The ITO, Ward-2(3), Surat V. M/s. Ramdev Textiles, Surat

ITA 1708/AHD/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6893 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R N VEPARI
• Keywords: Unexplained cash credit; Source of fund
• Section: 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND A.K. GARODIA, A.M . INCOME-TAX OFFICER, WARD 2(3), SURAT. M/S RAMDEV TEXTILES, 437, SMC SHOPPING CENTRE, RING ROAD, SURAT. APPELLANT VS. RESPONDENT APPELLANT BY :- SHRI SAMIR TEKRIWAL, SR.DR RESPONDENT BY:- SHRI R. N. VEPARI, AR O R D E R DATE OF HEARING 24/8/2011. DATE OF PRONOUNCEMENT -24/8/2011. PER D.K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-II, SURAT, DATED 19.02.2009. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-II, SURAT HAS ERRED IN DELETING THE ADDI TION OF RS.10,23,711/- MADE BY AO ON ACCOUNT OF UNEXPLAINED CREDITS INTRODUCED IN THE ACCOUNTS OF THE PARTNERS HOLDING THAT UNEXPLAINED CREDITS IF ANY IN THE ACCOUNTS OF PARTN ERS CAN BE TAXED IN THE HANDS OF INDIVIDUAL CASES OF PARTNERS AND NOT IN THE HANDS OF THE FIRM. ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 2 (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-II, SURAT HAS ERRED IN DELETING THE DISA LLOWANCES MADE BY AO OF RS.77,313/- AND RS.5,837/- FOR WANT O F CHECK IN RESPECT OF EXPENSES CLAIMED UNDER THE HEAD MILLGIN PURCHASES, MACHINERY REPAIRS, POWER AND FUEL, CONVEYANCE AND M ISC. EXPENSES. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF GREY CLOTH. IT FILED ITS RETURN OF INCOME ON 06.08.2005 DECLARING TOTAL INCOME OF RS.38,710/-. THE ASSESSMENT WAS FINALIZED U/S 143(3 ) OF THE ACT ON A TOTAL INCOME OF RS.11,45,570/- AFTER MAKING FOLLOWING ADD ITIONS/DISALLOWANCES TO THE TOTAL INCOME OF THE ASSESSEE: (I) RS. 10,23,711/- ADDITION ON ACCOUNT OF UNEXPLAI NED CASH CREDITS U/S 68 OF THE ACT. (II) RS.77,313/- DISALLOWANCE OUT OF EXPENSES CLAIM ED UNDER THE HEAD MILGIN PURCHASES, MACHINERY REPAIRS, POWER AND FUELD ETC. (III) RS.5,837/- DISALLOWANCE OUT OF VEHICLE EXPENS ES, MISC. EXPENSES AND GENERAL EXPENSES. 3. THE FIRST GROUND RELATES TO DELETION OF ADDITION OF RS.10,23,711/- MADE BY AO ON ACCOUNT OF UNEXPLAINED CREDITS INTROD UCTION OF CAPITAL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE PARTNERS OF THE ASSESSEE FIRM HAD INTRODUCED CAPITA L TO THE EXTENT OF RS.10,23,711/-. THE AO FURTHER FOUND THAT SMT. ANJU BEN P. DESAI AND SMT. PRABHABEN V. KOTDIA HAD INTRODUCED THEIR CAPIT AL IN CASH. IN THE RETURN OF INCOME, BOTH THE LADIES HAD SHOWN THEIR S OURCE OF INCOME FROM EMBROIDERY AND STITCHING. SIMILARLY SHRI VALAMBHAI K. KOTDIA AND SHRI PURSHOTTAMBHAI P. DESAI HAD VERY MEAGER SOURCES OF INCOME AND WHO HAD ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 3 INTRODUCED THE CAPITAL BY TAKING UNSECURED LOANS BE LOW RS.20,000/- IN CASH. THE AO ASKED THE ASSESSEE TO PRODUCE ALL THE PARTNERS FOR VERIFICATION ALONG WITH THEIR BANK PASS BOOK, DETAI LS OF PROPERTY HELD BY THEM, DETAILS OF INVESTMENTS AND DETAILS OF LOANS G IVEN AND TAKEN. ACCORDING TO THE AO THE ASSESSEE FAILED TO EITHER P RODUCE THE CREDITORS OR THE DOCUMENTARY EVIDENCES. THE AO THEN ISSUED A DET AILED SHOW-CAUSE NOTICE WHICH HAS BEEN REPRODUCED IN PARA 3(IV) OF T HE ASSESSMENT ORDER. EVEN IN RESPONSE TO SHOW CAUSE NOTICE, NO BODY APPE ARED, NOR WAS ANY WRITTEN SUBMISSION FURNISHED. THE AO THEREFORE, CON CLUDED THAT SUCH CAPITAL STOOD UNEXPLAINED IN TERMS OF SEC.68 OF THE IT ACT AND ADDED THE SAID SUM TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A ) WHEREIN THROUGH WRITTEN SUBMISSION IT WAS SUBMITTED THAT ALL THE PA RTNERS ARE SEPARATELY ASSESSED TO TAX AND THEIR COMPUTATION OF INCOME HAD BEEN DULY FURNISHED BEFORE THE AO. IN THE CASE OF DEVCHANDBHAI M. PILRA WHO HAD SINCE RETIRED FROM THE FIRM, NO DETAIL COULD BE OBTAINED. THE ASSESSEE ALSO PLACED RELIANCE ON SEVERAL CASE LAWS. THE LD. CIT( A) AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASS ESSEE DELETED THE ADDITION OF RS.10,23,711/- WITH THE FOLLOWING OBSER VATION :- 5. I FULLY AGREE WITH THE CONTENTIONS OF THE AR. W HERE THE CAPITAL HAD BEEN INTRODUCED BY THE PARTNERS, NO ADDITION COULD BE MADE IN THE HANDS OF THE FIRM, ESPECIALLY WHEN FOUR OF THE FIVE PARTN ERS WERE ASSESSED TO TAX ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 4 IN SURAT. THERE ARE ANY NUMBER OF CASES DECIDED BY THE HONBLE COURTS AND TRIBUNALS ON THIS ISSUE, MOST OF WHICH HAVE BEE N CITED BY THE AR. THE AO WILL DO WELL TO INTIMATE THE CONCERNED AO OF THE PARTNERS SO THAT THE MATTER COULD BE TAKEN UP IN THEIR RESPECTIVE CA SES, TO ASCERTAIN THE SOURCE OF FUNDS WHICH THEY HAD INTRODUCED IN THE AS SESSEE FIRM. IN THE MEANTIME, THE ADDITION OF THE SUM OF RS.10,23,711/- WILL STAND DELETED. AGGRIEVED WITH THIS ORDER OF THE LD. CIT(A), THE RE VENUE IS IN APPEAL BEFORE US. 5. THE LD. DR MAINLY RELIED ON THE ORDER OF AO AND ALSO PLACED RELIANCE ON THE DECISION OF HON. RAJASTHAN HIGH COU RT IN THE CASE OF CIT VS. KISHORILAL SANTHOSHILAL (1995) 216 ITR 9 (RAJ) AND CONTENDED THAT IN VIEW OF THIS DECISION THE LD. CIT(A) WAS NOT JUSTIF IED IN DELETING THE ADDITION. ACCORDINGLY HIS ORDER MAY BE SET ASIDE AN D THAT OF THE AO BE RESTORED. 6. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDE R OF LD. CIT(A) AND SUBMITTED THAT THE ISSUE IS NOW COVERED BY THE DECI SION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PA NKAJ DYESTUFF INDUSTRIES IN IT REFERENCE NO.241 OF 1993 DATED 06/ 07/2005. (COPY OF JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IS PLACE D ON RECORD). HENCE HE SUBMITTED THAT THE ISSUE MAY BE DECIDED IN FAVOU R OF ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE AGREE WITH THE SUBMISSIONS OF LD. AR THAT THE ISSUE IS NOW COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COU RT IN THE CASE OF CIT ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 5 VS. PANKAJ DYESTUFF INDUSTRIES (SUPRA) WHEREIN THE OBSERVATIONS ARE AS UNDER :- 13. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS APPARENT THAT THE ASSESSEE HAD FURNISHE D THE DETAILS WHICH WOULD DISCHARGE THE ONUS WHICH LAY ON THE ASS ESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE PARTNERS OF THE AS SESSEE FIRM ARE FICTITIOUS. THE INCOME TAX OFFICER HAS NOT DISPUTED THAT THE CREDITS IN THE ACCOUNTS OF THE PARTNERS WERE NOT DEPOSITS F ROM THE PARTNERS. MOREOVER, IT IS AN ADMITTED POSITION THAT THIS WAS THE SECOND YEAR OF THE FIRM, AND THAT IT WAS RUNNING IN LOSS. IT IS TRUE THAT THE INCOME TAX OFFICER DID NOT ACCEPT THE EXPLANATION G IVEN ON BEHALF OF THE ASSESSEE IN RESPECT OF THE NEW DEPOSITS OR C ASH CREDITS IN THE ACCOUNTS OF THE PARTNERS. THE MERE NON-ACCEPTANCE O F THAT EXPLANATION DOES NOT, HOWEVER, PROVIDE MATERIAL FOR FINDING THAT THE SAID SUM REPRESENTED INCOME OF THE ASSESSEE FIR M,. AS HELD BY THE ALLAHABAD HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME TAX ALLAHABAD VS. JAISWAL MOTOR FINANCE (SUPRA), IN THE ABSENCE OF ANY MATERIAL TO INDICATE THAT THERE WERE PROFITS OF THE FIRM, THE AMOUNT CREDITED TO THE PARTNERS ACCOUNTS COULD NOT BE ASSESSED IN THE HANDS OF THE FIRM. ONCE THE PARTNERS HAVE OWNED THAT THE MONIES DEPOSITED IN THEIR ACCOUNTS ARE THEIR OWN, T HE INCOME TAX OFFICER IS ENTITLED TO AND MAY PROCEED AGAINST THE PARTNERS AND ASSESS THE SAME IN THEIR HANDS, IF THEIR EXPLANATIO N IS NOT FOUND SATISFACTORY. 14. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, BOTH THE DEPUTY CIT(APPEALS) AND THE TRIBUNAL HAVE FOUND THA T THE ASSESSEE HAD DISCHARGED THE PRIMARY ONUS WHICH WAS ON IT BY OFFERING EXPLANATION, WHICH HAS NOT BEEN FOUND TO B E INCORRECT OR FALSE IN ANY MANNER. THE INTEREST OF THE REVENUE IS ALSO SAFEGUARDED AS THE INCOME-TAX OFFICER HAS BEEN GIVE N THE LIBERTY TO CONSIDER THE SAID CREDITS IN THE HANDS OF THE PA RTNERS IF HE IS NOT SATISFIED WITH THE SOURCES OF INVESTMENT OF CASH CR EDITS IN THE ACCOUNTS OF THE PARTNERS. 15. IN THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO F IND THAT THE ORDER OF THE TRIBUNAL SUFFERS FROM ANY INFIRMITY WH ICH WOULD REQUIRE INTERFERENCE AT THE HANDS OF THIS COURT. AC CORDINGLY, IT IS HELD THAT THE TRIBUNAL WAS RIGHT IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.87,250/- BEING DEPOSITS IN THE ACCOU NTS OF THE PARTNERS. THE QUESTION REFERRED TO THIS COURT IS, A CCORDINGLY, ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 6 ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE JU RISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A) . ACCORDINGLY, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 8. THE NEXT GROUND RELATES TO DISALLOWANCE OF 10% O UT OF MILLGIN PURCHASES, WAGES, MACHINERY REPAIRS AND POWER AND F UEL AMOUNTING TO RS.77,313/- AND DISALLOWANCE OF 20% OUT OF CONVEYAN CE, MISC. AND GENERAL EXPENSES AS WELL AS STAFF WELFARE EXPENSES AMOUNTING TO RS.5,837/-. 9. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A ) WHEREIN IT WAS SUBMITTED THAT BOTH THE EXPENSES WERE GENUINELY INC URRED FOR THE PURPOSE OF BUSINESS AND WERE VERY REASONABLE WHEN COMPARED TO THE TURNOVER OF THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HE HAS DELETED THE ADDITIONS OF 10% OUT OF MILLGIN PURCHAS ES, WAGES, MACHINERY REPAIRS AND POWER AND FUEL AMOUNTING TO RS.77,313/- AND DISALLOWANCE OF 20% OUT OF CONVEYANCE, MISC. AND GENERAL EXPENSES A S WELL AS STAFF WELFARE EXPENSES AMOUNTING TO RS.5,837/-. 10. BEFORE US THE LD. DR RELIED ON THE ORDER OF AO AND SUBMITTED THAT SINCE THE ASSESSEE FAILED TO FURNISH ANY SATISFACTO RY EXPLANATION, THE AO ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 7 HAD RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. T HE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. THE ORDER OF THE AO MAY BE RESTORED. 11. ON THE OTHER HAND, THE LD. AR FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT HE HAS RIGHTLY DE LETED THE ADDITIONS MADE BY THE AO. THE ORDER OF THE LD. CIT(A) MAY BE UPHELD. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RECORD, WE FIND THAT THE AO HAD DISALLOWED THE EXPENSES SINCE THE ASSESSEE COULD NOT FURNISH SATISFACTORY EXPLANATION. HOWEVER, THE DISA LLOWANCES WERE ON THE HIGHER SIDE. IN OUR CONSIDERED VIEW IT WILL MEET TH E END OF JUSTICE, IF THE DISALLOWANCES ARE RESTRICTED TO 5% OUT OF MILLGIN P URCHASES, WAGES, MACHINERY REPAIRS AND POWER AND FUEL EXPENSES AND 1 0% OUT OF CONVEYANCE, MISC. AND GENERAL EXPENSES AS WELL AS S TAFF WELFARE EXPENSES. THE AO IS DIRECTED TO PASS A FRESH ORDER AFTER RECA LCULATING THE DISALLOWANCES AS PER OUR ABOVE FINDINGS. THIS GROUN D OF REVENUE IS PARTLY ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 24/8/2011. SD/- SD/- (A. K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 24.8.11. ITA NO.1708/AHD/2009 ASST. YEAR 2005-06 8 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 25/8/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 26/8/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..