MIND SPACE HR CONSULTANTS, MUMBAI V. ITO 17(3)-3, MUMBAI

ITA 1711/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1343 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 16-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANILKUMAR MISHRA
• Keywords: Depreciation; Business expenditure
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI S V MEHROTRA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) MIND SPACE HR CONSULTANTS 14, NAVYUG T J ROAD, SEWREE MUMBAI-400015 PAN: AAGFM8907N .APPELLANT VS ITO 17(3)3 MUMBAI RESPONDENT APPELLANT BY : SHRI MR.NARESH JAIN RESPONDENT BY : SHRI ANIL KUMAR MISHRA O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 26.12.2008 OF CIT(A)-XXVII, MUMBAI FO R THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN DIN LAW, THE LEARNED THE LD. CIT(A) ERRED IN DISALLOWING THE VENUE CHARGES OF RS.1,40,683/-; ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DISALLOWING THE MOTOR CAR EXPENSES AND DEPRECIATION AS PERSONAL EXPENSE AT RS.42,711/-; 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DISALLOWING THE TELEPHONE EXPENSES AS PERSONAL EXPENSES AT RS.50,000/- 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN TREATING SHARE CAPITAL OF RS.16,25,166/- AS UNDISCLOSED INCOME AND ADDED U/S 68 OF THE IT ACT. 3. GROUND NO.1 IS REGARDING DISALLOWANCE OF VENUE CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O OBSERVED THAT THE ASSESSEE HAS CREDITED VENUE CHARG ES RECEIVED AT RS.1,38,680/- AGAINST VENUE CHARGES PAI D OF RS.2,79,323/-. THE ASSESSEE WAS ASKED TO EXPLAIN T HE DIFFERENCE IN THE VENUE CHARGES RECEIVED AND PAID. THE ASSESSEE FURNISHED THE LEDGER COPIES WITHOUT ANY DETAILS. THE AO MADE THE ADDITION OF RS.1,40,683/- BEING THE DIFFERENCE BETWEEN THE VENUE CHARGES RECEIVED AND V ENUE CHARGES PAID BY THE ASSESSEE 4. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ADDITIO N MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAS NOT COME FORWARD TO GIVE A PROPER EXPLANATION REGARDING THE VENUE CHARGES PAID AND RECEIVED. ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 3 5. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF RECRUITMENT AGENCY. THE ASSESSEE PAID THE RENTAL CHARGES FOR THE PREMIS ES TAKEN FOR CONDUCTING TRAINING AND INTERVIEWS ON BEHALF OF THE VARIOUS CLIENTS. MOST OF THE TIME, THE ASSESSEE CONDUCTS TH E INTERVIEW FOR MORE THAN ONE CLIENT, THEREFORE, THE ASSESSEE C HARGE CONSOLIDATED FEE AS PROFESSIONAL FEE FROM THE CLIEN TS AND DOES NOT CHARGE SEPARATELY FOR VENUE CHARGE AND OTHER FE ES. THIS IS THE REASON WHY THE VENUE CHARGES RECOVERED IS LE SSER THAN THE EXPENSES. HE FURTHER CONTENDED THAT THE RECOVER Y IS NOT DIRECTLY RELATING WITH THE EXPENDITURE INCURRED IN THE NORMAL COURSE OF BUSINESS WHICH ARE ALLOWABLE AS BUSINESS EXPENDITURE. HE HAS REFERRED THE PROFITS AND LOSS ACCOUNTS FOR THE FINANCIAL YEAR 2004-05 FOR THE YEARS ENDED ON 31.3.2004 AND 31.3.2005 AND SUBMITTED THAT WHEN THE ASSESSEE HAS DULY RECORDED THE REAL EXPENSES INCURRED BY THE ASSESSEE FOR HIRING THE VENUE THE THEN AMOUNT OF RECEIPT OF VENUE CHAR GES IS IRRELEVANT FOR ALLOWING THE EXPENSES INCURRED FOR THE BUSINESS OF THE ASSESSEE. HE HAS FURTHER CONTENDED THAT THE ASSESSEE HAS RECORDED ALL THE EXPENDITURES DULY IN THE BOOKS OF ACCOUNT AND WHEN THE BOOKS OF ACCOUNT WERE NOT REJECTED THE N THE BUSINESS EXPENDITURE OF THE ASSESSEE CANNOT BE DIS ALLOWED ON THE GROUND OF CONTRA RECEIPT IS LESS THAN THE EX PENDITURE. ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 4 6. ON THE OTHER HAND THE LEARNED DR HAS SUBMITT ED THAT THE ASSESSEE HAS NOT EXPLAINED PROPERLY AS TO HOW T HE PAYMENT ON ACCOUNT OF VENUE CHARGES IS MORE THAN T HE RECEIPT FROM THE CLIENT WHEN THE ASSESSEE DEBITED THE EXPENSES TO THE PROFIT AND LOSS ACCOUNT FOR A CERTA IN AMOUNT OF BEING VENUE CHARGES THEN THE ASSESSEE BEING A RECRU ITMENT AGENCY IS SUPPOSE TO RECOVER THE SAME AMOUNT FROM THE CLIENTS APART FROM HIS PROFESSIONAL FEE IN THE AB SENCE OF PROPER EXPLANATION THE LOWER AUTHORITIES ARE JUSTIF IED IN MAKING THE ADDITION ON THIS ACCOUNT. HE HAS RELIED UPON T HE ORDERS OF THE LOWER AUTHORITIES. 7 WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELEV ANT RECORD. THE AO HAS MADE THE ADDITION OF RS.1,40,6 83/- BEING THE DIFFERENCE BETWEEN THE VENUE CHARGES DEBITED BY THE ASSESSEE AND THE VENUE CHARGES CREDITED IN THE PR OFITS AND LOSS ACCOUNT. WHEN THE EXPENDITURE INCURRED BY TH E ASSESSEE IS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSE E THEN MERELY BECAUSE THE ASSESSEE HAS RECEIVED AND CREDI TLESS AMOUNT ON THIS ACCOUNT CANNOT BE A REASON FOR DISAL LOWANCE OF THE EXPENDITURES WHICH IS OTHERWISE NOT FOUND TO B E BOGUS. THE AO HAS NOT GIVEN ANY FINDINGS THAT THE EXPENDIT URE BOOKED BY THE ASSESSEE ON ACCOUNT OF VENUE CHARGES ARE BOGUS OR NOT ACTUALLY INCURRED BY THE ASSESSEE. TH E REASONS FOR THIS DISALLOWANCE WAS MERELY THE LESSER AMOUNT WAS ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 5 CREDITED IN THE PROFIT AND LOSS ACCOUNT. WHEN THE ASSESSEE HAS EXPLAINED THAT IN THE MAJORITY OF CASES, THE A SSESSEE IS CHARGING A CONSOLIDATED FEE BEING PROFESSIONAL F EES AND INCLUDING THE EXPENDITURE INCURRED THEN THERE IS N O RATIONAL IN COMPARING THE EXPENDITURE INCURRED ON HIRING OF VEN UE AND THE AMOUNT RECEIVED BY THE ASSESSEE ON THIS ACCOUNT. E VEN OTHERWISE WHEN THE EXPENDITURES AS WELL AS THE RECE IPT WERE DULY RECORDED IN THE BOOKS OF ACCOUNT THEN IN THE ABSENCE OF REJECTION OF THE BOOKS OF ACCOUNT THE SAID EXPENDIT URE CANNOT BE DISALLOWED. WE ARE OF THE VIEW THAT THE DISALL OWANCE MADE BY THE AO IS HIGHLY ARBITRARY AND ONLY ON THE BASIS OF CONJECTURE AND SURMISES. ACCORDINGLY, WE DELETE TH E ADDITION MADE ON ACCOUNT OF DIFFERENCE IN VENUE CHARGES. 8. GROUND NO.2 IS REGARDING DISALLOWANCE OF MOTOR C AR EXPENSES AND DEPRECIATION AS PERSONAL EXPENSES. 9. THE ASSESSEE CLAIMED RS.1,15,805/- AS MOTOR CAR EXPENSES AND RS.89,300/- AS MOTOR CAR DEPRECIATION AS WELL AS RS.6,758 AS CAR INSURANCE. THE ASSESSEE WAS NOT MAINTAINING ANY LOG BOOK IN RESPECT OF USE OF MOTOR CAR. THEREFORE, THE AO WAS OF THE VIEW THE PERSONAL USE OF THE MOTOR CAR CANNOT BE DENIED BY FOLLOWING THE DECISIO N IN THE CASES OF HARASHRAPUTHRA PLANTATION V/S STATE OF TN (1195) 215 ITR 111(MAD) AND VAIKUNDAM RUBBER CO. LTD V/S S TATE OF ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 6 TAMILNADU (1995) 202 ITR 589 (MAD). THEREFORE, THE AO TREATED 1/5 OF ABOVE EXPENSES AS PERSONAL EXPENSES AND DISALLOWED RS.42,711/-. 10. ON APPEAL. THE CIT(A) HAS CONFIRMED THE ADDITI ON MADE BY THE AO. 11. BEFORE US, THE LEARNED AR HAS CONTENTED THAT THE CAR WAS EXCLUSIVELY USED BY THE OFFICE STAFF AND PARTNE RSHIP FIRM. THEREFORE NO DISALLOWANCE IS CALLED FOR ON THIS ACC OUNT. 12. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTE D THAT WHEN THE ASSESSEE HAS FAILED TO DISCHARGE HIS ONUS OF PROVING ALL THE EXPENDITURES INCURRED FOR THE USE OF MOTOR CAR FOR THE BUSINESS PURPOSES THEN THE ADDITION MADE BY THE LO WER AUTHORITIES IS JUSTIFIED. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE DECISIONS RELIED U PON BY THE AO. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RE LEVANT RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS NOT MAINTAINING ANY LOG BOOK FOR THE USE OF MOTOR VEHIC LES. IN THE ABSENCE OF ANY RELEVANT RECORD, PERSONAL USE OF THE CAR CANNOT BE RULED OUT APART FROM THE USE FOR BUSINESS PURPOS E. WE ARE OF THE VIEW THAT THE DISALLOWANCE OF 1/5 OF TOTAL E XPENSES ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 7 MADE BY THE LOWER AUTHORITIES IS JUSTIFIED AN PROPE R IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS THE ASSESSEE FAILE D TO DISCHARGE ITS ONUS. IN VIEW OF THE DECISIONS IN TH E CASES OF HARASHRAPUTHRA PLANTATION V/S STATE OF TN AND V AIKUNDAM RUBBER CO. LTD V/S STATE OF TAMILNADU (SUPRA), WE FIND NO ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LE ARNED CIT(A). THE SAME IS UPHELD. 14. GROUND NO.3 IS REGARDING DISALLOWANCE OF TELEPH ONE EXPENSES AS PERSONAL EXPENSES. 15. THE ASSESSEE HAS CLAIMED TELEPHONE CHARGES AT RS.3,88,856/-. THE AO WAS OF THE VIEW THAT PERSO NAL USE OF TELEPHONE CANNOT BE RULED OUT, WHEN NO CALL REGISTE R WAS MAINTAIN TO BIFURCATE THE BUSINESS AND PERSONAL CAL LS. ACCORDINGLY, THE AO HAS DISALLOWED A SUM OF RS.50,0 00/- ON ESTIMATED BASIS AND ADDED THE SAME TO THE TOTAL INC OME OF HE ASSESSEE. 16. ON APPEAL, THE LEARNED CIT(A) HAS CONFIRMED TH E ADDITION MADE BY THE AO ON ACCOUNT OF TELEPHONE EXP ENSES. 17. BEFORE, US THE LEARNED AR HAS SUBMITTED THAT TH E AO HAS MADE ADHOC DISALLOWANCE BY ESTIMATING THE TELE PHONE EXPENSES ON PERSONAL USE, WHEREAS THERE WAS NO RECO RD OR ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 8 CIRCUMSTANCES, WHICH ESTABLISHES THAT THE TELEPHONE WAS USED FOR PERSONAL PURPOSES. HE HAS RELIED ON THE DECISI ON OF THE DELHI BENCH OF THE TRIBUNAL (SMC) IN THE CASE OF A GARWAL TRADING CO.V/S ITO REPORTED IN (2007) 111 TTJ (DE L) 589. 18. THE LEARNED DR HAS SUBMITTED THAT WHEN THE ASS ESSEE IS NOT MAINTAINING ANY CALL REGISTER, THE POSSIBILI TY OF PERSONAL USE OF TELEPHONE CANNOT BE RULED OUT. HE HAS RELI ED UPON THE ORDERS OF THE LOWER AUTHORITIES. 19. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RE LEVANT RECORD. WE NOTE THAT WHEN THE TELEPHONE IS NOT INS TALLED OUTSIDE THE OFFICE PREMISES THEN IT CANNOT BE ASSUM ED THAT THE SAME WAS USED FOR PERSONAL PURPOSE. THE AO HAS NO T GIVEN ANY FINDING THAT THE TELEPHONE WAS USED AT THE PLAC ES OTHER THAN THE OFFICE PREMISES. IT IS NOT A CASE LIKE M OTOR CAR WHICH CAN BE TAKEN AWAY AND USE FOR PERSONAL PURPOSE APA RT FROM BUSINESS. WHEN THE TELEPHONES ARE INSTALLED IN THE OFFICE PREMISES AND REMAINED AT THE OFFICE PREMISES THEN I N THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE TELEPHONE HAS BEEN USED FOR PERSONAL PURPOSES NO DISALLOWANCE CAN BE M ADE ON ADHOC ESTIMATION BASIS. WHEN THE AO HAS NOT FOUND THAT THERE IS ABNORMAL OR EXCESS EXPENDITURE THEN THERE IS NO REASON FOR EXPECTING OR DOUBTING THE USE OF TELEPHONE FOR PERS ONAL USE. ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 9 20. IN THE CASE OF AGARWAL TRADING CO.V/S ITO (SU PRA), THE TRIBUNAL VIDE PARAGRAPH 3 HAS HELD AS UNDER : 3. I HAVE HEARD RIVAL SUBMISSION SAID CIRCUMSPECTED THE ENTIRE EVIDENCE AVAILABLE ON RECORD. THERE SEEMS TO BE FORCE IN THE SUBMISSION OF LEARNED AUTHORIZED REPRESENTATIVE THAT ALL THE THREE TELEPHONES TOWARDS WHICH EXPENSES OF NRS.28,672/- HAS BEEN CLAIMED ARE INSTALLED AT THE BUSINESS PREMISES OF THE ASSESSEE AND THEREFORE, THERE IS NO QUESTION OF PERSONAL USER OF THE TELEPHONE. THE LEANED DR ON THE OTHER HAND AFTER SUPPORTING THE APPELLATE ORDER ALSO SUBMITTED THAT A NON BUSINESS USER OF THESE TELEPHONES CANNOT BE RULED OUT. THE CAREFUL PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE LEARNED AO HIMSELF HAS MENTIONED THAT ALL THESE THREE TELEPHONES WERE INSTALLED AT THE BUSINESS PREMISES OF THE ASSESSEE. THE DISALLOWANCE WAS IS SOLELY BASED ON PRESUMPTION ONLY. THERE IS NO EVIDENCE, EVEN TO A WHIT, TO SUBSTANTIATE THE FAT THAT THERE WAS NON- BUSINESS USER OF PHONES. THEREFORE, THERE IS NO JUSTIFICATION FOR MAKING A DISALLOWANCE EVEN A PART OF TELEPHONE EXPENSES EVER ON TOKEN BASIS, WITHOUT THERE BEING ANY CONTRARY EVIDENCE TO COME TO THE CONCLUSION THAT THE TELEPHONE MUST HAVE BEEN USED FOR NON-BUSINESS PURPOSES. THEREFORE, I ALLOW GROUND NO.1 OF THIS APPEAL AND ORDER TO DELETE THE ENTIRE ADDITION MADE IN THIS REGARD 21. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, AS WELL AS THE DECISION OF THE CO-ORDINATE B ENCH OF THE TRIBUNAL, WE DO NOT FIND ANY RATIONAL IN DISALLOWAN CE OF TELEPHONE EXPENSES ON ADHOC BASIS. THE SAME IS DE LETED. 22. GROUND NO.4 IS REGARDING THE ADDITION U/S 68 OF THE ACT TREATING THE SHARE CAPITAL OF PARTNERS AS UNDISCLOS ED INCOME OF FIRM. ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 10 23. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTED HUGE ADDITION TO THE CAPITAL OF THE PARTNERS . HE HAS NOTICED THAT IN THE CAPITAL OF PARTNER MS.NISHA A A GARWAL A SUM OF RS.14,75,000/- WAS ADDED DURING THE YEAR REL EVANT TO THE ASSESSMENT YEAR AND IN THE CASE OF SHRI HARVIN DER SINGH ARORA A SUM OF RS.1,50,1666 WAS ADDED. THE AO AS KED THE ASSESSEE TO EXPLAIN THE SOURCE OF ADDITION OF THE C APITAL OF THE PARTNERS AND THE ASSESSEE HAS NOT FURNISHED ANY EVI DENCE. THEREFORE, THE AO HAS TREATED THE CAPITAL INTRODUCE D IN THE FORM OF UNDISCLOSED INCOME OF THE ASSESSEE FIRM U/S 68 OF THE ACT. 24. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ADDITIO N MADE BY THE AO. 25. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS S UBMITTED THAT THE PARTNERS HAVE INTRODUCED A CAPITAL IN THEI R CAPITAL ACCOUNTS AND THE SAME CANNOT BE TREATED AS INCOME O F THE FIRM. HE HAS FURTHER CONTENDED THAT THE FIRM CANNO T BE ASKED TO PROVE THE SOURCES OF FUNDS INTRODUCED IN TO CAPI TAL BY THE PARTNERS. WHEN THE PARTNERS HAVE SIGNED THE ACCOUNT S INCLUDING, THE PROFIT AND LOSS ACCOUNT, BALANCE SHE ET THEN NO ADDITION CAN BE MADE IN THE HANDS OF THE FIRM ON TH IS ACCOUNT. HE HAS REFERRED INCOME TAX RETURNS OF THE PARTNER M S.NISHA A AGARWAL AND SHRI HARVINDER SINGH ARORA AT PAGES 29 AND 30 OF ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 11 THE PAPER BOOK AND SUBMITTED THAT PARTNERS HAVE SHO WN THE AMOUNT IN THEIR ACCOUNT AN PARTICULARLY IN THE BALA NCE-SHEET BEING CAPITAL BALANCE IN THE PARTNERSHIP FIRM THEN THE SAME CANNOT BE ADDED BEING UNDISCLOSED INCOME OF THE AS SESSEE FIRM. HE HAS RELIED UPON THE FOLLOWING DECISIONS : I) NARAYANDAS KEDARNATH V/S CIT -22 ITR 18 (BOM) II) BALBHADRA CHAND MUNNALAL V/S CIT -33 ITR 781 ( ALL) III) CIT V/S METACHEM IND. -161 CTR 444. 26. THE LD. DR HAS SUBMITTED THAT NO EVIDENCE OR D ETAILS HAVE BEEN SUBMITTED BY THE ASSESSEE BEFORE THE LOWE R AUTHORITIES TO SHOW THE SOURCE OF CAPITAL INTRODUCE D BY THE PARTNER. THIS IS A ON GOING BUSINESS OF THE ASSESS EE FIRM, THEREFORE, IT IS NOT INTRODUCTION OF CAPITAL AT THE COMMENCEMENT OF THE BUSINESS. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 27. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RE LEVANT RECORD. THE AO HAS MADE THE ADDITION ON THE GROUND THAT A SUBSTANTIAL AMOUNT HAS BEEN INTRODUCED IN THE CAPIT AL ACCOUNT OF THE PARTNERS DURING THE PERIOD RELEVANT TO THE A SSESSMENT YEAR AND THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO PROVE THE SOURCE OF SAID CAPITAL INTRODUCED. AS PO INTED OUT BY THE LEARNED AR WHEN THE PARTNERS HAVE ALREADY DISCL OSED THE INVESTMENT IN THE PARTNERSHIP FIRM IN THEIR RETURN OF INCOME ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 12 WHICH AVAILABLE WITH THE REVENUE THEN THE THERE IS NO JUSTIFICATION IN TREATING THE AMOUNT OF CREDITING I N THE CAPITAL OF THE PARTNERS AS INCOME OF THE FIRM. EVEN OTHERWISE , THE HON. JURISDICTIONAL HIGH COURT IN THE CASE OF NARAYANDAS KEDARNATH V/S CIT (SUPRA) HELD THAT THE AMOUNT STANDING TO TH E CREDIT OF SOME OF THE PARTNERS OF THE ASSESSEE FIRM CANNOT BE TREATED AS UNDISCLOSED INCOME OF THE FIRM ITSELF, WHERE THESE AMOUNTS DO NOT REPRESENT FICTITIOUS ENTRIES BUT THEY REPRESEN T ACTUAL CASH RECEIVED BY THE FIRM THOUGH SOME OF ITS PARTNERS.. SIMILARLY THE ALLAHABAD HIGH COURT IN THE CASE OF BALBHADRA CHAN D MUNNALAL V/S CIT (SUPRA) HAS HELD AS UNDER : WHEN ARGUING THIS QUESTION BEFORE US. MR.PATHAK HAS DRAWN OUR ATTENTION TO THE FINDING GIVEN BY THE TRIBUNAL IN THE APPELLATE ORDER TO THE EFFECT THAT THESE DEPOSITS OF RS.10,000/- AND RS.15,000/- APPEARED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE NAMES OF SMT.SHAKUNTALA AND BEHARI LAL. IN FACT, IT WAS MUNNA LAL, THE FINANCING PARTNER, WHO HAD ARRANGED FOR THESE SUMS OF MONEY. THE LANGUAGE USE IN THE APPELLATE ORDER IS THAT IN THE ACCOUNT YEAR IN QUESTION THE ASSESSEE FIRM STARTED ANOTHER BUSINESS STYLED AS GOPALJI GOVINDJI AND MUNNA LAL BEING AS 13A. SHAREHOLDER HAD TO ARRANGE FOR MAJOR PORTION OF THE CAPITAL REQUIRED F OR THIS BUSINESS. AFTER EXPRESSING THIS VIEW, THE TRIBUNAL PROCEEDED TO EXAMINE THE EXPLANATION WHICH WAS GIVEN BY THE REPRESENTATIVE OF THE ASSESSEE AT THE TIME OF HEARING OF HE APPEAL WITH REGARD TO THE SOURCES FROM WHICH MUNNA LAL HAD PROVIDED THIS MONEY. THIS METHOD OF PROCEEDING BY THE TRIBUNAL CLEARLY SHOWS THAT THE TRIBUNAL ACCEPT ED THE ASSESSEES CONTENTION THAT THIS MONEY WAS BROUGHT TO ACCOUNTS OF THE FIRM BY MUNNA LAL, THE FINANCING PARTNER. ONCE THAT EXPLANATION WAS ACCEPTED BY THE TRIBUNAL, WE FAILED TO SEE HOW ANY PAT OF THAT AMOUNT COULD BE HELD TO BE THE REVENUE ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 13 INCOME OF THE ASSESSEE FIRM. THE ACCEPTANCE OF THE PLEA THAT THE MONEY WAS BROUGHT IN BY MUNNA LAL INVOLVES IN IT A FINDING THAT MUNNA LAL WAS THE OWNER OF THIS ENTIRE MONEY SO THAT THE FIRM COULD N OT BE THE OWNER OF IT. IN THAT MONEY THE OTHER TWO PERSONS DEBI DAYAL AND DWARKA NATH HAD NO SHARE. IN THE CIRCUMSTANCES, THIS MONEY WHICH DID NOT BELONG TO THE FIRM COULD NOT BE HELD TO BE PROFITS BELONGING TO THE FIRM AND EARNED DURING THE YEAR IN QUESTION. IN THIS LIGHT OF THE MATTER, IT IS QUITE UNNECESSARY FOR US TO EXAMINE HOW FAR THE EXPLANATION OFFERED FOR THE SOURCES FROM WHICH MUNNA LAL OBTAINED THIS MONEY IS CORRECT. IN THE PROCEEDINGS FOR ASSESSMENT OF THE FIRM, THE AMOUNT CANNOT POSSIBLY BE TAKEN INTO ACCOUNT ONCE IT HAS BEEN HELD THAT THE MONEY BELONGED NOT TO THE FIRM BUT TO ONE OF THE PARTNERS, MUNNA LAL. CONSEQUENTLY , OUR ANSWER TO THE QUESTION REFERRED IS IN THE NEGATIVE. 28. IN THE CASE OF CIT V/S METACHEM IND., THE MADH YA PRADESH HIGH COURT HAS HELD AS UNDER: 5. SO FAR AS THE RESPONSIBILITY OF THE ASSESSEE IS CONCERNED, IT IS SATISFACTORILY DISCHARGED. WHETHER THAT PERSON IS INCOME TAX PAYER OR NOT OR FROM WHER E HE HAS BROUGHT THIS MONEY IS NOT THE RESPONSIBILITY OF THE FIRM. THE MOMENT THAT FIRM GIVES SATISFACTO RY EXPLANATION AND PRODUCES THE PERSON WHO HAS DEPOSITED THE AMOUNT, THEN THE BURDEN OF THE FIRM I S DISCHARGED AND IN THAT CASE THAT CREDIT ENTRY CANNO T BE TREATED TO BE INCOME OF THE FIRM FOR HE PURPOSES OF INCOME-TAX. IT IS OPEN FOR THE AO TO TAKE APPROPRIATE ACTION U/S 69 O THE ACT AGAINST THE PERSON WHO HAS NOT BEEN ABLE TO EXPLAIN THE INVESTMENT. IN THE PRESENT CASE, THERE IS THE CONCURRENT FINDING OF BOTH THE CIT(A) AS WELL AS OF THE TRIBUNAL THAT THE FIRM HAS SATISFACTORILY EXPLA INED THE AFORESAID ENTRIES ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 14 29. FROM THE ABOVE DECISIONS, IT IS CLEAR THAT ONCE THE AMOUNT RECEIVED BY THE FIRM HAS BEEN DULY RECORDED BEING A CAPITAL INTRODUCED BY THE PARTNERS THEN THE ASSESSE E HAS DISCHARGED ITS ONUS OF PROVING THE SOURCE AND THER EFORE, THE SAME CANNOT BE TREATED AS UNDISCLOSED INCOME OF TH E ASSESSEE. IN VIEW OF THE ABOVE DISCUSSIONS, (SUPRA ) WE ARE OF THE CONSIDERED OPINION THE ADDITION MADE ON ACCOUNT OF CAPITAL INTRODUCED BY THE PARTNERS IS NOT JUSTIFIED IN THE HANDS OF THE ASSESSEES. ACCORDINGLY, WE DELETE THE ADDITION. 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24.06.2010 S D SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24TH JUNE 2010 SRL:14510 ITA NO. 1711/MUM/2009 (ASSESSMENT YEAR: 2004-05) 15 COPY TO: 1. MIND SPACE HR CONSULTANTS 14, NAVYUG T J ROAD, SEWREE MUMBAI-400015 2. ITO 17(3)3 MUMBAI 3. CIT-CITY-17, MUMBAI 4. CIT(A)-XXVII, MUMBAI 5. DR B BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI DATE INITIALS 1. DRAFT DICTATED ON 30.4.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 14.5.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER VP 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM 5. APPROVED DRAFT COMES TO THE SR. PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER