Shri V.Ramakrishnan, CHENNAI V. DCIT, CHENNAI

ITA 1684/CHNY/2009

• Counselvise Citation: 168421714 RSA 2009
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 23-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VENKATESH
• Keywords: Unexplained cash credit; Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. NO. 1684/MDS/2009 (ASSESSMENT YEAR : 2002-03) SHRI V. RAMAKRISHNAN, NEW NO.41, OLD NO.49, 5 TH CROSS STREET, TRUSTPURAM, KODAMBAKKAM, CHENNAI 600 024. PAN : AAAPR3927K (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI R. VENKATESH, C.A. RESPONDENT BY : SHRI ANI RUDH RAI, CIT-DR DATE OF HEARING : 11.08.2011 DATE OF PRONOUNCEMENT : 12.09.2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 20 02-03 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME TAX (APPEALS)-V, CHENNAI, DATED 20.3.2009. I.T.A. NO. 1684/MDS/09 2 2. THE ASSESSEE WAS THE CHAIRMAN AND MANAGING DIREC TOR OF M/S PENTAFOUR PRODUCTS LIMITED, AND ALSO A DIRECTOR IN M/S PENTAFOUR SOLEC TECHNOLOGY LIMITED. THE ASSESSEE, AS AN INDI VIDUAL, FILED RETURN OF INCOME (ROI) FOR ASSESSMENT YEAR 2002-03 ON 09.08.2002, DECLARING NIL INCOME. FROM THE PROFIT AND LOSS ACC OUNTS IN THE CASES OF M/S PENTAFOUR SOLEC TECHNOLOGY LIMITED AND M/S PENTAFOUR PRODUCTS LTD., IT WAS NOTICED BY A.O. THAT AN AMOUN T OF ` 9 LAKHS, IN EACH CASE, HAD BEEN DEBITED TOWARDS MANAGERIAL REMU NERATION PAYABLE TO THE ASSESSEE. AN AMOUNT OF ` 30,000/- WAS ALSO DEBITED TOWARDS DIRECTORS SITTING FEES IN THE CASE OF M/S PENTAFOUR PRODUCTS LIMITED AND ` 12,000/- IN THE CASE OF M/S PENTAFOUR SOLEC TECHNO LOGY LIMITED. WHEN THE ASSESSEE WAS SHOW-CAUSED AS TO W HY THESE AMOUNTS SHOULD NOT BE TREATED AS HIS SALARY IN HIS HANDS, HE DID NOT FILE ANY REPLY. BUT DURING ASSESSMENT PROCEEDINGS, OFT REPEATED SUBMISSION OF THE ASSESSEE WAS THAT THIS AMOUNT CAN NOT BE ADDED AS SALARY IN HIS HANDS BECAUSE HE HAD NOT DRAWN ANY SA LARY AS HAS BEEN ALLEGED. UNDISPUTEDLY, BOTH THE COMPANIES WE RE FOLLOWING MERCANTILE SYSTEM OF THEIR ACCOUNTING AND HAD CLAIM ED MANAGERIAL REMUNERATIONS IN THEIR RESPECTIVE P&L ACCOUNTS ON M ERCANTILE BASIS I.T.A. NO. 1684/MDS/09 3 ONLY. IT WAS ALSO NOTICED THAT SHRI V. RAMAKRISHNA N (THE PRESENT ASSESSEE) HAD SIGNED THE BALANCE SHEET OF M/S PENTA FOUR PRODUCTS LTD. AS ON 31 ST MARCH, 2002 IN THE CAPACITY OF CHAIRMAN AND MANAGING DIRECTOR ON 25.10.2002. THEREFORE, THE A. O. IN THESE CIRCUMSTANCES, HAS COME TO AN IRRESTIBLE CONCLUSION THAT THE ASSESSEE SHOULD HAVE OFFERED THE INCOME IN HIS INDI VIDUAL RETURN. WHEN AGAIN CONFRONTED, THE ASSESSEE DID NOT FURNISH ANY REPLY AND IGNORED THE QUERY RAISED BY THE A.O. THUS, THE A.O . HAS ASSESSED TOTAL OF ` 18,42,000/- AS INCOME OF THE ASSESSEE FOR THE ASSE SSMENT YEAR UNDER CONSIDERATION. FURTHER, AN AMOUNT OF ` 43,991/- WAS FOUND CREDITED IN THE ACCOUNT OF THE ASSESSEE IN KO DAMBAKKAM BRANCH OF SYNDICATE BANK AT CHENNAI. IN THIS CONNE CTION NOT ONLY THE ASSESSEE FILED PROPER REPLY BUT SHOWED HIS INABILIT Y TO EXPLAIN THESE CREDITS. CONSEQUENTLY, THIS AMOUNT WAS ALSO ADDED TO HIS INCOME AS UNEXPLAINED CREDIT. 3. AGGRIEVED, THE ASSESSEE ASSAILED THESE ADDITIONS BEFORE CIT(APPEALS), WHO HAS GIVEN SOME RELIEF BY DELETING ` 30,000/- BECAUSE HE HAS FOUND THAT THE SITTING FEES PROVIDED IN THE ACCOUNTS I.T.A. NO. 1684/MDS/09 4 OF THE COMPANY RELATED TO OTHER DIRECTORS AND NOT T HE ASSESSEE. BEING FURTHER AGGRIEVED, THIS SECOND APPEAL HAS BEE N FILED. 4. THE FIRST ISSUE RAISED IN THIS APPEAL IS REGARDI NG ADDITION OF ` 18 LAKHS AS SALARY INCOME FROM TWO COMPANIES CONTENDIN G THAT HE DID NOT RECEIVE ANY AMOUNT TOWARDS SALARY DURING THE RE LEVANT PERIOD EITHER FROM M/S PENTAFOUR PRODUCTS LIMITED, OR FROM M/S PENTAFOUR SOLEC TECHNOLOGY LTD. AND NOR HE HAD ANY RIGHT TO R ECEIVE THE SAME. TO SUBSTANTIATE THIS CLAIM, IT WAS ARGUED BY LEARNE D A.R. SHRI R. VENKATESH WITH REFERENCE TO GROUND NO.2.1, THAT LD. CIT(APPEALS) HAS IGNORED THE PUBLISHED ACCOUNTS ADOPTED BY THE GENER AL BODY OF M/S PENTAFOUR PRODUCTS LTD. IN WHICH IT WAS REPORTED TH AT NO REMUNERATION HAD BEEN PAID TO MANAGING DIRECTOR, I.E. THE ASSESS EE. IT WAS ARGUED THAT THE ASSESSEE WAS ONLY AN ORDINARY DIRECTOR IN M/S PENTAFOUR SOLEC TECHNOLOGY LTD. AND NO REMUNERATION WAS PAID TO HIM DURING THIS FINANCIAL YEAR OR IN ANY EARLIER YEAR. 5. PER CONTRA, LD. CIT-DR SHRI ANIRUDH RAI HAS SUPP ORTED THE FINDINGS OF THE LD. CIT(APPEALS) AND HAS FURTHER ST RENGTHENED HIS CONTENTION BY RELYING ON THE DECISION OF C BENCH OF ITAT, CHENNAI, I.T.A. NO. 1684/MDS/09 5 RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000 IN I.T.A. NO. 424/MDS/2004, VIDE ITS ORDER DATED 13 TH JUNE, 2008. IN THAT ORDER THE HON'BLE TRIBUNAL HAS COME TO A CONCLUSION THAT DURING THE FINANCIAL YEAR ENDED 31.03.1999, EVEN THOUGH THE SA LARY WAS NOT ACTUALLY PAID TO THE ASSESSEE BUT IT HAD ACCRUED TO HIM. THE LD. CIT(APPEALS) HAS RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF T.M. RAGUNATHAN V. CI T REPORTED IN 231 ITR 826, TO COME TO HIS CONCLUSION THAT WHEN SA LARY HAS ACCRUED TO THE ASSESSEE, THE FACT OF NOT ACTUALLY RECEIVED WOULD NOT MAKE ANY MATERIAL DIFFERENCE. HE HAS ANALYSED THIS ISSU E WITH REFERENCE TO VARIOUS OTHER DECISIONS AND HAS COME TO A CONCLUSIO N THAT WHERE INCOME HAD ACTUALLY ACCRUED TO THE DIRECTOR OR MANA GING DIRECTOR, NO WAIVER OF THE REMUNERATION, IN ANY MANNER, WOULD IM PINGE ON THE TAXABILITY OF THE SAID SUM. HE HAS OBSERVED THAT W HEN ONCE THE INCOME HAS ACCRUED, IT HAS TO BE TAXED UNDER THE AC T. HE HAS PARTICULARLY RELIED ON THE DECISION OF GUJARAT HIGH COURT, IN THE CASE OF CIT V. BACHUBAI NAGINDAS SHAH (1976) (104 ITR 551), IN WHICH ON SIMILAR FACT SAME VIEW HAS BEEN TAKEN. I.T.A. NO. 1684/MDS/09 6 6. AFTER COGITATING THE FACTS FROM BOTH SIDES, INCL UDING THE WRITTEN SUBMISSIONS FILED IN THE FORM OF GIST OF ARGUMENTS BY LEARNED A.R. SHRI R. VENKATESH VIS--VIS ORAL SUBMISSIONS, WE HA VE FOUND THAT THE DECISION BOTH OF THE A.O. AND LD. CIT(APPEALS) IS C ORRECT AS PER LAW. THEY HAVE CORRECTLY ADDED THE AMOUNTS OF SALARY IN THE ASSESSEES HANDS. EVEN WHEN THE SALARY HAS UNDISPUTEDLY ACCRU ED, BUT WAS NOT ACTUALLY RECEIVED BY THE ASSESSEE, THE AMOUNT OF ` 18 LAKHS ( ` 9 LAKHS IN EACH COMPANYS CASE) CANNOT BE SAID TO HAV E NOT BEEN EXCLUDED FROM ASSESSEES HANDS. WE DO NOT AGREE WI TH LEARNED A.R. WHEN HE SUBMITS THAT THE A.O. HAS NOT VERIFIED THE FACT REGARDING RECEIPT OF SALARY AND HAS COME TO A WRONG CONCLUSIO N. IN FACT, THE A.O. HAD GIVEN AMPLE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THIS FACT, BUT, THE ASSESSEE EITHER KEPT MUM OR SHOED HIS INAB ILITY TO EXPLAIN, OR THAT HE DID NOT AT ALL EXPLAIN THE SAME IN CORRECT PERSPECTIVE. MENTIONING OF THIS SALARY IN THE P&L ACCOUNT OF THE COMPANIES AND PARTICULARLY, WHEN THE STATEMENTS WERE SIGNED BY TH IS VERY ASSESSEE, IT CANNOT BE SAID TO BE A CASE OF NON-VERIFICATION BY ASSESSING OFFICER. WHEN THE COMPANIES ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE PAYMENT OF SALARY OF ` 9 LAKHS, IN EACH CASE, HAS BEEN SHOWN I.T.A. NO. 1684/MDS/09 7 ON ACCRUAL BASIS, UNLESS OTHERWISE PROVED BY THE AS SESSEE, IT CANNOT BE PRESUMED BY ANY STRETCH OF IMAGINATION THAT THE SALARY DID NOT ACCRUE TO THE ASSESSEE. THE PUBLISHED ACCOUNTS ADO PTED BY THE GENERAL BODY OF M/S PENTAFOUR PRODUCTS LTD., ONLY M ENTIONS THAT NO SALARY WAS ACTUALLY PAID TO THE ASSESSEE, BUT, IT I S NOT MENTIONED THAT THE SALARY EVEN ACCRUED TO THE ASSESSEE. WE DO NOT THINK THAT IT IS A CASE OF ARREARS OF SALARY ATTRACTING THE PROVISIONS OF SECTION 15(C) OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT). IN ANY CASE, THIS SALARY HAD ACCRUED TO THE ASSESSEE DURING THE RELEVANT PERIOD AND HAS TO BE TAXED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. FOR THE ASSESSMENT YEAR 1999-2000, THE TRIBUNAL, IN ASSESSE ES OWN CASE, HAS CONFIRMED THE TAXABILITY OF SIMILAR SALARY IN T HE ASSESSEES HANDS VIDE ITS ORDER DATED 13.6.2008 IN I.T.A. NO. 424/MD S/2004. WE ARE NOT CARRIED AWAY BY THE SUBMISSION PUT FORTH BY LEA RNED A.R. IN THAT DECISION, THE TRIBUNAL HAS MENTIONED THAT REMUNERAT ION/SALARY PROVIDED FOR IN THE ACCOUNTS OF THE COMPANY COULD N OT BE WAIVED. THE TERM WAIVER USED IN THE ORDER CARRIES DIFFERE NT CONNOTATION AND NOT AS THE LEARNED A.R. IS TRYING TO CONVEY BEFORE US. THE TRIBUNAL MAINTAINED THAT WHEN THE SALARY HAD ACCRUED AND THE ASSESSEE DID I.T.A. NO. 1684/MDS/09 8 NOT DESIRE TO TAKE THE SAME FOR WHATEVER REASON, IT HAS TO BE TAXED. A PLEA TAKEN BY LEARNED A.R. BEFORE US THAT SALARY CO ULD NOT BE PAID BECAUSE OF HEAVY LOSSES AND THIS HAS TO BE DEALT WI TH ON MERITS WITH REFERENCE TO SECTION 15(C) OF THE ACT WHEREUNDER AR REARS OF SALARY ARE DEALT WITH IS OF NO AVAIL. THERE IS NO QUESTION OF BLINDLY FOLLOWING THE EARLIER YEARS ORDER, RATHER WHEN THE FACTS REMAINI NG THE SAME, THE HON'BLE APEX COURT DEMANDS CONSISTENCY IN THE MATTE R. THE ISSUE WE HAVE TO DECIDE IS THAT OF FACTS AND NOT THAT OF LAW. SO, THE DECISION RENDERED BY HON'BLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT V. HI TECH ARAI LTD. REPORTED IN 321 ITR 477 AP PLIES HERE. THE OTHER DECISION OF THE TRIBUNAL WHICH WAS RENDERED I N SEARCH CASE, IN ASSESSEES OWN CASE, DATED 3 RD OCTOBER, 2008 IN I.T (SS) A. NO. 153/MDS/2003 IS OF NO HELP TO THE ASSESSEE BECAUSE APART FROM BEING SEARCH CASE IN WHICH ONLY UNDISCLOSED INCOME CAN BE ADDED, THE TAXABILITY OF COMMISSION NOT RECEIVED IS NOT ON THE SAME FOOTING. CONSEQUENTLY, WE CANNOT ALLOW THIS ISSUE AND DISMIS S THE SAME. 7. THE NEXT ISSUE OF THIS APPEAL IS REGARDING CONFI RMATION OF ADDITION OF ` 12,000/-, WHICH WAS ADDED ON ACCOUNT OF SITTING FE ES I.T.A. NO. 1684/MDS/09 9 BASED ON THE PROVISIONAL ACCOUNTS OF M/S PENTAFOUR SOLEC TECHNOLOGY LTD. 8. REGARDING THIS AMOUNT, AGAIN IT WAS ARGUED THAT THIS WAS NOT ACTUALLY RECEIVED. THE SITTING FEES WAS ALSO BASED ON ACCRUAL METHOD, BUT AS PER LEARNED A.R., THE ASSESSEE HAS B EEN FOLLOWING RECEIPT BASIS IN THE CASE OF SITTING FEES. IN FACT , THE NATURE OF THIS RECEIPT GOES WITH SALARY BECAUSE SITTING FEES ARE A CCRUED TO THE ASSESSEE IN ADDITION TO SALARY; AND IN VIEW OF PROV ISIONS OF SECTION 17(1)(IV) OF THE ACT, THIS IS TO BE TAXED AS PER TH E PROVISION RELATING TO SALARY ONLY. EVEN IF THE ASSESSEE DID NOT RECEIVE THIS FEES, THIS AMOUNT WOULD REPRESENT ONLY THE PROVISIONAL ACCOUNT S OF M/S PENTAFOUR SOLEC TECHNOLOGY LTD., AND THE SITTING FE ES HAS TO BE TAXED ON ACCRUAL BASIS ALONE. HENCE, WE DO NOT FIN D ANY INFIRMITY IN THIS FINDING OF THE LD. CIT(APPEALS) AS WELL. 9. REGARDING THE LAST ISSUE, WHICH IS IN RESPECT OF CONFIRMATION OF ADDITION OF ` 43,991/- ADDED ON ACCOUNT OF UNEXPLAINED CREDIT FO UND IN ASSESSEES BANK ACCOUNT, CANNOT BE DELETED BY US BECAUSE THE ASSESSEE HAD NOT GIVEN ANY PALPABLE EVIDENCE TO PRO VE THE SAME. I.T.A. NO. 1684/MDS/09 10 EVEN BEFORE CIT(APPEALS), NO EXPLANATION WAS OFFERE D SO IS THE CASE BEFORE US. CONSEQUENTLY, THIS ADDITION HAS TO BE S USTAINED. ACCORDINGLY, THIS APPEAL FAILS. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 12 TH SEPTEMBER, 2011. SD/- SD/- (DR. O.K. NARAYANAN) (HARI OM MARATHA) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 12 TH SEPTEMBER, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE