed the additional grounds which are admitted as per the decisions of the Hon’ble Apex Court in the case of NTPC Ltd. 229 ITR 383 (SC) on legal grounds which requires no further investigation. 5. The brief facts are that the assessee company is engaged in the business of manufacturing and export of all kinds of textiles. The assessee company did not file its return of income during the impugned year and the assessee’s case was reopened u/s 147 of the Act vide notice u/s 148 of the Act dated 25.03.2015. The reasons recorded for reopening are cited hereunder for ease of reference:- 1. "The information available on record shown as per AIR Details, it is seen that during the financial year 2007-08 the assessee has received interest income of Rs. 26,35,198/-, contract receipt of Rs 11,04,265/- and assessee has also transfer the immovable property worth Rs 2,40,00,000/-, However, the assessee has not filed the return of income for the year under consideration. 2. As the assessee has received contract receipt amounting to Rs 11,04,265/- and considering the nature of business of the assessee company the income from contract receipt should be around 8% of the contract receipt which is 4 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. worked out to Rs 88,341/- has escaped income. Apart from the above, the assessee also received income from interest amounting to Rs 26,35,198/- is taxable under the head of income from other source has also escaped income. 3. In view of the above, I have reason to believe that the income of Rs 27,23,539/- arising out of the said transactions made by the assessee has therefore escaped assessment for the reasons of failure on the part of the assessee company to disclose truly and correctly all material facts relevant for completion of the assessment. Hence, I am satisfied that in the present case the income has escaped assessment by the reasons of failure on the part of the assessee to disclosed fully and truly all the material facts necessary for its assessment coming within the meaning of Section 147 of the Income Tax Act, 1961 and therefore it is proposed to reopen the assessment by issuing notice u/s. 148 of IT Act in the aforesaid assessee company's case for the AY 2008-09." 6. The assessee vide its submission dated 26.10.2015 filed its return of income, computation of total income and unaudited P & L account, balance sheet alongwith annexures and schedules. Notice u/s 143(2) and 142(1) dated 11.01.2016 and 14.12.2015 were served. The Ld. Assessing Officer ('A.O.' for short) vide order dated 30.03.2016 passed the assessment order u/s 143(3) r.w.s. 147 of the Act determining total income at Rs. 25,90,76,321/- where the Ld. Assessing Officer ('A.O.' for short) made various additions /disallowances. The assessee was in appeal before the Ld. CIT(A) challenging the assessment order who partly allowed the appeal of the assessee. Both the assessee as well as revenue are in appeal before us challenging the impugned order of the Ld. CIT(A). 7. As the assessee has raised the legal grounds challenging the validity of the re-assessment proceeding and jurisdiction of ACIT-8 (3)(2), we deem it fit to decide this issue before getting into merits of the case. 8. Ground no. 9 and 12 of the revised grounds of appeal raised as additional ground challenges the notice u/s 148 of the Act and jurisdiction of AO to be invalid and illegal. The assessee has challenged the reassessment proceedings on the ground that addition on the reasons for reopening has not been made by the Ld. Assessing Officer ('A.O.' for short) by placing reliance on the decision of Hon’ble Jurisdictional Bombay High Court in the case of Jet Airways 331 ITR 236. The 5 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. assessee has also challenged the reopening on the ground that approval given by JCIT was without application of mind and also on the ground that notice issued u/s 142(1) by ITO-8(3)(3) was without jurisdiction as the case was subsequently transferred to DCIT-8(3)(2). The assessee has also challenged that Ld. Assessing Officer ('A.O.' for short) has not verified the information before issue of notice as the AIR details did not have the issue of bank interest and that the Ld. JCIT has not elaborated as to where the said information arised out of the AIR details. 9. We have heard the rival submissions and perused the materials on record. It is observed that the Learned Authorised Representative (AR for short) has raised the validity of notice u/s 148 of the Act on the ground that addition was not made on the basis for which the assessee’s case was reopened. It is pertinent to point out that the assessment in this case was reopened based on the information as per AIR details that assessee has received interest income of Rs. 26,35,198/-, contract receipt of Rs. 11,04,265/- and also that the assessee has transferred an immovable property worth Rs. 2.40 crores during the impugned year as the assessee has not filed its return of income for the year under consideration. Further considering the assessee’s nature of business, 8% of the contract receipt worked out to Rs. 88,341/- and the interest income amounting to Rs. 26,35,198/- under the head income from other sources has escaped assessment and hence Ld. AO had reason to believe that Rs. 27,23,539/- has escaped assessment for the reasons of failure on the part of the assessee company to disclose truly and correctly all material facts for the purpose of assessment for AY 2008-09. It is observed that the Ld. Assessing Officer in the assessment order has made addition on the interest income received by the assessee under the head non-operational income and had also added the 8% of contract receipt to the total income of the assessee. It is also evident that the assessee has shown the interest income in the unaudited P & L account as non operational income and the Ld. AO has made addition on this during the assessment proceedings. We therefore find no merit in the submission of the assessee that addition was made on grounds other than the one for which reopening was made. The decision cited by the assessee in the case of Jet Airways (supra) is also distinguishable to the present case in hand where it is evident that 6 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. the Ld. AO has made addition on the issues for which reassessment was done. The assessee has also failed to substantiate the other factual aspect that the Ld. Assessing Officer ('A.O.' for short) has not verified the information for which reopening was made and that the notice was issued by non jurisdictional ITO. We also find no merit in the contention of the assessee that the approval given by Ld. JCIT was without application of mind. It is further observed that the assessee’s case would not come under explanation 2 (a) to section 147 of the Act as being the company assessee ought to have filed its return of income and even otherwise the assessee has shown a loss of Rs. 5,22,33,029/- in its return of income filed in compliance to the notice u/s 148 of the Act. The assessee has failed to substantiate the legal ground raised by it. The Learned Departmental Representative ('ld. DR' for short) for the Revenue on the other hand had relied on the decision of the Coordinate Bench in assessee’s case for AY 2009-10 and also the decision of Hon’ble Apex Court in the case of Rajesh Javeri Stock Brokers Pvt. Ltd.(2007) 291 ITR 500 and also the decision of the Hon’ble Apex Court in the case of Raymond Woollen Mills Ltd. 263 ITR 34, 35 (SC). We find merit in the submission of Ld. DR and hence ground no. 9 and 12 are dismissed. Ground no. 10 and 14 being general grounds requires no separate adjudication. 10. On the merits of the case, Ground No. 1 raised by the assessee is general in nature and require no separate adjudication. Ground no. 2 of the assessee’s appeal and ground no. 1 of the revenue’s appeal are on the estimation of net profit @ 3% by the Ld. CIT(A) against the 5% of turnover made by the AO for the impugned year. It is observed that the Ld. AO determined the profit of the assessee company @ 5% of the turnover by relying on the audited accounts filed by the assessee to the state bank of India for AY 2007-08 which was estimated at 5% of the turnover for that year. The assessee had claimed substantial expenditure on account of cost of goods sold, administration, selling and distribution, financial cost, etc, but the same was rejected by the Ld. AO for the reason that assessee has failed to furnish supporting evidences alongwith details of TDS deducted for such payments. The Ld. AO determined the profit @ 5% of the turnover. The first appellate authority on the other hand restricted the estimation of profit to 3% of the total turnover by 7 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. relying on the report published by ICRA Management Consulting Services Ltd. on impact of economic slowdown on Indian Textile and Clothing Industry. The Ld. CIT(A) further held that Ld. AO has failed to make any comparison before determining the estimation of profit. Both the assessee and the revenue are in appeal before us challenging the said estimation. 11. We have heard the rival submissions and perused the materials on record. It is observed that the Tribunal in ITA 1484/Mum/2018 in assessee’s case for AY 2009-10 has decided the similar issue by upholding the addition made by the Ld. AO in estimating the net profit at 5% of the turnover instead of 3% made by the Ld. CIT(A). The relevant extract of the said decision is cited hereunder for ease of reference:- 51. As far as finding of the Ld. CIT(A) of accepting the loss declared in unaudited accounts pertaining to business operation of manufacturing and sale of textile products is considered , we are of the opinion that the finding of the Ld. CIT(A)is self-contradictory. In his finding he is admitting that assessee has not produced any material to show the correctness of the unaudited book results, despite ,he is directing the Assessing Officer to accept the same result after referring to the report of ICRA management consulting services Ltd (supra). In our opinion, the result of the assessee for subsequent assessment year i.e. AY 2010-11 is more comparable to the result for assessment year 2009-10. The profit results discussed in Report (supra) might be of companies having varied assets and turnover, therefore averaging out of the result of multiple No. of companies, is not correct comparable for the assessee. In our opinion, the action of the Ld. Assessing Officer in estimating the profit on the basis of book result for AY 2010-11 is justified as far as comparability is concerned. The assessee has not provided any instances of other companies along with their asset base and turnover, which could form a basis for estimating the profit of the assessee for the year under consideration. The Ld. CIT(A) has observed that while estimating net profit rate at the 5% of turnover, the Assessing Officer as relied on the book result for assessment year 2007-08 and assessment year 2010-11. In view of above circumstances, we set aside the finding of the Ld. CIT(A) on the issue in dispute and uphold the finding of the Assessing Officer. Further, the direction of the Ld. CIT(A) to exclude the export incentives from the non- operative income is also not justified . The Assessing Officer has applied the net profit rate of assessment year 2010-11 worked out on the basis of audited accounts. If the said incentive has been separately considered as part of the non-operative income in assessment year 2010-11, same cannot be considered as part of book result for the year under consideration. 8 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. Accordingly, we direct the Assessing Officer to examine the addition of export incentive as non-operative income on comparative book results for assessment year 2010-11. Accordingly, the ground No. two of the appeal of the assessee is dismissed, whereas solitary ground No. one of the appeal of the revenue is allowed. 12. As there are no change in the facts of the present case and by respectfully following the above proposition, we dismiss ground no. 2 raised by the assessee and allow ground no. 1 raised by the revenue. 13. Ground no. 3 & 11 raised by the assessee pertains to the interest income of Rs. 26,35,198/-. The Ld. CIT(A) has directed the Ld. Assessing Officer ('A.O.' for short) to examine the claim of the assessee with regard to interest payment when books of accounts of the assessee are rejected. It is observed that the assessee has contended that the non operating income of Rs. 26,35,198/- includes the interest on FDR amounting to Rs. 25,86,661/- and discount received was Rs. 8,716/- which were already taxed by the Ld. Assessing Officer ('A.O.' for short) while determining net profit. The assessee contends the same to be double taxation. The First Appellate Authority in a appeal filed by the assessee has directed the ld. Assessing Officer ('A.O.' for short) to verify the contention of the assessee that the same amounted to double taxation. We do not find any infirmity in the order of the Ld. CIT(A) on this issue and also place reliance on the decision of Tribunal in assessee’s case for AY 2009-10 on identical grounds. Therefore, we remand this issue back to the file of the ld. A.O. for verifying whether the same was added in earlier years and, hence, ground nos. 3 & 11 raised by the assessee are allowed for statistical purpose. 14. Ground no. 4 pertains to the disallowance of Rs.5,53,92,352/- u/s 40(a)(ia) of the IT Act. The assessee has contended that as the net profit has been estimated in assessee’s case, no disallowance u/s 40(a)(ia) is warranted. The Ld. CIT(A) upheld the disallowance made by the Assessing Officer ('A.O.' for short) for the reason that the Ld. AO has rightly determined the total income and not merely the net profit of the business. The ld. CIT(A) has also relied on the decision of the 9 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. Coordinate Bench in the case of Prabhat Construction Co. vs. CIT (2015) 60 taxmann.com 37 (Patna-Trib.). 15. We have perused the rival submissions and material placed on record. The Learned Authorised Representative (AR for short) has relied on the decision of Hon’ble Apex Court in the case of M/s Pradeep Singh Wazir vs. CIT in Civil Appeal no. 3891/2017 wherein it was held that no disallowance u/s 40(a)(ia) of the Act can be made while invoking section 145(3) of IT Act where net profit rate has been applied for estimation of profit. The Learned Authorised Representative (AR for short) also relied on the decision of Tribunal in assessee’s case for AY 2009-10 where similar disallowance was deleted by relying on the decision of M/s Pradeep Singh Wazir (supra). By respectfully following the above said decisions, we hereby allow ground no.4 raised by the assessee. 16. Ground no. 5 pertains to addition of Rs.7,23,82,604/- as being the unexplained loan outstanding. The assessee contented that Ld. CIT(A) has upheld the impugned addition on the ground that the said loan was not appearing in the balance sheet as on 31.03.2008. The assessee further contended that Ld. AO has rejected the P & L account and balance sheet of the assessee and determined profits on estimation basis, addition cannot be sustained on the basis of unaudited books figures. The assessee relied on the decision of the Tribunal in assessee’s case for AY 2009-10 where the Tribunal has decided this issue in favour of the assessee. 17. We have heard the rival submissions and perused the materials on record. It is observed that the Tribunal for AY 2009-10 has decided the issue of unexplained loan received by the assessee as below. The relevant extract of the said decision is cited hereunder for ease of reference:- 59. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We are of the opinion that as far as estimation of the income is concerned, the computation of the profit by the assessee has been rejected, which does not mean that entries of unsecured loan recorded in those books of accounts are of no relevance. The addition for unsecured loan is made in terms of section 68 of the Act where the 10 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. assessee failed to explain source and nature of the credit in its books of accounts. The credit in books of accounts shown as received by way of unsecured loan are independent from estimation of profit from business operation. It is for the assessee to explain source of the said credit and in failure to do so, said credit is liable to be added under section 68 of the Act. We find that Tribunal Hyderabad Bench in the case of Smt. Shoba Gupta v. ITO in ITA No. 461/Hyd/2013 for AY 2009-10 has discussed this issue in detail and held that addition u/s 68 of the Act can be made along with estimation of income unless the assessee establish that unexplained cash credit was arising out of the profit of business of assessee. The relevant finding in para 6 to 7 is reproduced as under : “6. We have heard both the parties and perused the material on record. In this case, original assessment has been completed u/s 144 of the Act. The assessee has not produced necessary evidences before the lower authorities in support of her case. Before us, the assessee has filed certain evidences to say that the assessee is in the first year of business and also filed confirmation of income tax details in the form of PAN and copy of returns of income in case of Smt. Radhika Gupta. Being so, we deem it fit and proper to remit the issues back to the file of the Assessing Officer for fresh consideration. Further, we also make it clear that even if the income is estimated, the Assessing Officer may invoke the provisions of section 68/69 of the Act as Smt. Shobha Gupta held by the Tribunal in case of Sri P.V. Sitaramaswamy Naidu in ITA No. 264/Hyd/12 vide order dated 09/01/2013. 12. We have carefully gone through this judgement. This judgement is with regard to allowability of deduction while computing business income of the assessee. Now, we are concerned with the addition made u/s. 68 of the Act. In the present case, the Assessing Officer made addition with regard to credit shown in the name of Ms. Devi Indukuri at Rs. 30,07,392 and in the name of Mr. Nandyala Bhaskar Reddy at Rs. 80,00,000 totalling to Rs. 1,10,07,392. When the credit entry is shown in the books of account it is incumbent upon the assessee to explain the nature and source of credit, creditworthiness of the party and genuineness of the transaction. The fact that the entries are shown in the books of account of the assessee whose income had already been computed on the basis of the estimate but not on the return filed by the assessee, that does not prevent the ITO from treating, but entitles him to treat, the unexplained cash credit as income from undisclosed sources which falls under the head of income "income from other sources". Unless the assessee, by independent and satisfactory evidence, establishes that those amounts relate or referable to the undisclosed income from known or disclosed sources viz., the business, whose income had already been estimated. In the present case, the assessee did not able to establish the cash credits mentioned above as genuine credits. The assessee's stand from the beginning and also before us is that the cash credits are genuine. The assessee never took specific stand 11 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. that these unexplained cash credits are referable to the income from disclosed sources viz., business, whose income has been estimated by the Revenue authorities. In order to delete this addition, the assessee is bound to explain the source of credit, genuineness of the transaction and the capacity of the lender to advance the same. As the assessee failed to explained these criteria, we have no hesitation in confirming the action of the CIT(A). For this purpose, we place reliance on the judgement of jurisdictional High Court in the case of CIT v. Maduri Rajaiahgari Kistaiah (120 ITR 294). Further, we Smt. Shobha Gupta place reliance on the judgement of Hon'ble Supreme Court in the case of CIT v. Devi Prasad Viswanath Prasad (72 ITR 194) wherein held that on rejection of books of account, business income estimated, addition towards unexplained cash credit separately valued. 13. Further, the approach of the various High Courts' is not uniform on the above aspect as would be seen from the following cases. In CIT v. Aggarwal Engg. Co. (Jai.) (2006) 206 CTR (P&H) 648, the Punjab & Haryana High Court held, relying on decision in CIT vs. Banwarilal Banshidhar (1998) 148 CTR (All) 533; (1998) 229 ITR 229 (All), that no separate addition on account of cash credit and on account of unexplained payments for purchases made outside the books can be made once the net profit rate is applied on contract receipts of an assessee for estimating his income from contract work. Even when the books of account relating to the assessee's business are rejected and income from such business is determined on estimate basis, a separate addition (which may not exceed the difference between the income as estimated by the Department and the income/loss as per books) may be made under section 68 towards cash credits which are not explained or which are not properly explained. This is because the source of the former is business whereas for the latter the Department does not have to locate any particular source [Kale Khan Mohammed Hanif vs. CIT (1963) 50 ITR 1 (SC) impliedly overruling Ramcharitar Ram Harihar Prasad vs. CIT (1953) 23 ITR 301 (Pat) and impliedly approving Srinivas Ramkumar vs. CIT (1948) 16 ITR 254 (Pat) and G.M. Chenna Basappa vs. CIT (1958) 34 ITR 576 (AP) on this point]. In this case, the Supreme Court held that the ITO having assessed the income of the assessee on a percentage basis, was also justified in treating the unexplained cash credit as profits from an undisclosed source. Repelling the contention that the entries found in the books of account of the business must be referable to the income of the business which had been computed on the basis of an estimate without accepting the return filed by the assessee, which amounts to double taxation of the same income, the Court ruled thus: "The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by 12 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. a credit entry in the books of account of that source Smt. Shobha Gupta cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held. if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. It is not a case where the income sought to be taxed was held to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate ..... the question whether income represented by an entry in the books of a business is income of that business or of another business would have to be decided on the facts which showed the business to which it belonged. But quite clearly, the answer to that question would not depend on whether the income from the first mentioned business had been computed on the basis of a return filed or of an estimate of the income made by the taxing authorities Therefore, it cannot be said that the taxing authorities were precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income they had previously computed on a percentage basis." 14. There is no presumption that any cash credit entry found in the business accounts of the assessee is related to his concealed income from the same business [CIT vs. Maduri Rajaiahgari Kistaiah (1979) 120 ITR 294 (AP) where the assessee pleads that the impugned cash credits came out of suppressed profits which are already included in the income estimated from business on rejection of the books, it is for him to prove that it is so [CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) reversing Devi Prasad Vishwanath Prasad vs. CIT (1963) 50 ITR 641 (All) and impliedly approving on this point Maddi Sudarsanam Oil Mills Co. vs. CIT (1959) 37 ITR 369 (AP) and CIT vs. Krishna Mining Co. (1972) 83 ITR 860 (AP). The Supreme Court in this case of CIT vs. Devi Prasad Vishwanath Prasad observed thus : "There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is Smt. Shobha Gupta not satisfactorily explained and the business income estimated by him under section 13 of the IT Act, after rejecting the books of account of the assessee as unreliable ..... Whether in a given case the ITO may tax the cash credit entered in the books of account of business, and at the same time estimate the profit must, however, depend upon the facts of each case ..... Where there is an unexplained cash credit, it is open to the ITO to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed." 13 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. 15. The Andhra Pradesh High Court in CIT vs. Janab Mohd. Suleman [Referred Case No. 13 of 1968 dt. 11th Nov., 1970] has expressed the same view on similar facts and circumstances. In Karnal Motors vs. CIT (2003) 180 CTR (Raj) 166 it was held that additions under s. 68 could not be telescoped with the trading addition where the assessee had not admitted that unexplained cash credits came out of black money earned in the current year or in an earlier year. In our opinion, a separate addition under s. 68 towards unexplained credit is sustainable in spite of addition made to the declared trading results is a question of fact which is to be decided based on circumstances in each case. 16. The benefit of telescoping was also considered by the Supreme Court in Anantharam Veerasingaiah & Co. vs. CIT (1980) 16 CTR (SC) 187 : (1980) 123 ITR 457 (SC) approving Lagadapati Sunna Ramaiah vs. CIT (1956) 30 ITR 593 (AP) observed that: "There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such Smt. Shobha Gupta a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the Revenue to rely on all the circumstances pointing to that conclusion." 17. Thus, as explained by the Supreme Court, income from intangible additions is available to the assessee for, inter alia, introducing amounts in his account books. If any unexplained cash credits can be reasonably related to the amount covered by the intangible additions 14 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. made in the past or in that very year, necessary set off may be given by the authorities on that account. In each case, the true nature of the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. However, where in the earlier years, there was disallowance of expenditure on the ground that there was no evidence though the requisite amount was in fact paid, it cannot be said that the corresponding amount is available to the assessee for use later. Smt. Shobha Gupta 18. Under section 68, the burden is on the assessee to prima facie prove the nature and source of the cash credit found in his books and the explanation in regard thereto must necessarily be factual but not argumentative. A view that the cash credits to the extent of the past intangible additions stand automatically explained would practically dispense with the necessity of the assessee giving any explanation of fact under section 68 where intangible additions were made in the earlier years and hence such a view is untenable. In the case of CIT vs. Manik Sons (1969) 74 ITR 1 (SC) it was held that only if the unexplained cash credit can reasonably be related to the amount covered by the intangible addition made in the past, or in the very year, necessary set off can be allowed. The principle that it is the assessee who should give a satisfactory explanation regarding cash credits is in no way rendered inapplicable merely because the assessee was found to have earned some undisclosed income in some earlier years for which additions had been made in the relevant assessments. If it is the assessee's case that the cash credits found in his books came out of the addition made to his income for an earlier year, it is undoubtedly open to him to put forward such a plea while furnishing explanation regarding such cash credits. While the fact of making of intangible additions in the earlier years is undoubtedly a matter to be considered by the Assessing Officer in judging whether the cash credits are satisfactorily explained by the assessee, the burden of proof rests squarely on the shoulders of the assessee to establish the truth and tenability of the explanation furnished by him. In other words, the assessee's explanation must satisfy the Income-tax authorities that the cash credits represent intangible additions made in the earlier years. For weighing the assessee's explanation, the assessee's conduct, his explanation at the initial stage and the shift, if any, in later stages and also the material, if any, linking up the cash credit entries would be relevant factors. The assessee, instead of merely raising an argument, must support his claim by proper explanation, affidavit and material. Thus, there is no general or absolute rule to the effect that whenever additions to profits are made, they must be regarded as funds represented in the books of account as cash credits. The question depends on the findings of fact. If there is no connection found between the cash credits and the additions made to profits, the assessee would 15 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. not be entitled to set off cash credits against the past intangible addition. Smt. Shobha Gupta. 19. Since it is for the assessee to provide the explanation for cash credits, when the assessee has not pleaded that the cash credits came out of the past intangible additions, it would not be open to the Tribunal to hold that the cash credits would be covered by such additions [CIT vs. G. M. Chennabasappa (1959) 35 ITR 261 (AP). The omission to claim set off of past intangible additions against cash credits would give rise to a presumption that the former amounts were not available for set off. When the alternate plea that tangible additions in the past could take care of cash credits of current year is not taken at the earlier stage and no materials are placed on record to substantiate the same, rejection of such plea would be justified. [R. Dalmia (Decd.) vs. CIT; (2002) 172 CTR 180 (Del) : (2002) 255 ITR 401 (Del)]. " 7. Further, regarding estimation of income, as we have directed the assessee to produce the books of account maintained by her, if the Assessing Officer finds any discrepancy in the books of account, he is at liberty to make his best judgment in accordance with law. Accordingly, respectfully following finding of the Tribunal (supra), we uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground No. 5 (five) of the appeal of the assessee is accordingly dismissed. 16. From the above observation, it is evidenced that the addition of Rs.7,23,82,604/- being the unexplained loan outstanding has already been added by the ld. A.O. and confirmed by the ld. CIT(A) in assessee’s case for A.Y. 2009- 10 and the same has been upheld by the Tribunal in ITA Nos. 1484/Mum/2018 and 487/Mum/2019. The ld. A.O. has not given any finding of fact that the impugned amount by way of unexplained loan outstanding pertains to the impugned year as the exact figure of Rs.7,23,83,604/- was added in A.Y. 2009-10 itself. The ld. DR also had nothing to controvert the said fact. In view of the same, we deem it fit to delete the impugned addition on the ground that the same was added in A.Y. 2009-10. Therefore, ground no. 5 raised by the assessee is allowed. 17. Ground no. 6 relates to the addition in respect of fixed assets where depreciation allowance was not granted. It is observed that the Ld. CIT(A) has upheld the addition made by the Ld. AO on the ground that assessee has failed to furnish any documentary evidence to substantiate its claim. As there was discrepancy in the net block of assets as per audited balance sheet dated 16 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. 31.03.2007 which was Rs. 6.69 crores and the opening balance as on 01.04.2007 was Rs. 16.13 crores. The discrepancy of Rs. 9.43 crore in the valuation of block of assets was not justified by the assessee by cogent evidences neither before the lower authorities nor before us. We, therefore, remand this issue back to the file of the ld. A.O. to provide the assessee with an opportunity to substantiate the said discrepancies. Therefore, this ground of appeal raised by the assessee is allowed for statistical purpose. 18. Ground no. 7 filed by the assessee challenges the assessment order as void ab initio as the same has been framed u/s 143(3) r.w.s. 147 of the Act which ought to have been framed u/s 144 of the Act. The assessee has relied on the decision of the Coordinate Bench of Amritsar reported in 2015 (60 Taxmann.com 447). There was no arguments made by either side on this ground and hence this ground of appeal is dismissed. 19. Ground no. 8 is a general ground and requires no separate adjudication, 20. The assessee in ground no.13 has contended that assessee is eligible u/s 10AA and was entitled to exemption if loss is assessed into profit. It is pertinent to point out that the Coordinate Bench in assessee’s case for AY 2009-10 on similar grounds has stated that if the assessee fulfills the criteria as per the provision of section 10AA then deduction is to be allowed if assessee satisfies the terms and conditions specified therein. On identical facts, we deem it fit to follow the same for this year also. Hence, ground no. 13 raised by the assessee is allowed for statistical purposes. 21. Ground no. 2 & 3 raised by the revnune are general ground and requires no separate adjudication. 22. In the result, the appeal filed by the revenue is allowed and appeal filed by the assessee is partly allowed. 17 ITA No. 1514/Mum/2018 & Others M/s. Vibgyor Texotech Pvt. Ltd. ITA No. 489/Mum/2019 (AY-2011-12) 23. The facts of this appeal are identical to ITA No. 1514/Mum/2018 and ITA No. 1483/Mum/2018, the observation in these appeals would apply mutatis mutandis to this appeal also. Hence, the appeal filed by the assessee is partly allowed. 24. In the result, both the appeals filed by the assessee are partly allowed and appeal filed by the revenue is allowed. Order pronounced in the open court on 27.09.2023 Sd/- Sd/- (S. Rifaur Rahman) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 27.09.2023 Sr.PS Dhananjay Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai