Phalguna Enterprises Pvt.Ltd, Hyderabad V. DCIT, Hyderabad

ITA 1589/HYD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53842 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T DIWAKAR PRASAD
• Assessee Lawyers: K C DEVADAS
• Keywords: Unexplained cash credit; Additional evidence
• Section: 143(3); 68; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. & SMT. ASHA VIJAYARAGHAVAN, J.M. ITA NO.1589/HYD/2010 ASSESSMENT YEAR 2007-08 M/S PHALGUNA ENTERPRISES (P) LTD. HYDERABAD (PAN AABCH4453N) VS DCIT, CIRCLE 16(3), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI K.C. DEVADAS RESPONDENT BY : SHRI T. DIWAKAR PRASAD DATE OF HEARING : 14.12.2011 DATE OF PRONOUNCEMENT : 27.12.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) V, HYDERABAD DATED 2 3.11.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF DEALING IN RUBBERIZED AN D OTHER RELATED PRODUCTS. FOR THE ASSESSMENT YEAR 2007-08 , THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31.1 0.2007 ADMITTING A TOTAL INCOME OF RS.5,14,412/-. THE ASS ESSMENT WAS COMPLETED U/S 143(3) OF THE IT ACT DETERMINING TOTA L INCOME OF THE ASSESSEE AT RS.35,76,800/- BY MAKING THE FOLLOW ING ADDITIONS: A) DISALLOWANCE ON ADVERTISEMENT EXPENDITURE RS.1, 16,764 B) DISALLOWANCE ON FREIGHT OUTWARD EXPENDITURE RS.1, 60,624/- C) DISALLOWANCE ON UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT RS.27,85,000/- ITA NO.1589/H/2010 M/S PHALGUNA ENTERPRISES P LTD., HYD. 2 3. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). DURING THE COURSE OF APP ELLATE PROCEEDINGS THE ASSESSEE GAVE WRITTEN SUBMISSIONS A ND PROVIDED ADDITIONAL EVIDENCE TO THE ASSESSING OFFICER FOR CO MMENTS ON 12.10.2010. THE ASSESSING OFFICER WAS NOT ASKED TO SUBMIT A REMAND REPORT. RATHER, THE EVIDENCE AND WRITTEN S UBMISSIONS OF THE ASSESSEE WERE CONFRONTED TO HIM AND AN OPPORTUN ITY WAS PROVIDED IN CASE THE ASSESSING OFFICER WANTED TO GI VE ANY FURTHER SUBMISSIONS IN VIEW OF THE ADDITIONAL EVIDENCE. HO WEVER, THE CIT(A) PROCEEDED TO PASS THE ORDER WITHOUT GETTING THE COMMENTS FROM THE ASSESSING OFFICER WITH RESPECT TO THE WRIT TEN SUBMISSIONS AND FRESH EVIDENCE AND WITH RESPECT TO THE ADDITION OF RS.27,85,000/- U/S 68 OF THE ACT. 4. THE CIT(A) DECIDED THE APPEAL OF THE ASSESSEE I N THE FOLLOWING MANNER- I HAVE EXAMINED CAREFULLY THE FACTS AND EVIDENCE. FIRST OF ALL, THE ASSESSEE IS A PRIVATE LIMITED COMPANY DEALING I N RUBBER MATTRESSES. ALL THE PERSONS WERE SUPPOSED TO HAVE CONTRIBUTED TO THE SHARE CAPITAL IN QUESTION HAVE DONE SO IN CA SH. NONE OF THEM IS AN INCOME TAX ASSESSEE. THE ASSESSEE MAY H AVE CONFIRMED THE IDENTITY OF THE PERSONS BY GIVING THE IR NAMES AND NAMES OF VILLAGES IN WHICH THEY RESIDE, BUT THE CAP ACITY OF THE PERSONS TO GIVE THE MONEY AND THE GENUINENESS OF TH E TRANSACTION NEED TO BE PROBED. THAT UNKNOWN AGRICU LTURISTS WOULD SUDDENLY WANT TO INVEST IN THE ADDITIONAL SHA RE CAPITAL OF THE ASSESSEE COMPANY. THESE SHAREHOLDERS ARE NE ITHER LINKED TO THE COMPANY NOR TO THE DIRECTORS AND NEIT HER DO THEY HAVE BUSINESS DEALINGS WITH THE COMPANY. IT IS SEE N THAT SHRI SHYAM RESIDING AT VUYYURU VILLAGE IN KRISHNA DISTRI CT CLAIMS TO HAVE AGRICULTURAL LAND OF 8 ACRES. AT AN AVERAGE, SUCH LAND WOULD YIELD AROUND RS.10,000 PER ACRE IF IT IS FERT ILE. THE ITA NO.1589/H/2010 M/S PHALGUNA ENTERPRISES P LTD., HYD. 3 PERSON HAS CONTRIBUTED RS.72,500/- IN THE SHARE CAP ITAL. THIS WOULD PRACTICALLY BE IN THE ENTIRE YEARS INCOME OF THIS PERSON, LEAVING NOTHING AT ALL FOR EVEN HOUSEHOLD EXPENDITU RE. EVEN OTHERWISE, AN INCOME OF RS.80,000/- PER ANNUM IS JU ST ABOUT ENOUGH FOR HOUSEHOLD EXPENDITURE OF AN AVERAGE FAMI LY WITH AGRICULTURAL PRODUCE OF THEIR OWN. WHY AND HOW WOU LD SUCH A BELOW MIDDLE CLASS FAMILY INVEST AN ENTIRE YEARS I NCOME IN CASH WITH THE ASSESSEE COMPANY IS ABSOLUTELY BEYOND ANY REASON AND DOES NOT CONFIRM TO HUMAN PROBABILITY AT ALL. MOREOVER, A LOOK AT THE NEW CONFIRMATION LETTERS FI LED SHOWS A REMARKABLE SIMILARITY IN ALL OF THEM. IT IS ALSO I NTERESTING TO NOTE AND BEYOND HUMAN PROBABILITY THAT NOT ONE PERS ON OUT OF THE INVESTORS HAS A BANK ACCOUNT OR PAN. HOW DID T HESE PERSONS SITTING IN VILLAGES GET TO KNOW ABOUT THE S HARE ISSUE OF THE ASSESSEE COMPANY AND TO DECIDE TO INVEST MUCH M ORE THAN THEIR POTENTIAL SAVINGS INTO THE COMPANY IS NOT KNO W. THE ABOVE ANALYSIS IS ONLY A SAMPLE ANALYSIS OF ONE CON FIRMATION LETTER. A LOOK AT OTHER LETTERS ALSO REVEALS IDENT ICAL PATTERNS. GIVING THE ABOVE FACTS AND CIRCUMSTANCES AND THE RA TIOS DISCUSSED, IT IS AMPLY CLEAR THE CAPACITY OF SHARE HOLDERS TO INVEST IS NOT PROVED. THE GENUINENESS OF THE TRANS ACTIONS IS NOT PROVED AT ALL AND IT IS BEYOND ALL HUMAN PROBABILIT Y. THEREFORE, SECTION 68 OF THE ACT IS SQUARELY APPLICABLE AND TH E ADDITIONS MADE BY THE ASSESSING OFFICER ARE CONFIRMED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) IN SUSTAINING THE ADDITION OF RS.27, 85,000/- IS UNSUSTAINABLE BOTH IN LAW AND IN FACTS. 2. THE CIT(A) FAILED TO NOTE THAT CONFIRMATION LET TERS FROM SHAREHOLDERS WHO HAVE INVESTED SUMS TO THE EXTENT O F ITA NO.1589/H/2010 M/S PHALGUNA ENTERPRISES P LTD., HYD. 4 RS.13,12,000/- WERE FAILED AND IN RESPECT OF THE BA LANCE RS.12,27,000 CONFIRMATION LETTERS WERE FILED BEFORE THE CIT(A), HYDERABAD AS ADDITIONAL EVIDENCE WHICH WERE ADMITTED AND THEREFORE THE CIT(A) HYDERABAD ERRED I N CONFIRMING THE AGGREGATE ADDITIONS OF RS.27,85,000/ - WHICH IS UNSUSTAINABLE IN LAW. 3. THE CIT(A) FAILED TO NOTE THAT SINCE THE ENTIRE SHAREHOLDERS WERE IDENTIFIED AND HAVING CONFIRMED T HE AMOUNTS INVESTED THE QUESTION OF MAKING ANY ADDITIO N U/S 68 OF THE IT ACT, DID NOT ARISE AND THEREFORE THE E NTIRE ADDITION MUST BE DELETED. 4. THE CIT(A) HAVING ACCEPTED THE FACT AT PARA 5 O F HIS ORDER THAT THE WRITTEN SUBMISSIONS OF THE ASSESSEE ALONG WITH THE FRESH EVIDENCE WERE SENT TO THE ASSESSING OFFICER F OR HIS COMMENTS OUGHT TO HAVE AWAITED THE REPORT OF THE AS SESSING OFFICER WHO HAS STARTED THE ENQUIRY AND THEREFORE E RRED IN CONFIRMING THE ADDITION OF RS.27,85,000/- WHICH IS TOTALLY CONTRARY TO THE FACTS AND EVIDENCE ON RECORD AND TH EREFORE CLEARLY UNSUSTAINABLE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE ARE OF THE OPINION THAT HA VING ACCEPTED THE WRITTEN SUBMISSIONS OF THE ASSESSEE ALONG WITH FRESH EVIDENCES WERE SENT TO THE ASSESSING OFFICER FOR HI S COMMENTS, THE CIT(A) SHOULD HAVE TAKEN INTO CONSIDERATION THE REPORT OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE ASSESS EE IN THE FACE OF SUCH REPORT BEFORE ARRIVING AT ANY CONCLUSION. IN THIS VIEW OF THE MATTER, THE CIT(A) HAS VIOLATED THE RULE 46A, W HILE CONFIRMING THE ADDITION IN SUCH A MANNER ESPECIALLY WHEN THE ASSESSING OFFICER HAS STARTED THE INQUIRY IN THIS C ASE. IN THESE CIRCUMSTANCES, WE DEEM IT FIT TO SET ASIDE THE ISSU E TO THE FILE OF ITA NO.1589/H/2010 M/S PHALGUNA ENTERPRISES P LTD., HYD. 5 CIT(A), WHO SHALL DIRECT THE ASSESSING OFFICER, BY GIVING ONE MORE OPPORTUNITY TO RECORD HIS COMMENTS, AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING REASO NABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. THE SECOND GROUND RAISED BY THE ASSESSEE IS WIT H RESPECT TO THE CONFIRMATION OF ADVERTISEMENT EXPENSES. THE ASSESSING OFFICER DISALLOWED THE ADVERTISEMENT EXPENDITURE ON THE GROUND THAT THE SUPPORTING VOUCHERS PRODUCED WERE SELF MAD E. DURING THE APPELLATE PROCEEDINGS THE FOLLOWING REPLY WAS G IVEN BY THE ASSESSEE: IN THIS CONNECTION WE WISH TO SUBMIT THERE IS NO D ISPUTE ABOUT THE CLAIM OF EXPENDITURE AND ITS SUPPORTING DOCUMENTS. THE ONLY GROUND ON WHICH THE DISALLOWAN CE IS MADE IS THAT THE ASSESSEE HAD UTILISED THE SERVICE OR PAINTERS TO SUPPORTS ITS PRODUCTS RUBBERISED MATTRE SSES AND THE RELATED PRODUCTS AS AGAINST THE PERSONAL VIEWS OF THE ASSESSING OFFICER THAT THE ASSESSEE SHOULD HAVE ADV ERTISED IN LEADING NEWSPAPERS. THE ASSESSEE SUBMITTED THAT THE PREROGATIVES TO WHA T MODE THE ASSESSEE SHOULD ADOPT IS THE EXCLUSIVE DOMAIN O F THE ASSESSEE FOR WHAT IS INCURRED IS AN EXPENDITURE INC URRED WHOLLY AND EXCLUSIVELY IN THE COURSE OF CARRYING OF THE BUSINESS. IF THIS TEST IS APPLIED THERE IS NO DISP UTE THAT THE EXPENDITURE IS INCURRED BY THE ASSESSEE FAILED U/S 37 IF THE IT ACT. 8. THE CIT(A) THEREUPON DECIDED THIS ISSUE IN THE FOLLOWING MANNER- I HAVE EXAMINED CAREFULLY THE FACTS AND EVIDENCE AN D I FIND THAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS AT AL L IN ITA NO.1589/H/2010 M/S PHALGUNA ENTERPRISES P LTD., HYD. 6 SUBSTANTIATING THE DEBITS TOWARDS ADVERTISEMENT EXPENDITURE. THE ONUS LIES ON THE ASSESSEE TO IDEN TIFY THE PAINTER, TO PROVIDE THE RATES AND SIZE OF THE PAINT INGS, TO IDENTIFY THE WALLS AND SHOPS ON WHICH SUCH PAINTING WAS DONE AND ALSO TO SHOW THE PERMISSIONS TAKEN FROM GO VT. AUTHORITIES REGARDING SUCH PAINTINGS. . ABSOLUTELY NO DETAILS HAVE BEEN FILED BY THE ASSESSEE. IN THE ABSENCE OF THAT IT IS CLEAR THAT THE ONUS HAS NOT BEEN DISCHARGED. ACCOR DINGLY, I HAVE NO HESITATION IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THIS ADDITION. 9. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSING OFFICER HAS DISALLOWED THE ADVERTISEMENT EXPENSES IN QUESTION, AS HE WAS OF THE OPINION THAT THE VOUCHERS WERE SELF MADE AND TH E CIT(A) HAS ALSO CONFIRMED THE SAME. HOWEVER, WE ARE OF THE OP INION THAT THE SAME EXPENDITURE WOULD HAVE BEEN INCURRED BY TH E ASSESSEE FOR PAINTING THE WALLS FOR THE PURPOSE OF ADVERTISE MENT AND ITS PRODUCTS AND HENCE, WE RESTRICT THE DISALLOWANCE TO 10% OF THE ADVERTISEMENT DISALLOWED I.E. THE DISALLOWANCE AMOU NTS TO RS.11,676/-. 10. THE NEXT GROUND IS AGAINST THE DISALLOWANCE OF FREIGHT OUTWARD EXPENSES MADE BY THE ASSESSING OFFICER AT 5 0% OF THE CLAIM AMOUNTING TO RS.1,60,624/- AND CONFIRMED BY THE CIT(A) AT 25% OF THE CLAIM. THE ASSESSING OFFICER WAS OF THE OPINION THAT ONLY SELF MADE VOUCHERS WERE PRODUCED AND NO D ETAIL AS TO THE VEHICLE NO. DESTINATION WAS MENTIONED. 11. THE CIT(A) HELD AS FOLLOWS: FROM THE ABOVE VOUCHER, ABSOLUTELY NO INFORMATION IS AVAILABLE. NEITHER THE DESTINATION IS MENTIONED NO R THE NAME, IDENTIFICATION OF THE DRIVER ARE MENTIONED. I AGREE WITH THE ASSESSING OFFICER THAT THE ONUS OF THE ASS ESSEE IS ITA NO.1589/H/2010 M/S PHALGUNA ENTERPRISES P LTD., HYD. 7 NOT FULLY DISCHARGED WITH THESE VOUCHERS. HOWEVER, THE INTEREST OF JUSTICE WOULD BE MET IF THE DISALLOWANC E OF FREIGHT CHARGES IS LIMITED TO 25% INSTEAD OF 50% AS DONE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECT ED ACCORDINGLY AND THE ASSESSEE GETS PROPORTIONAL RELI EF. 13. WE FIND THAT THE ASSESSEE HAS NOT DISCHARGED T HE ONUS OF PROVING THE EXPENDITURE BY GIVING OF THE INFORMATIO N SUCH AS ITS DESTINATION, IDENTIFICATION OF DRIVER ETC. HOWEVER , TAKING INTO THE CONSIDERATION THE DIFFICULTY IN THIS LINE OF BUSINE SS, WE RESTRICT THE DISALLOWANCE TO 10% OF THE CLAIM MADE BY THE AS SESSEE, WHICH WORKS OUT TO RS.16,062/-. 14. IN THE RESULT, ASSESSEES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.12.2011 SD/- SD/- (CHANDRA POOJARI) ( (ASHA VIJAYA RAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 27 DECEMBER, 2011 COPY FORWARDED TO: 1. M/S SEKHAR & CO., C AS, RP ROAD, HYDERABAD 2. THE DCIT, CIRCLE 16(3), HYDERABAD 3. THE CIT(A)- V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/