Nemichand Kothari, CHENNAI V. ITO, CHENNAI

ITA 1632/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7752 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 23-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Source of fund; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 133(6); 250; 201; 44AB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ' # BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1632/MDS/2016 / ASSESSMENT YEAR : 2010-11 SHRI NEMICHAND KOTHARI, NO. 769/770, T.H. ROAD, TONDIARPET, CHENNAI - 81. [PAN: AAHPN 0095P] VS. INCOME TAX OFFICER, NON-CORPORATE WARD -5(2), CHENNAI - 06. ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI A.K. JAIN, CA )*% & / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT & /DATE OF HEARING : 23.11.2016 & /DATE OF PRONOUNCEMENT : 21.02.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) -5, CHENNAI IN ITA NO. 311/ CIT(A)-5/13-14 DATED 23.03.2016 PASSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT. :-2-: I.T.A. NO. 1632/MDS/2016 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE CIT(A) WAS WRONG IN HOLDING THAT THE METHOD OF STOCK VALUATION ADOPTED BY THE ITO WAS CORRECT I.E. AVERAGE PRICE METHOD INSPITE OF THE FACT THAT ASSESSEE ADOPTED THE COST PRICE OF G OODS ON FIFO BASIS AS STOCK VALUATION METHOD CONSISTENTLY YEAR AFTER YEAR. 2.2 THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE A DDITION MADE BY ITO ON ACCOUNT OF UNEXPLAINED CASH CREDIT. 2.3 THE CIT(A) HAS NOT ASKED ANY EVIDENCE FOR THE L OAN TAKEN IN EARLIER YEARS BY THE ASSESSEE EXCEPT SIMPLY CONFIRMING THE ORDER OF ITO. 2.4 THE CIT(A) WAS ALSO WRONG IN UPHOLDING THE DISA LLOWANCE OF INTEREST RS. 11,08,647/- BY THE ITO. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS A PROPRIETOR OF M/S KOTHARI STEELS AND IN THE BUSINESS OF IRON AND STEE L AND DIRECTOR OF M/S. AKS ALLOYS (P) LTD AND HAVING SOURCES OF INCOME FROM SA LARY AS A MANAGING DIRECTOR AND INCOME FROM BUSINESS AS PROPRIETOR AND INCOME OTHER SOURCES AND FILED RETURN OF INCOME ON 29.03.2011 WITH TOTAL INCOME OF RS. 12,22,770/- SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY, I N COMPLIANCE TO THE NOTICE, LD. AR APPEARED FROM TIME TO TIME AND SUBMITTED THE INFORMATION. THE ASSESSING OFFICER ON PERUSAL OF THE FINANCIAL STATE MENTS FOUND THAT THE ASSESSE'S ACCOUNTS ARE AUDITED U/S. 44AB OF THE ACT AND THE ASSESSEE HAS NOT PROPERLY VALUED THE CLOSING STOCK AS ON 31.03. 2011 AND THE LD AO :-3-: I.T.A. NO. 1632/MDS/2016 ADOPTED AVERAGE VALUE OF THE CLOSING STOCK AT RS. 5,83,917/- AS AGAINST THE CLOSING STOCK VALUED BY THE ASSESSEE AT RS. 3,01,02 0/-.AND MADE AN ADDITION OF RS. 2,82,897/- BEING DIFFERENCE IN VALUE OF CLOS ING STOCK. FURTHER THE ASSESSING OFFICER PERUSED THE BALANCE SHEET AND FOU ND THAT THE ASSESSEE HAS UNSECURED LOAN CREDITORS OF RS. 1,74,04,796/- AND ISSUED LETTERS U/SEC 133(6) OF THE ACT TO OBTAIN INFORMATION AND CONFIRMATION OF THE LOAN CREDITORS. THE ASSESSING OFFICER HAS IDENTIFIED LOAN CREDITORS WHO HAVE NOT CONFIRMED THE BALANCE AND ALSO HAS DIFFERENCE IN CLOSING BALANCE. UPON FURTHER INVESTIGATIONS, THE ASSESSING OFFICER IDENTIFIED F OLLOWING PERSONS WHOSE CONFIRMATIONS ARE NOT AVAILABLE REFERRED AT PAGE 2, 3, & 4 OF HIS ORDER AND MADE AN ADDITION OF RS. 92,60,651/-. SL.NO NAME OF THE PERSON LOAN ADVANCED 01. AJITKUMAR & SONS 7,75,000/- 02. AMRITRAJ KOTHRI 1,03,922/- 03. MIGNASTY COMMERCE (P) LTD., 49,75,923/- 04. INDIRA KOTHARI 3,65,526/- 05. PARASMAL KOTHARI HUF 1,76,210/- 06. RUPESHKUMAR & SONS 11,75,000/- 07. SANGEETHA 8,00,000/- 08. S.P. KOTHARI & SONS 1,76,210/- 09. SUMITRA 7,12,860/- FURTHER ASSESSING OFFICER ON PERUSAL OF THE FINANCI AL TRANSACTIONS, FOUND THAT THE ASSESSEE HAS RAISED FUNDS FROM THIRD PARTIES AN D MAINTAINED SEPARATE ACCOUNTS FOR INVESTMENTS IN SHARES AND THESE INVEST MENTS ARE MADE IN SISTER :-4-: I.T.A. NO. 1632/MDS/2016 CONCERNS AND THE ASSESSEE HAS PAID INTEREST ON BORR OWED FUNDS RS. 11,08,647/-. SINCE THE INVESTMENTS ARE MADE BY THE ASSESSEE IN THE SHARES OF SISTER CONCERNS THE ASSESSING OFFICER GAVE EXHA USTIVE FINDINGS AT PAGE 5 OF THE ORDER AND OBSERVED THAT THE ASSESSEE IS NO T ELIGIBLE TO CLAIM INTEREST ON SUCH BORROWED FUNDS AGAINST THE BUSINESS INCOME, AS THE INVESTMENTS ARE MADE IN THE SHARES OF THE COMPANIES AND THE DIVIDEN D INCOME ON SHARES IS EXEMPT U/SEC10(34) OF THE ACT AND PASSED ORDER U/S . 143(3) OF THE ACT DATED 20.03.2013. 4. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS OF ASSESSMENT PROCEEDINGS. THE LD. CIT(A) CONSIDERED THE SUBMISSIONS AND DEALT ON THE PROVISIONS AND GAVE FINDINGS AT PAGES 3 TO 8 OF HIS ORDER. FURTHER THE ASSESSEE FILED WRITTEN SUBM ISSIONS DATED 10.02.2016 IN RESPECT OF THREE ADDITIONS BY THE ASSESSING OFFICER , BEING DIFFERENCE IN CLOSING STOCK, UNSECURED LOAN CREDITORS AND DISALLOWANCE OF INTEREST ON BORROWED FUNDS. THE LD. CIT(A) CONSIDERED THE SUBMISSIONS A T PAGE 10 OF HIS ORDER AND UPHELD THE ACTION OF THE ASSESSING OFFICER IN INCR EASING THE VALUE OF THE CLOSING STOCK. SIMILARLY, CIT(A) OBSERVED AT PARA 6 .2 OF HIS ORDER, THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO DEFEND THE ADDITION MADE U/S. 68 OF THE ACT, AND CONFIRMED THE ADDITION. THE LD CIT(A) ALSO UPHELD THE ACTION OF :-5-: I.T.A. NO. 1632/MDS/2016 THE ASSESSING OFFICER IN NOT ALLOWING CLAIM OF THE INTEREST ON BORROWED FUNDS UTILISED FOR INVESTMENT IN SHARES AND DISMISSED THE APPEAL. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE HAS F ILED AN APPEAL BEFORE THE TRIBUNAL. BEFORE US, THE LD. AR SUBMITT ED THAT THE ACTION OF THE CIT(A) IS NOT CORRECT IN UPHOLDING THE ADDITION OF RS. 2,82,897/- IN RESPECT OF STOCK VALUATION. WE PERUSED THE ASSESSMENT ORDER, WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND THE PAPER BOOK, WHERE THE ASSES SEE HAS SUBMITTED STOCK TRANSACTIONS STATEMENT FROM APRIL 2009 TO MARCH 201 0 AND ON VERIFICATION OF STATEMENT, THE LAST PURCHASE OF IRON PRODUCTS WAS I N THE MONTH OF MARCH2010 FOR RS. 3,58,610/- AND THE SAME VALUE AND QUANTITY HAS BEEN TREATED AS CLOSING STOCK. THE ASSESSEE CONSISTENTLY HAS BEEN A DOPTING METHOD OF VALUATION OF STOCK AS PER ACCOUNTING STANDARDS OF I CAI AT COST OR MARKET VALUE WHICHEVER IS LESS. THE ASSESSEE HAS BEEN MAIN TAINING CONSISTENCY FROM EARLIER YEARS ON THE METHOD OF VALUATION STOCK. AND ASSESSEE HAS FURNISHED TAX AUDIT REPORT U/SEC 44AB OF THE ACT IN SUPPORT O F VALUATION. BUT IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS N OT CONSIDERED THE STOCK TRANSACTIONS ON THE LIFO OR FIFO METHOD. 6. WE ARE OF THE OPINION THAT THE ADDITION MADE BY THE ASSESSING OFFICER CANNOT BE SUSTAINED AS THE ASSESSEE SUBSTAN TIATED BEFORE US WITH THE SUBMISSIONS OF LAST PURCHASE AND THE SAME VALUE HAS BEEN CONSIDERED AND :-6-: I.T.A. NO. 1632/MDS/2016 ADOPTED FOLLOWING THE ACCOUNTING STANDARDS AND HENC E WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. IN RESPECT OF ADDITION U/S. 68, WE OBSERVE THAT TH E CREDIT HAVE BEEN DEEMED AS INCOME AND CONFIRMED IN APPEAL FOR WANT O F MATERIALS TO BE ADDUCED BY ASSESSEE TOWARDS ESTABLISHING THE IMPUGNED CREDI TS, NATURE OF WHICH IS EXPLAINED AS LOANS, ON THE PARAMETERS OF IDENTITY A ND CREDIT-WORTHINESS OF THE CREDITORS AND THE GENUINENESS OF THE CREDITS. WE A RE HOWEVER MOVED BY THE FACT WITH THE LETTERS BY THE AO TO THE CREDITORS SEEKING INFORMATION U/S. 133(6) WERE SENT ONLY IN THE SECOND WEEK OF FEBRUARY, 2013, WIT H FURTHER THE ASSESSEE FILING CONFIRMATIONS IN SOME CASES ON 28.03.2013 ITSELF, A ND WHICH COULD NOT THEREFORE BE VERIFIED BY THE AO. THEN, AGAIN, IT IS STATED T HAT SOME CREDITS PERTAIN TO AN EARLIER PERIOD/S. SECTION 68 DRAWS NO DISTINCTION BETWEEN A SUM CREDITED DURING THE CURRENT YEAR OR DURING THE EARLIER YEAR IN AS M UCH AS ALL THAT SECTION 68 REQUIRES IS FOR THE ASSESSEE TO, WHERE A SUM IS FOU ND CREDITED IN ITS BOOKS OF ACCOUNT, PROVE THE SAME IS GENUINE. THE LD. AR WOU LD, HOWEVER, CONTEND THAT THERE IS CASE LAW TO SUPPORT THE VIEW THAT SECTION 68 COULD BE INVOKED ONLY QUA A SUM CREDITED DURING THE RELEVANT YEAR. WE FIND THAT T HOUGH THE ASSESSEE HAS MADE A CLAIM IN THIS REGARD, STATING THAT THE I MPUGNED SUM INCLUDES CREDITS BROUGHT FORWARD FROM AN EARLIER YEAR/S, THERE IS NO FINDING/S BY THE REVENUE AUTHORITIES IN THE MATTER. WE, ACCOR DINGLY, ONLY CONSIDER IT PROPER TO SET ASIDE THE ASSESSMENT QUA THIS ISSUE, AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR FRESH ADJUDI CATION OF THE IMPUGNED SUM AS WELL AS THE 'INTEREST' ON THESE CREDITS, CLAIMED A S EXPENDITURE. THE BURDEN OF :-7-: I.T.A. NO. 1632/MDS/2016 PROOF, NEEDLESS TO ADD, WOULD BE ON THE ASSESSEE, A ND THE AO SHALL DECIDE IN ACCORDANCE WITH LAW, ISSUING DEFINITE FINDINGS OF F ACT. THE AO SHALL ALLOW A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRESENT I TS CASE BEFORE HIM, AND IN CASE OF LACK OF CO-OPERATION - WHICH THOUGH THE LD. AR ENSURES, DECIDE THE SAME ON THE BASIS OF THE MATERIAL ON RECORD. IN RESPECT OF THE CLAIM FOR INTEREST ON BORROWED F UNDS INVESTED IN SHARES, THE ASSESSEE HAS NOT BEEN ABLE TO SHOW AT A NY STAGE AS TO HOW THE INVESTMENT IN SHARES IS FOR THE PURPOSES OF ITS BUS INESS. INCOME FROM THE SAME IS EVEN OTHERWISE EXEMPT U/S. 10(34) OF THE AC T. THE DISALLOWANCE OF INTEREST IS ACCORDINGLY CONFIRMED. WE DECIDE ACCORDINGLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 21ST DAY OF FEBRUA RY, 2017 AT CHENNAI. SD/ - ( ) (SANJAY ARORA) / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) $ /JUDICIAL MEMBER /CHENNAI, / /DATED: 21ST FEBRUARY 2017 JPV & )'12 32 /COPY TO: 1. % / APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 )'' /DR 6. 8 /GF :-8-: I.T.A. NO. 1632/MDS/2016