Deputy Commissioner Of Income Tax circle -1, KalBuragi V. Sri Chidanandappa , Yadgir

ITA 1718/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3866 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 22-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Source of fund; Onus to prove
• Section: 22; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT A NO. 1718/B ANG / 20 18 ASSESSMENT YEAR: 2014 - 15 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KALABURAGI. VS. SHRI CHIDANANDAPPA H.NO. 5-5-272, VIVEKANAND COLONY, HYDERABAD ROAD, YADGIR. KARNATAKA-585 202 PAN: AFB P C 9834Q APPELLANT RESPONDENT APPELLANT BY : SHRI P RIYADARSHI MISHRA, JT.CIT(DR)(ITAT), BENGALURU. RESPONDENT BY : SHRI NA RENDRA SHARMA, CA DATE OF HEARING : 22 . 1 0.2020 DATE OF PRONOUNCEMENT : 02 . 1 1 .2020 O R D E R PER B R BASKARAN, ACCOUNTANT MEMBER THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 23-03-2018 PASSED BY LD CIT(A), KALABURAGI AND IT R ELATES TO THE ASSESSMENT YEAR 2014-15. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN DELETING THE ADDITION OF RS.1,60,00 ,000/- MADE BY THE AO U/S 68 OF THE ACT. 2. THE FACTS RELATING TO THE ISSUE ARE DISCUSSE D IN BRIEF. THE AO NOTICED THAT THE ASSESSEE HAS INTRODUCED A SUM OF R S.1.60 CRORES IN HIS CAPITAL ACCOUNT. THE ASSESSEE EXPLAINED THAT H E IS A PARTNER IN A PARTNERSHIP FIRM NAMED M/S SHRI BANADESHWAR CONS TRUCTIONS ITA NO. 1718/BANG/2018 PAGE 2 OF 8 AND HE HAS WITHDRAWN MONEY FROM THE ABOVE SAID FIRM AND INTRODUCED THE SAME IN HIS CAPITAL ACCOUNT. 3. THE AO EXAMINED THE DETAILS OF THE PARTNERSHI P CONCERN, REFERRED ABOVE. IT CONSISTED OF NINE PARTNERS INCL UDING THE ASSESSEE. REMAINING EIGHT PARTNERS ARE FARMERS, WHO HAD SOLD LANDS EARLIER TO M/S KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD (KI ADB). THEY HAD RECEIVED COMPENSATION FROM THE ABOVE SAID GOVER NMENT BODY AND HAVE INTRODUCED THE SAME AS THEIR RESPECTIVE CA PITAL IN THE PARTNERSHIP FIRM. THE ASSESSEE ALSO FURNISHED EVIDE NCES IN SUPPORT OF RECEIPT OF COMPENSATION BY THE OTHER PARTNERS. THE AO NOTICED THAT THE FARMERS HAVE WITHDRAWN MONEY FROM THEIR RE SPECTIVE BANK ACCOUNTS FROM OCTOBER, 2012 ONWARDS. THE PARTNERSH IP FIRM WAS FORMED ON 05-04-2013 AND THE WITHDRAWALS WERE CLAIM ED TO HAVE BEEN INTRODUCED AS THEIR RESPECTIVE CAPITAL. THE A O NOTICED THAT PARTNERSHIP FIRM DID NOT HAVE ANY OTHER ASSETS. TH E CAPITAL INTRODUCED BY THE OTHER PARTNERS HAS BEEN WITHDRAWN BY THE ASSESSEE. THE AO TOOK THE VIEW THAT THE ASSESSEE H AS FAILED TO PROVE THAT THE AMOUNT WITHDRAWN BY THE FARMERS FROM THEIR RESPECTIVE BANK ACCOUNTS ONLY HAVE BEEN INVESTED IN THE PARTNERSHIP FIRM, SINCE THE FARMERS DID NOT MAINTAI N BOOKS OF ACCOUNTS. HE ALSO TOOK THE VIEW THAT THE PARTNERSH IP FIRM FORMED BY THE ASSESSEE IS A COLOURABLE ENTITY CREATED TO L EGITIMATE THE INTRODUCTION OF CAPITAL IN CASH IN BOOKS OF ACCOUNT S. FURTHER, ALL THE TRANSACTIONS HAVE BEEN CARRIED BY WAY OF CASH. HENCE THE AO TOOK THE VIEW THAT THE GENUINENESS OF TRANSACTIONS HAS NOT BEEN PROVED. ACCORDINGLY, HE TOOK THE VIEW THAT THE ASS ESSEE HAS FAILED TO PROVE THE CAPITAL INTRODUCED BY HIM IN HIS CAPIT AL ACCOUNT AND ACCORDINGLY ADDED THE SUM OF RS.1.60 CRORES TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED CREDIT U/S 68 OF THE AC T. ITA NO. 1718/BANG/2018 PAGE 3 OF 8 4. THE LD CIT(A) DELETED THE SAME AND HENCE THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. THE LD D.R SUBMITTED THAT THE ASSESSEE HAS SU BMITTED THAT THE SOURCE FOR THE ADDITIONAL CAPITAL INTRODUCED IN HIS CAPITAL ACCOUNT IS THE MONEY WITHDRAWN FROM THE PARTNERSHIP FIRM. HOW EVER, THE AO HAS EXPRESSED THE VIEW THAT THE ASSESSEE HAS ADOPTE D COLOURABLE DEVICE OF FORMING A PARTNERSHIP FIRM AND THROUGH TH E FIRM, HE HAS WITHDRAWN MONEY FROM HIS CAPITAL ACCOUNT. THERE IS A TIME GAP OF ABOUT SIX MONTHS FROM THE DATE OF WITHDRAWAL OF FUN DS BY THE OTHER PARTNERS FROM THEIR RESPECTIVE BANK ACCOUNTS AND IN TRODUCTION OF AMOUNT AS CAPITAL IN THE PARTNERSHIP FIRM. HOWEVER , THE SAID PARTNERS HAVE NOT MAINTAINED BOOKS OF ACCOUNTS AND HENCE THEY COULD NOT CONCLUSIVELY PROVE THAT THE AMOUNT WITHDR AWN BY THEM FROM BANK ACCOUNT WAS ONLY INTRODUCED AS CAPITAL. HE SUBMITTED THAT THE CLAIM OF THE ASSESSEE FAILS THE TEST OF HU MAN PROBABILITIES AND ACCORDINGLY THE CONTENTION OF THE ASSESSEE SHOU LD BE REJECTED. THE LD A.R PLACED HIS RELIANCE ON THE DECISION REND ERED BY HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL (214 ITR 801) AND IN THE CASE OF MUSSADILAL RAM BHAROSE 1987 AIR 814, 1987 SCR (2) 67. HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS DE LETED THE ADDITION BY PLACING RELIANCE ON THE DECISIONS RENDE RED BY HONBLE KARNATAKA HIGH COURT IN THE CASES OF P PADMAVATHI ( ITA NO.414/2009 DATED 06-10-2010 AND S.R.VENKATA RATNAM VS. CIT (127 ITR 807). HE SUBMITTED THAT THE FACTS PREVAIL ING IN THE ABOVE SAID CASES ARE DIFFERENT AND HENCE THE LD CIT(A) WA S NOT CORRECT IN TAKING SUPPORT OF THOSE TWO CASES. 6. THE LD A.R, ON THE CONTRARY, SUBMITTED THAT THE PRINCIPLE LAID DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF P. PADMAVATHI (SUPRA) AND S.R VENKATA RATNAM (SUPRA) W AS FOLLOWED ITA NO. 1718/BANG/2018 PAGE 4 OF 8 BY LD CIT(A). THE LD A.R SUBMITTED THAT THE ASSESS EE HAS EXPLAINED THE SOURCE OF THE CAPITAL INTRODUCED BY H IM TO BE THE MONEY WITHDRAWN FROM THE PARTNERSHIP FIRM, WHEREIN THE ASSESSEE IS A PARTNER. THE AO HAS EXAMINED THE PARTNERSHIP FIRM AND HAS ACCEPTED THE FACT THAT IT WAS HAVING ENOUGH MONEY, WHICH WAS WITHDRAWN BY THE ASSESSEE HEREIN. HOWEVER, THE AO HAS TAKEN THE VIEW THAT THE PARTNERSHIP FIRM ITSELF IS A COLOURAB LE DEVICE, SINCE THERE WAS A TIME GAP OF ABOUT SIX MONTHS BETWEEN TH E DATE OF WITHDRAWAL OF FUNDS BY OTHER PARTNERS FROM THEIR RE SPECTIVE BANK ACCOUNTS AND THE DATE OF INVESTMENT IN THE PARTNERS HIP FIRM. HE SUBMITTED THAT IT IS MERE A SURMISE BY THE AO UNSUB STANTIATED BY ANY OTHER EVIDENCE. THE HONBLE KARNATAKA HIGH COUR T HAS HELD IN THE ABOVE SAID TWO CASES THAT THE AO CANNOT REJECT THE SOURCES MERELY ON THE SURMISE THAT THERE WAS A TIME GAP. I N THE ABOVE SAID DECISION, THE TIME GAP WAS ABOUT TWO YEARS. ACCORD INGLY, HE SUBMITTED THAT THE ABOVE SAID TWO DECISIONS ARE SQU ARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND HENCE, IT WAS RIGHTLY TAKEN SUPPORT OF BY LD CIT(A). 7. THE LD A.R SUBMITTED THAT THE ASSESSEE IS RE QUIRED TO PROVE THE SOURCE OF FUNDS. THE ASSESSEE HAS PROVED THE S AME AS THE FUNDS REPRESENTED WITHDRAWALS MADE FROM THE PARTNER SHIP FIRM. FURTHER THE ASSESSEE HAS ALSO PROVED THE SOURCE OF SOURCES, I.E., THE ASSESSEE HAS FURNISHED BANK ACCOUNT DETAILS OF OTHE R PARTNERS AND THE DETAILS OF COMPENSATION RECEIVED BY THEM ON SAL E OF LANDS. HENCE THERE IS NO DISPUTE ON IDENTITY OF THE FIRM A ND ITS PARTNERS, THE CREDIT WORTHINESS OF THE FIRM AND PARTNERS. TH E AO HAS ONLY SURMISED THAT THE PARTNERSHIP FIRM IS A COLOURABLE DEVICE WITHOUT BRINGING ANY MATERIAL TO SUPPORT HIS VIEW. ACCORDI NGLY HE SUBMITTED THAT THE GENUINENESS OF THE TRANSACTIONS SHOULD ALSO NOT ITA NO. 1718/BANG/2018 PAGE 5 OF 8 BE DOUBTED. ACCORDINGLY HE SUBMITTED THAT THE LD C IT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 8. WE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE INITIAL BURDEN TO PROVE THE CASH CREDITS IS PLACED UPON THE SHOULDERS OF THE ASSESSE E U/S 68 OF THE ACT. IN ORDER TO DISCHARGE THE BURDEN, THE ASSESSE E HAS TO PROVE THREE MAIN INGREDIENTS, VIZ., IDENTITY OF THE CREDI TOR, CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTIONS. BASED ON THIS LEGAL PROPOSITION, WE SHALL EXAMINE THE FACTS PREVAILING IN THIS CASE. 9. THE ASSESSEE HAS INTRODUCED A SUM OF RS.1.60 CRORES IN HIS CAPITAL ACCOUNT. THE SOURCE OF THE ABOVE SAID AMOU NT WAS THE WITHDRAWAL MADE BY THE ASSESSEE FROM A FIRM NAMED M /S SHRI BANADESHWAR CONSTRUCTIONS, WHEREIN THE ASSESSEE IS A PARTNER. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT A PARTNERSHIP FIRM BY THE ABOVE SAID NAME WAS FORMED BY NINE PERSONS I NCLUDING THE ASSESSEE. THE REMAINING EIGHT PARTNERS ARE FARMERS AND THEY HAVE INTRODUCED CAPITAL IN THE PARTNERSHIP FIRM. HENCE THE PARTNERSHIP FIRM WAS HAVING ENOUGH FUNDS AND THE ASSESSEE HAS W ITHDRAWN MONEY FROM THE ABOVE SAID PARTNERSHIP FIRM. THE BOO KS OF ACCOUNTS OF PARTNERSHIP FIRM REFLECTED ABOVE TRANSACTIONS. HENCE, PRIMARILY, THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF TRANSACTIONS, VIS- A-VIS THE PARTNERSHIP FIRM STAND PROVED. 10. IT IS FURTHER NOTICED THAT OTHER PARTNERS HA VE RECEIVED FUNDS ON SALE OF LAND TO KIADB AND THEY HAVE EXPLAINED TH AT THEY HAVE INTRODUCED THE SAME AS THEIR CAPITAL IN THE PARTNER SHIP FIRM. WE NOTICE THAT THE ASSESSEE HAS FURNISHED DETAILS RELA TING TO RECEIPT OF COMPENSATION, BANK ACCOUNT DETAILS OF OTHER PARTNER S ETC. THE AO ALSO DID NOT FIND FAULT WITH THOSE DOCUMENTS, MEANI NG THEREBY, THE ITA NO. 1718/BANG/2018 PAGE 6 OF 8 ASSESSEE HAS ALSO PROVED SOURCE OF SOURCES. WE NOT ICE THAT THE AO WAS OF THE VIEW THAT, SINCE THERE IS A TIME GAP OF ABOUT SIX MONTHS FROM THE DATE OF WITHDRAWAL OF FUNDS BY THE PARTNER S FROM THEIR RESPECTIVE BANK ACCOUNTS AND THE DATE OF INVESTMENT IN THE PARTNERSHIP FIRM, THEIR CLAIM IS DOUBTFUL. TO COUN TER THIS VIEW, WE NOTICE THAT THE ASSESSEE HAS TAKEN SUPPORT OF THE D ECISIONS RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CAS E OF P. PADMAVATHI (SUPRA) AND S.R VENKATA RATNAM (SUPRA). 11. WE NOTICE THAT THE LD CIT(A) HAS WELL EXAMIN ED THE ISSUE AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. FOR TH E SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DISCUSSIONS MADE AND DECISION TAKEN BY LD CIT(A) ON THIS ISSUE:- 4.0 DURING THE APPELLATE PROCEEDINGS, THE APPELLA NT RELIED ON THE DECISION OF THE KARNATAKA HIGH COURT CIRCUIT BENCH AT GULBARGA DECISION IN THE CASE OF P. PADMAVATHI IN I TA NO.414 OF 2009 DATED 6/10/2010 WHEREIN THE BENCH CONSIDERE D SINGLE JUDGE DECISION OF SAME COURT IN THE CASE OF S.R VENKATA RATNAM VS. CIT REPORTED IN 127 ITR 807. IN THE CASE OF S R VENKATA RATNAM, IT WAS HELD THAT ONCE THE PETITIONER-ASSESSEE DISCLOSED THE SOURCE AS HAVING COME FROM THE WITHDRAWAL MADE ON A GIVEN DATE FROM A GIVEN BA NK, IT WAS NOT FOR THE RESPONDENTS NO.1 AND 2, TO CONCERN THEMSELVES WITH WHAT THE ASSESSEE DID WITH THE MONE Y, I.E., WHETHER HE HAD KEPT THE SAME IN HIS HOUSE OR UTILIS ED THE SERVICES OF A BANK BY DEPOSITING THE SAME. THE ITO HAS ONLY TWO CHOICES BEFORE HIM. ONE WAS TO REJECT THE EXPL ANATION AS NOT BELIEVABLE FOR THE REASON THAT ON HIS INVESTIGA TION NO SUCH PIGMY DEPOSIT WAS EVER MADE INTO THE BANK. IN THE ALTERNATIVE, HE OUGHT TO HAVE CALLED UPON THE ASSES SEE- PETITIONER TO SUBSTANTIATE HIS CLAIM BY DOCUMENTARY EVIDENCE. HAVING EXERCISED NEITHER OF THE CHOICES, IT WAS NOT OPEN TO THE ITO TO MERELY SURMISE THAT IT WOULD NOT BE PROBABLE FOR THE ASSESSEE TO KEEP RS.15,000/- UNUTILISED FOR A PERIO D OF TWO YEARS. THE ITO SHOULD HAVE GIVEN AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE HIS ASSERTION AS TO THE SO URCE OF THE CAPITAL OUTLAY. ITA NO. 1718/BANG/2018 PAGE 7 OF 8 CONSIDERING THE SAME, THE BENCH HELD THAT ONCE THE MONEY IS SHOWN TO BE IN THE ACCOUNT AND WITHDRAWN WHAT THE A SSESSEE DID WITH THE MONEY TILL IT WAS ACTUALLY DEPOSITED I S NOT THE CONCERN OF THE DEPARTMENT. AS LONG AS THE SOURCE I S EXPLAINED AND ESTABLISHED AND WHEN THE MONEY IS WIT HDRAWN FROM A SAVINGS BANK ACCOUNT, IT IS NOT POSSIBLE TO HOLD THAT THE SOURCE IS NOT EXPLAINED. 5.0 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT DURING APPELLATE PROCEEDINGS. THE AO HAS NOT DISPU TED THE IDENTITY OR CREDIT WORTHINESS OF THE FARMERS. HE H AS DOUBTED THE GENUINENESS OF THE TRANSACTION AS THE MONEY WAS WITHDRAWN FROM THEIR BANK ACCOUNTS FROM OCTOBER, 20 12 WHEREAS THE FIRM CAME INTO EXISTENCE ON 5/4/2013. AS WAS HELD BY THE HIGH COURT OF KARNATAKA CITED SUPRA, NE ITHER THE AO HAS ESTABLISHED THAT NO SUCH DEPOSIT WAS MADE IN THE BANK NOR COULD PROVE THAT THE DOCUMENTARY EVIDENCE GIVEN BY THE APPELLANT IS NOT CORRECT. IT APPEARS THAT THE AO HAS MADE THE ADDITION WITH A SURMISE THAT IT WOULD NOT BE PR OBABLE FOR THE FARMERS TO KEEP THE MONEY UNUTILISED FOR A PERI OD OF ABOUT 6 MONTHS. THE AO HAS ALSO FAILED TO PROVE TH AT THE PARTNERSHIP FIRM IS A COLOURABLE ENTITY TO LEGITIMA TE INTRODUCTION OF CAPITAL IN CASH. 5.1 IN VIEW OF THE ABOVE I HOLD THAT THE ADDITION WAS NOT MADE ON SOUND FOOTING AND HENCE THE SAME OF RS.1,60,00,000/- IS DELETED. 13. WE HAVE NOTICED THAT THE ASSESSEE HAS PROVED THE SOURCES OF FUNDS, I.E., IT WAS WITHDRAWAL FROM THE PARTNERSHIP FIRM. THE PARTNERSHIP DEED, THE BOOKS OF ACCOUNTS OF THE FIRM , ITS FUND POSITION EXAMINED BY THE AO WOULD SHOW THAT THE ASS ESSEE HAS PROVED IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTIONS. THOUGH THE AO HAS EXPRESSED THE VIEW THAT THE PARTNERSHIP FIRM IS A COLOURABLE ENTITY, YET WE NOT ICE THAT THE AO HAS OBSERVED SO ON SURMISES ONLY. THE CAPITAL CONT RIBUTION MADE BY THE OTHER PARTNERS HAS NOT BEEN ESTABLISHED TO B E NOT GENUINE. IN FACT, THE AO WAS SATISFIED WITH THE CAPACITY OF THE OTHER PARTNERS TO MAKE THE CAPITAL CONTRIBUTION. THOUGH HE HAS EX PRESSED THAT THERE IS TIME GAP OF SIX MONTHS ETC., YET IT WAS AG AIN A SURMISE ONLY ITA NO. 1718/BANG/2018 PAGE 8 OF 8 NOT SUPPORTED BY ANY MATERIAL TO SHOW THAT THE AMOU NT INTRODUCED AS CAPITAL WAS NOT THE AMOUNT WITHDRAWN FROM THE BA NKS. IN FACT, THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COU RT IN THE CASES OF P. PADMAVATHI (SUPRA) AND S.R VENKATA RATNAM (SU PRA) WOULD REJECT THE APPREHENSION OF THE AO. THUS, WE NOTICE THAT THE ASSESSEE HAS NOT ONLY PROVED THE SOURCE, BUT ALSO S OURCE OF SOURCES. HENCE WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUS TIFIED IN DELETING THE ADDITION OF RS.1.60 CRORES MADE BY THE AO U/S 6 8 OF THE ACT. ACCORDINGLY WE UPHOLD HIS ORDER. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 2 ND DAY OF NOVEMBER, 2020. SD/- SD/- ( BEENA PILLAI ) ( B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 2 ND NOVEMBER, 2020. / DESAI S MURTHY / DWK COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.