The Income Tax Offficer, Ward -3 (2), Srinagar V. M/S Loke City Plaza, Srinagar

ITA 166/ASR/2014

• Counselvise Citation: 16620914 RSA 2014
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 12-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Unexplained cash credit; Capital asset; Gift; Business income; Cost of acquisition; Valuation report; Onus to prove
• Section: 133(6); 147; 68; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.166(ASR)/2014 ASSESSMENT YEAR:2005-06 PAN :AACFL5417E INCOME TAX OFFICER, VS. M/S. LAKE CITY PLAZA, WARD 3(2), SRINAGAR. SRINAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. V.K. SINGH, DR RESPONDENT BY:SH.JOGINDER SINGH, CA DATE OF HEARING:12/02/2015 DATE OF PRONOUNCEMENT:19/02/2015 ORDER PER B.P.JAIN,AM: THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT, JAMMU, DATED 27.12.2013 FOR THE ASSESSMENT YEAR 2005-06. T HE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.20,39,894/- ON ACCOUNT OF PROFIT OF SALE OF COMM ERCIAL SPACE. 2. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OFRS.12,50,000/- ON PROTECTIVE BASIS ON ACCOUNT OF UNEXPLAINED DEPOSITS. 2. THE BRIEF FACTS OF THE CASE ARE AS PER AOS ORDE R AT PAGES 9 TO 12, ARE REPRODUCED FOR THE SAKE OF CONVENIENCE, AS UNDER: ITA NO. 166(ASR)/2014 2 THE ASSESSEE DURING THE YEAR HAS SOLD A PORTION OF COMMERCIAL COMPLEX TO THE ESTATE DEPARTMENT J & K BANK LTD. FOR A CONSIDERAT ION OF RS.2,00,28,200/- ON 25.02.2005 BUT THE ASSESSEE HAS CLAIMED INCOME UNDE R THE SHORT TERM CAPITAL GAIN INSTEAD OF TAKING IT UNDER THE HEAD BUSINESS AND PROFESSION. FROM THE PARTNERSHIP DEED ENCLOSED WITH THE RETURN OF INCOME IT IS GIVEN AT PARA 2 OF THE PARTNERSHIP DEED THAT THE BUSINESS OF THE PARTNERSH IP SHALL BE THAT OF CONSTRUCTION OF SHOPPING /COMMERCIAL AT KARAN NAGAR, SRINAGAR. HOWEVER, THE PARTNERSHIP DEED IS SILENT ABOUT HOW THE SHOPPING/COMMERCIAL CO MPLEX WILL BE PUT TO USE AFTER CONSTRUCTION. YET, BY THE COMMON LOGIC ONLY TWO USE S OF THE SAID COMMERCIAL COMPLEX CAN BE THOUGHT OF . ONE IS THE SALE OF THE SHOP/OFFICES AND THE SECOND IS TO PUT THE PREMISES ON RENT. THE ASSESSEE HAS SOLD A P ORTION OF COMMERCIAL COMPLEX DURING THE YEAR TO ESTATE DEPARTMENT, J & K BANK L TD., INSTEAD OF TAKING IT UNDER THE HEAD PROFIT & GAIN FROM BUSINESS AND PROFESSION , WHICH SHOULD HAVE BEEN THE CASE CONSIDERING THE PARTNERSHIP DEED OF THE ASSESS EE. THE RELEVANT PARA OF THE PARTNERSHIP DEED IS AS UNDER: 2. THAT THE PARTNERSHIP BUSINESS SHALL BE THAT OF CONSTRUCTION OF A SHOPPING/COMMERCIAL COMPLEX AT KARAN NAGAR, SRIONAG AR ( NEAR CASSETTEE SCHOOL.) 10. DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE ASSE SSEE HAS FURNISHED A VALUATION REPORT FROM A VALUER DATED 15.02.2005, ON 11.09.2007. VIDE THIS VALUATION REPORT THE VALUE OF THE CONSTRUCTION PORT ION OF THE BUILDING DURING THE YEAR HAS BEEN VALUED AT RS.1,99,79,365/- AS PER THE FOLLOWING CALCULATION: A. AREA OF THE BUILDING : THE BUILDING IS CONSTRUCTED ON LAND MEASURING 11200 SFT. THE PLINTH AREA OF THE BUILDING IS 8400 SFT. AND THE TOTAL FLOOR AREA AVAILABLE AT PRESENT IS 18121 SFT. THE DISTRIBUTION OF FLOOR AREA IN THE BUILDING IS A S BELOW: 1. BASEMENT 7910 SFT. 2. G/FLOOR 4340 SFT. 3. F/FLOOR 5871 SFT. B. AREA UNDER OCCUPATION 1. BASEMENT 1550 SFT. 2. G/FLOOR 40 SFT. 3. F/FLOOR 4721SFT. 6261 SFT. C. COST OF CONSTRUCTION 1. LAND 11200 SFT. @ 1836 SFT. RS.2,05,63,200/- 2. BUILDING 8400 SFT. @ 4436 SFT. RS.3,72,62,400/- TOTAL: RS.5,78,25,600/- WHICH IS 5782600 = RS.3191 CARPET AREA SFT. CARPET AREA INCLUDING LAND. ITA NO. 166(ASR)/2014 3 18121 THEREFORE, COST OF CONSTRUCTION OF AREA UNDER OCCUP ATION : 6261 SFT. @ 3191/- SFT. SAY = RS.1,99,79,365/- THE PERUSAL OF THE ABOVE CALCULATIONS REVEALS THAT WHILE ARRIVING AT THE FIGURE OF RS.1,99,79,365/- THE VALUE OF LAND MEASURING 11200 SFT. HAS ALSO BEEN TAKEN IN TO THE COST OF CONSTRUCTION ( AS PER C ABOVE) WHICH IS RS.2,05,63,200/- @ RS.1836/- SFT. HOWEVER, FROM THE BALANCE SHEET ENC LOSED WITH THE RETURN OF INCOME THE VALUE OF LAND HAS BEEN REFLECTED AT RS.1 ONLY. THEREFORE, IT IS NOT CORRECT TO TAKE THE VALUE OF LAND AT RS.2,05,63,200 /- IN ORDER TO ASCERTAIN THE RATE OF PER SFT. CARPET AREA. INSTEAD OF THIS, ONLY THE VALUE OF COST OF CONSTRUCTION THE BUILDING COMPRISING OF 18121 SFT. OF FLOOR AREA BUI LD UPON 8400 SFT. OF PLINTH AREA SHOULD BE CONSIDERED. BY DOING SO THE VALUE OF THE COST OF CONSTRUCTION OF THE AREA UNDER OCCUPATION COMES TO BE AS UNDER: 3,72,62,400 X 6261 = 1,28,74,559/- 18121 IN VIEW OF THE ABOVE, THE ASSESSEE WAS REQUESTED TO SHOW CAUSE AS TO WHY THE VALUE OF COST OF CONSTRUCTION OF THE AREA UNDER OCC UPATION OF THE BUILDING WHICH WAS SOLD DURING THE YEAR MAY NOT BE TAKEN AT RS.1,2 8,74,559/- INSTEAD OF RS.1,99,79,365/- AS TAKEN BY THE ASSESSEE AND THE P ROFIT MAY NOT BE DETERMINED ACCORDINGLY. 11. THE ASSESSEE HAS REPLIED VIDE LETTER DATED 12.02.20 09 WHICH IS AS UNDER: THE CLAUSE OF THE PARTNERSHIP DEED REGARDING PARTN ERSHIP BUSINESS IS INCOMPLETE. IT SHOULD HAVE READ THE BUSINESS OF T HE PARTNERSHIP SHALL BE THAT OF CONSTRUCTION OF SHOPPING/ COMMERCIAL COMPLE X AT KARAN NAGAR, SRINAGAR FOR BEING LET OUT ON RENT. THE UNDERLINED WORKS HAVE NOT BEEN WRITTEN IN THE DEED BUT THAT DOES NOT IMPLY THAT T HE BUSINESS OF THE PARTNERSHIP SHALL BE CONSTRUCTION AND SALE OF SHOP PING/COMMERCIAL COMPLEXES BECAUSE IN HAT CASE INSTEAD OF COMPLEX, T HERE SHOULD HAVE BEEN WORD COMPLEXES AND THE WORDS AT KARAN NAGAR, S RINAGAR 9 NEAR CASSETTE SCHOOLS) SHOULD NOT HAVE BEEN THERE IF TH E INTENTION WAS TO ENGAGE IN THE BUSINESS OF CONSTRUCTION AND SALE OF SHOPPING/COMMERCIAL COMPLEXES. FURTHER, THE WORD SALE MUST HAVE BEEN HERE IN THE CLAUSE BECAUSE THE CONSTRUCTION ALONE CANNOT CONSTITUTE BU SINESS UNLESS IT IS SUFFIXED WITH THE WORD SALE. THAT STANDS TO REASON WHY THE COMMERCIAL COMPLEX HAS BEEN TREATED AS A CAPITAL ASSET AND THE SURPLUS TREATED AS CAPITAL GAIN. THE OBSERVATION MADE BY YOUR GOODSELF ARE WELL TAKE N. HOWEVER, WHERE THE INCOME TAX ACT, 1961 READ WITH I.T.RULES, 1962 LAYS DOWN A PROCEDURE FOR DETERMINING THE COST OF ACQUISITION I N VARIOUS CIRCUMSTANCES, THE CALCULATIONS MADE BY AN ENGINEER OR A VALUER ON THE BASIS OF ENGINEERING ASSUMPTION, NORMS OR FORMULAE ARE IRRELEVANT. THE ITA NO. 166(ASR)/2014 4 SAID PIECE OF LAND HAS TO BE ACCOUNTED FOR IN THE B OOKS OF ACCOUNT ON ACTUAL COST BASIS . SINCE THE LAND WAS RECEIVED BY THE FIRM AS A GIFT THERE WAS NO COST TO BE ACCOUNTED FOR. SO THE COST WAS TA KEN TO BE RS.1 FOR ACCOUNTING PURPOSE. BUT THAT DOES NOT MEAN THAT THE LAND DOES NOT HAVE A VALUE. IT DEFINITELY HAS AND SUCH A VALUE HAS TO BE ASCERTAINED UNDER THE PROVISIONS OF LAW. SECTION 49(I)(I) PROVIDES THAT WHERE THE CAPITAL AS SET (LAND IN THIS CASE) BECAME THE PROPERTY OF THE ASSESSEE UNDER A GIFT O R A WILL, THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST OF THE PREVIOUS OWNER. THE CONST. TO THE PREVIOUS OWNER IN THIS CASE IS RS .3,650/- AND THE YEAR OF PURCHASE IS 1935 THROUGH AUCTION AS PER THE AUCTION MONEY COLLECTION RECORDS OF SRINAGAR MUNICIPALITY (ENCLOSED) HOWEVER, SUCH A COST CAN NOT BE TAKEN TO BE THE COS T SINE THE TIME LAG BETWEEN YEAR OF PURCHASE I.E. 1935 AND THE YEAR OF SALE I.E. 2004 IS TOO HUGE (69 YEARS) THAT THE SAME CAN NOT BE TAKEN CARE OF EVEN BY THE INDEXATION OF THE COST UNDER THE PROVISO TO SECTION 48 OF THE ACT. IT, THEREFORE, BECOMES IMPERATIVE TO DETERMINE THE COS T AS THE MARKET VALUE OF THE SAID LAND EITHER ALL THE TIME OF SALE I.E. 2 004 OR IN THE YEAR 1981-82, THE BASE YEAR AND THEREAFTER RESORT TO INDEXATION. FURTHER, THE SALE OF LAND EMBEDDED IN THE TOTAL SAL E SHALL ATTRACT TAX AT A LOWER RATE OF 20% BECAUSE OF BEING A LONG TERM CAPI TAL ASSET. 12. THE REPLY OF THE ASSESSEE CANNOT BE ACCEPTED IN VIEW OF THE DISCUSSION IN THE PARA 9 ABOVE. SINCE THE ASSESSEE HAS ENGAGED IN THE BUSINESS ACTIVITY IF THE CONSTRUCTION OF SHOPPING C OMPLEX AND THE INCOME OUT OF ITS SALE SHOULD BE TAKEN UNDER THE HEAD PROF IT AND LOSS FROM BUSINESS AND PROFESSION. IN VIEW OF THIS THE INCOME FROM THE SALE OF THE BUILDING IS CALCULATED AS UNDER: TOTAL SALE CONSIDERATION RS.2,00,28,200/- COST OF CONSTRUCTION AS PER PARA 10 ABOVE. RS.1,28 ,74,59/- GROSS PROFIT RS.71,53,641/- LESS INTEREST ON TERM LOAN RS.4,00,661/- (AFTER DISALLOWANCE AS PER PARA 7 & 8 ABOVE) NET INCOME RS.67,52,981/- THEREFORE, THE ASSESSEE HAS EARNED AN INCOME OF RS. 67,52,981/- WHICH IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE SUBJECT T O PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ITA NO. 166(ASR)/2014 5 3. THE LD. CIT(A) TREATED THE SAID INCOME AS CHARGE ABLE UNDER THE HEAD CAPITAL GAINS SINCE THE ASSESSEE HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY FOR THE ASSESSMENT YEARS 2009-10 TO 2010- 11. AS REGARDS THE COMPUTATION OF CAPITAL GAINS, THE ASSESSEE SUBMITTED THE ADDITIONA L EVIDENCES UNDER RULE 46A IN THE FORM OF GIFT DEED OF LAND AND CERTIFICATE OF THE REVEN UE AUTHORITY REGARDING THE VALUATION OF THE LAND AS ON 01.04.1981, SINCE THE LAND WAS GI FTED BEFORE 01.04.1981. THE SAME WERE FORWARDED TO THE AO FOR REMAND REPORT, WHO SUB MITTED A FRESH CERTIFICATE OF REVENUE AUTHORITY DATED 20.11.2013 SHOWING THE MAR KET VALUE OF LAND AT RS. 6 LAKHS PER KANAL. THE TOTAL AREA OF LAND BEING 2 KANAL 1 MA RLA ACCORDING TO THE AO THE MARKET VALUE WAS RS.12.30 LACS AS ON 01.04.1981.THE LD. CI T(A) ACCEPTED THE REMAND REPORT OF THE AO AND WORKED OUT THE CAPITAL GAINS AT RS.47,13 ,087/- INSTEAD OF BUSINESS INCOME OF RS.67,52,981/- WORKED OUT BY THE AO. ACCORDINGLY, T HE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED BY THE LD. CIT(A). 4. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER. 5. THE LD. COUNSEL FOR THE ASSESSEE, MR. JOGINDER S INGH, CA, ON THE OTHER HAND, RELIED UPON THE SUBMISSIONS MADE BEFORE THE AO AND THE LD. CIT(A) AND THE DECISION OF THE LD. CIT(A) IN PARA 4.3 AT PAGES 11 & 12 OF HIS ORDER. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS PER EXPLANATION DATED 12.02.2009 GIVEN BY THE ASSESSEE BEFORE THE AO, THE PARTNERSHIP DEED PROVIDES THE BUSINESS OF PARTNERSHIP AS THE CONSTRU CTION OF SHOPPING/COMMERCIAL COMPLEX FOR BEING LET OUT FOR RENT WHICH DOES NOT MEAN THA T THE BUSINESS OF THE PARTNERSHIP SHALL BE CONSTRUCTION AND SALE OF SHOPPING OR COMMERCIAL COMPLEXES. THERE IS NO MENTION OF THE WORD SALE IN ANY OF THE CLAUSE OF THE PARTNER SHIP DEED AND THEREFORE, THE SAID ITA NO. 166(ASR)/2014 6 COMPLEXES HAVE BEEN TREATED AS CAPITAL ASSETS AND A CCORDINGLY, SURPLUS HAS TO BE TREATED AS CAPITAL GAIN. MOREOVER, THE ASSESSEE HAS ASSESSE D THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY FROM THE SAID COMPLEX FOR THE ASSESSMENT YEARS 2009-10 & 2010-11. THEREFORE, UNDER THE CIRCUMSTANCES, THE AO IS NOT JUSTIFIED IN TREATING THE SAID INCOME AS BUSINESS INCOME AND ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN TREATING THE SAID INCOME AS INCOME U NDER THE HEAD CAPITAL GAINS. 4.1. AS REGARDS THE COMPUTATION OF CAPITAL GAINS, T HE ASSESSEE HAS SUBMITTED A GIFT DEED OF THE LAND WHICH WAS ACQUIRED BEFORE 01.04.19081 ALONGWITH A CERTIFICATE OF THE REVENUE AUTHORITY, WHICH WAS FORWARDED TO THE AO FOR SUBMIT TING THE REMAND REPORT. THE SAME WAS SUBMITTED AND THE AO SUBMITTED A FRESH CERTIFI CATE FROM THE REVENUE AUTHORITY DATED 20.11.2013 SHOWING MARKET VALUE OF LAND AT RS. 6 LA CS PER KANAL AND THE ASSESSEE HAVING OWNED 2 KANAL 1 MARLA, THEREFORE, THE VALUE OF THE LAND AS ON 01.04.981 WAS REPORTED AT RS.12.30 LACS BY THE AO IN THE REMAND REPORT AND AC CORDINGLY COMPUTED THE CAPITAL GAIN AT RS.47,13,087/- INSTEAD OF BUSINESS INCOME AT RS. 67,52,981/-.. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) , WHICH IS A REASONED O RDER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, GROUND NO.1 OF THE REVENUE IS DISMI SSED. 5. AS REGARDS GROUND 2, THE BRIEF FACTS OF THE CAS E AS PER AOS ORDER AT PAGE 12 & 13, ARE REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 13. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAS REFLECTED DEPOSITS OF RS.35,99,100/- IN THE BALANCE SHEET. AT THE TIME OF ORIGINAL ASSESSMENT, THE THEN AO HAD ADDED ALL THE DEPOSITS TO THE TOTAL INCOME O F THE ASSESSEE, AS, AS PER AO THE ASSESSEE WAS NOT ABLE TO PROVE THE GENUINENESS OF THE DEPOSITS. THE ASSESSEE DURING THE REVISION PROCEEDING HAS CONTENDED THAT I T HAD GIVEN ALL THE DETAILS OF THE PERSONS FROM WHOM THE DEPOSITS WERE RECEIVED. HE FURTHER CONTENDED THAT THE AO ON HIS PART HAS NOT MADE ANY EFFORTS TO VERIFY T HE GENUINENESS OF THE DEPOSITS. THE CIT, JAMMU HAS SET ASIDE THE ADDITION ON THIS I SSUE. DURING THE FRESH ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO EITHER PRODUCE THE PARTIES FROM WHOM THE DEPOSITS HAVE BEEN RECEIVED OR TO FUR NISH THEIR COMPLETE POSTAL ITA NO. 166(ASR)/2014 7 ADDRESSES. THE ASSESSEE GAVE THE POSTAL ADDRESSES O F THE SAID PARTIES. LETTERS U/S 133(6) OF THE ACT WERE ISSUED TO ALL THE PARTIES ON 09.10.09 FOR CONFIRMATION OF THE DEPOSITS. IN ALL THERE ARE 12 PARTIES. THE NOTICES ISSUED TO THEM WERE RECEIVED BACK IN CASE OF THE FOLLOWING PARTIES:- S.NO. NAME AND ADDRESS 1. DR. SAMEENA FARHAT, R/O GOLE MARKET, KARAN NAGAR , SGR. 2. SH.FAROOQ AHMAD SHAH, R/O RAWALPORA, SANANT NAGA R, SGR. 3. SH. NAZIR AHMAD SHEIKH R/O BAGI MEHTAB, NEAR WAT ER TANK, SGR. 4. SH. JEELANI QADRI R/O SHIRAZ ROAD, SGAR. 5. SH. AFZAL BUCH, KADIPORA, ANANTNAG 6. M/S. NEW CHOICE CAR BAZAR C/O OPPOSITE LAKE CIT Y PLAZA MEAR GOLE MARKET, KARAN NAGAR. SGR. 7. SH. MUKHTIAR AHMAD R/O WAZIR BAGH, NEAR L.D.HOSP ITAL, SGR. SIMILARLY, IN CASE OF THE FOLLOWING FIVE REMAINING PARTIES NO REPLIES WERE RECEIVED. 1. SH. AJAZ HUSSAIN SAHAF R/O NEAR GOLE MARKET, KAR AN NAGAR, SGR. 2. SH. AMIR MALIK PEER BAGH, HYDERPORA, NEAR MOSQU E, SGR. 3. M/S. SMILE MARKET C/O KOKER BAZAR, SGR. 4. SH. SYED ATHAR QADARI R/O GOPALPORA KRALPORA, S GR. 5. SH.SYED RUFAID QADRI R/O GOPALPORA KRALPORA, SG R. IN VIEW OF THE ABOVE, THE ASSESSEE WAS REQIUESTED V IDE LETTER DATED 4.12.2009 TO PRODUCE ALL THE ABOVE PERSONS SO THAT THE CREDIT WO RTHINESS OF THE TRANSACTION AS WELL AS IDENTITY AND CAPACITY OF PARTIES FROM WHOM THE SECURITY DEPOSITS HAVE BEEN RECEIVED MAY BE VERIFIED, AS THE ONUS TO PROVE THE SAME LIES UPON THE ASSESSEE. IT WAS BEING INTIMATED THAT IN CASE OF FURTHER FAILURE ON PART OF THE ASSESSEE TO THE SAME, THE UNDERSIGNED WILL BE CONSTRAINED TO ADD T HE DEPOSITS ALLEGEDLY RECEIVED BY THE ASSESSEE FROM THE ABOVE MENTIONED PERSONS DU RING THE YEA, TO THE TOTAL INCOME AS DONE BY MY PREDECESSOR DURING THE ORIGINA L ASSESSMENT. IN RESPONSE TO THE SAME THE ASSESSEE EXPRESSED ITS INABILITY TO PRODUCE THE SAID PARTIES VIDE LETTER RECEIVED IN THIS OFFICE ON 14.1 2.09 THROUGH ITS COUNSEL SH. AB. RASHID DULLOO AND FURTHER THE ASSESSEE HAS PRODUCED THE COPIES OF RENT AGREEMENTS WITH THREE OF THE PARTIES IN ORDER TO PR OVE THE IDENTITY OF THE PERSONS FROM WHOM DEPOSITS HAVE BEEN RECEIVED. NO DETAILS HAVE BEEN FURNISHED WITH REGARD TO REMAINING 9 PARTIES. EVEN IN RESPECT OF T HREE PARTIES IN RESPECT OF WHICH THE RENT DEEDS HAVE BEEN FILED, THE ASSESSEE HAS TRIED TO PROVE THE IDENTITY OF THE PARTY BUT IN NO WAY IT CAN BE SAID THAT THE ASSESSEE HAS PROVED THE GENUINENESS OF THE TRANSACTION AND THE CAPACITY OF THE PERSONS WHO HAVE IT DEPOSITS TO THE ASSESSEE. THE COURTS VIDE VARIOUS J UDGMENTS HAVE HELD THAT THE ASSESSEE HAS PROVED THE FOLLOWING THREE CONDITIONS TO EXPLAIN THE DEPOSITS OR LOANS RECEIVED BY IT: A) IDENTITY OF THE DONOR B) CAPACITY OF THE DONOR ITA NO. 166(ASR)/2014 8 C) AND CREDITWORTHINESS OF THE TRANSACTION. BY NO STANDARDS IT CAN BE SAID THAT THE ASSESSEE HA S BEEN ABLE TO PROVE THE ABOVE THREE CONDITIONS REGARDING THE DEPOSITS RECEIVED FR OM ALL THE TWELVE PERSONS. IN VIEW OF THIS I LEFT WITH NO OTHER OPTION BUT TO HOL D THAT THE ASSESSEE HAS NOT ABLE TO EXPLAIN THE CREDITS ON ACCOUNT OF DEPOSITS IN TH E BOOKS OF ACCOUNTS. THEREFORE, AN AMOUNT OF RS.36,99,100/- IS ADDED TO THE TOTAL I NCOME OF ASSESSEE ON PROTECTIVE BASIS AS UNEXPLAINED CREDITS U/S 68 OF T HE ACT SUBJECT TO PENALTY U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PART ICULARS OF INCOME AND SUBSTANTIVE ADDITION IS PROPOSED IN THE HANDS OF DO NORS. 5.1. THE LD. CIT(A) DELETED THE SAID ADDITION OF RS.35, 99,110/- FOR THE REASONS WITH REGARD TO THE ADDITION OF RS.23,49,10 0/- WHICH RELATED TO THE PROTECTIVE ADDITION OF EIGHT PERSONS. ASSESSMENT WA S REOPENED U/S 147 OF THE ACT AND THE PARTIES HAVE CONFIRMED OF HAVING MADE THE PAYMENTS OF SECURITY DEPOSITS TO THE ASSESSEE. ACCORDINGLY, THE LD. CIT( A) DELETED THE ADDITION OF RS.23,49,100/-. WITH REGARD TO THE SECURITY DEPOSI TS OF RS.2.5 LACS FROM MR. NAZIAR AHMED SHEIKH, THE ASSESSEE HAD SUBMITTED THE IDENTITY OF THE PERSONS IN THE FORM OF RENT DEED DATED 26.11.2007 REGISTERE D WITH THE SUB REGISTRAR, SRINAGAR AND THE TRANSACTION HAVING BEEN PASSED THR OUGH BANK AND PURPOSE OF DEPOSIT IS ON RECORD, THE LD. CIT(A) ACCORDINGL Y DELETED THE ADDITION MADE BY THE AO ON PROTECTIVE BASIS. 6. AS REGARDS THE DEPOSITS OF RS. 10 LACS WHICH AS SESSEE, IN FACT, HAS NOT RECEIVED DURING THE YEAR, THE AO. GAVE DETAILS OF S UCH DEPOSITORS NAMELY, SH. SYED ATHAR QADRI, NEW CHOICE CAR BAZAR AND SMI LE MARKETING WHOSE ASSESSMENTS WERE NOT REOPENED SINCE THE TIME FOR INITIATION OF PROCEEDINGS ITA NO. 166(ASR)/2014 9 U/S 147 HAD ELAPSED. THE LD. CIT(A) DELETED THE A DDITION SINCE THE ASSESSEE HAD SUBMITTED IDENTITY, THE PURPOSE AND SOURCE OF P AYMENTS AND BECAUSE OF THE IN-ACTION OF THE AO TO INITIATE REASSESSMENT PR OCEEDINGS THE ADDITION CAN NOT BE MADE AND ACCORDINGLY, THE LD. CIT(A) DELETE D THE ADDITION OF RS.35,99,100/- IN TOTO. 6.1. THE LD. DR RELIED UPON THE ORDER OF THE ASSES SING OFFICER. 6.2. THE LD. COUNSEL FOR THE ASSESSEE, SH.JOGINDER SINGH, CA RELIED UPON THE SUBMISSIONS MADE BEFORE THE AO AND THE LD. CIT( A) AND THE DECISION OF THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IN THE PRESENT CASE, THE AO HAD MADE PROTECTIVE ADD ITION AND PROBABLY SUBSTANTIVE ADDITION IN THE HANDS OF THE PERSONS WH O HAD GIVEN THE DEPOSITS WITH THE ASSESSEE. THE AO MADE ADDITIONS WITH RESPE CT TO THE FOLLOWING 9 PERSONS: SL.NO. NAME 1. SH. AMIR MALIK 2. DR. SAMEENA FARHAT HAKAL 3. SH. AIJAZ HUSSAIN 4. SH. MUKHTAR AHMED 5. SH. FAROOQ AHMED SHAH 6. SH.SYED RUFAIDA QADRI 7. SG. JEELANI QADRI 8. SH. AFZAI BUCH 9. SH. NAZIR AHMAD SHEIKH 7.1. OUT OF THE SAID 9 PERSONS, 8 PERSONS HAVE CON FIRMED OF HAVING MADE DEPOSITS WITH THE ASSESSEE. ACCORDINGLY, THE SAID ADDITION WAS RECTIFIED AND ITA NO. 166(ASR)/2014 10 DELETED BY THE AO U/S 154 OF THE ACT. SINCE THE ADD ITION HAS BEEN DELETED BY THE AO U/S 154 OF THE ACT, THEREFORE, THE REVENUE I S NOT IN APPEAL BEFORE US WITH REGARD TO THE ADDITION OF RS.23,49,100/-. 8. AS REGARDS THE DEPOSIT BY SH. NAZIR AHMED SHEIKH , THE ASSESSEE HAS SUBMITTED A COPY OF THE RENT DEED AND HAS PROVED TH AT THE TRANSACTION HAS BEEN MADE THROUGH BANK AND THE PURPOSE OF DEPOSIT HAS ALSO BEEN PROVED. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION ON PROTECTIVE BASIS. 9. AS REGARDS THE DEPOSITS OF RS. 4 LACS, RS.4 LACS AND RS.2 LACS FROM SYED ATHAR QADARI, NEW CHOICE CAR BAZAR AND SMILE M ARKETING RESPECTIVELY TOTALING RS.10 LACS, IN FACT, WERE NOT RECEIVED DURING THE YEAR. THEREFORE, AT THE OUTSET, NO ADDITION U/S 68 OF THE ACT, CAN BE MADE DURING THE YEAR. THOUGH, THE LD. CIT(A) HAS OBSERVED THAT THE PROCEEDINGS U/S 147 OF THE ACT WERE NOT INITIATED AGAINST THE SAID PER SONS SINCE THE TIME FOR INITIATION OF PROCEEDINGS U/S 147 HAD ELAPSED. THER EFORE, IF PROCEEDINGS U/S 147 OF THE ACT, HAD NOT BEEN INITIATED AGAINST THE SAID PERSONS, THE ADDITION CANNOT BE SUSTAINED, ESPECIALLY WHEN THE ASSESSEE H AD BROUGHT ON RECORD IDENTITY, SOURCE AND CREDITWORTHINESS OF THE SAID P ERSONS AND HAS PROVED THAT THE PAYMENTS HAVE BEEN RECEIVED THROUGH BANKING CHA NNEL. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. ITA NO. 166(ASR)/2014 11 CIT(A), WHO HAS RIGHTLY DELETED THE ADDITIONS OF RS . 2,50,000/- AND RS.10,00,000/- TOTALING RS.12,50,000/- MADE ON PROT ECTIVE BASIS BY THE AO. THUS, GROUND NO.2 OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.166(ASR)/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19TH FEBRUARY, 2015. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19TH FEBRUARY, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. LAKE CITY PLAZA, KARAN BAZAR, SGR . 2. THE ITO WARD 3(2), SGR. 3. THE CIT(A), JAMMU. 4. THE CIT, JAMMU. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.