NATIONAL PHARMACEUTICALS, THANE V. ITO WD 1, PALGHAR

ITA 173/MUM/2011

• Counselvise Citation: 17319914 RSA 2011
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-09-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 07-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MAURY PRATAP
• Assessee Lawyers: ANIL SATHE
• Keywords: Income from undisclosed sources
• Section: 147; 148; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEM BER . / ITA NO. 173 /MUM./ 2011 ( / ASSESSMENT YEAR : 2004 05 ) NATIONAL PHARMACEUTICALS G 18/1, MIDC TARAPUR, BOISAR TAL PALGHAR, DIST. THANE .. / APPELLANT V/S INCOME TAX OFFICER WARD (1), PALGHAR .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAEEN6878M / ASSESSEE BY : SHR I ANIL SATHE / REVENUE BY : SHRI MAURY PRATAP / DATE OF HEARING 02 .0 9 .2014 / DATE OF ORDE R 12.09.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 15 TH SEPTEMBER 2010, PASS ED BY THE LEARNED COMMISSIONER (APPEALS) II, THANE, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) R/W SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2004 05 , ON THE FOLLOWING GROUNDS OF APPEAL: NATIONAL PHARMACEUTICALS 2 1. THE L EARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.33,32,446 BEING CAPITAL INTRODUCED BY THE PARTNERS AS INCOME FROM UNDI S CLOSED SOURCES SOLELY RELYING UPON ALLEGED DECLARATIONS FRA U DULENTLY OBTAINED FROM THE APPELLANT'S PARTNERS . 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS . 4, 00 , 000 BEING UNSECURED LOANS SOLELY ON THE BASIS OF DECLARATIONS FRA U DULENTLY OBT A INED FROM THE APPELLANT . 3. IN THE ALTERNATE AND WITHOUT PREJUDICE TO ABOVE , T HE LEARNED CIT(A) ERRED I N NOT APPRECIATING THAT A S UM OF RS.4 , 00 , 000 HAS ALREADY BEEN ASSESSED TO TAX IN AY 2005 - 06 . 4. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE AFFIDAV I T FILED BY A P PELLANT STATING THAT THE LETTERS SIGNED BY THE PARTNERS, ON THE BASIS OF WHICH, THE WHOLE ADDITION I S MADE , WERE F RA U DULENTLY OBTAINED FROM THEM BY APPELLANT'S THEN AR WHO APPEARED DURING THE ASSESSMENT AND THAT PARTNERS WERE COMPLETELY UNAWARE OF THE CONTENTS OF SUCH LETTERS FILED ON BEHALF OF THE FIRM TILL THE RECEIPT OF ASSESSMENT ORDER . 5. THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) ERRED IN RELYING ON DECISION OF HON'BLE TRIBUNAL I N THE CASE O F CHANDERKANT PANDURANG CHAPEKAR V/S ITO (ITA NO . 4943/ M UM /2009) WHICH IS NOT APPLICABLE IN THE PRESENT CASE . 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND NO.2 AND 3, WHICH RELATE TO ADDITION OF ` 4 LAKHS ON ACCOUNT OF UNSECURED LOAN. CONSEQUENTLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED . 3. NOW, T HE ONLY ISSUE INVOLVED IS ADDITION OF ` 33,32,446, ADDED BY T HE ASSESSING OFFICER AS INCOME FROM UNDISCLOSED SOURCES. 4. THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF PHARMACEUTICALS. IT HAS FILED ITS RETURN OF INCOME IN NATIONAL PHARMACEUTICALS 3 RESPONSE TO THE NOTICE UNDER SECTION 148, DATED 11 TH APRIL 2008, ON 5 TH O CTOBER 2009, AT AN INCOME OF ` 12,913. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE FIRM HAS CREDITED A SUM OF ` 33,32,446, WHICH WAS SHOWN AS CAPITAL OF THE FIRM. WHEN THE ASSESSING OFFICER ASKED THE SOURCE OF THE CAPITAL INTRODUCTION , THE ASSESSEE, VIDE LETTER DATED 20 TH NOVEMBER 2009, SURRENDERED THE SAID AMOUNT AFTER STATING AS UNDER: IT IS SUBMITTED THAT THE CASH INTRODUCED THE FIRM IS HARD EARNED MONEY FROM AGRICULTURE INCOME. HOWEVER, TO AVOID LITIGATI ON AND TO BUY PEACE OF MIND WE OFFER CAPITAL INTRODUCED AS UNDISCLOSED INCOME OF THE FIRM IN ANTICIPATION THAT PENAL PROCEEDING WILL NOT BE INITIATED. 5. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE SAID AMOUNT AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURC ES AND ADDED TO THE INCOME OF THE ASSESSEE. 6. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE CHALLENGED THE SAID ADDITION AND AT THIS STAGE, SUBMITTED THAT THE AMOUNT CREDITED IN THE BOOKS OF ACCOUNT IS THE CAPITAL OF THE FIRM AS ON 31 ST MARCH 2004. THIS AMOUNT IS REPRESENTED PRIMARILY BY THE FIXED ASSET OF THE FIRM WHICH WAS ACQUIRED BY THE PARTNERS IN THEIR INDIVIDUAL CAPACITY PRIOR TO THE YEAR UNDER CONSIDERATION AND PARTLY BY NET PROFIT / REMUNERATION EARNED DURING THE YEAR. IT WAS FURTHER SUBMITTED THAT THE PARTNERSHIP FIRM IS DISTINCT FROM THE PARTNERS AND, THEREFORE, THE FIRM CANNOT BE EXPECTED TO PROVE THE SOURCE OF THE SOURCE. THE NATIONAL PHARMACEUTICALS 4 ASSESSEE ALSO FURNISHED THE AFFIDAVIT OF THE PARTNERS DATED 9 TH SEPTEMBER 2010, STATING THEREIN THAT THE AU THORISED REPRESENTATIVE OF THE ASSESSEE WHO WAS REPRESENTING THE CASE OF THE ASSESSEE FIRM HAD OBTAINED THE SIGNATURE OF THE PARTIES ON A BLANK LETTER HEADS AND LATER ON USED THE SAME FOR SURRENDER LETTER TO THE ASSESSING OFFICER WITHOUT INFORMING THEM. 7. T HE LEARNED COMMISSIONER (APPEALS) REJECTED THIS CONTENTION OF THE ASSESSEE THAT THE SIGNATURE OF THE PARTNERS ON THE LETTER DATED 20 TH NOVEMBER 2009 BY WHICH SURRENDER WAS MADE BEFORE THE ASSESSING OFFICER WERE OBTAINED FRAUDULENTLY BY THE AUTHORISED REPRE SENTATIVE ON THE GROUND THAT H AD IT BEEN SO , THE ASSESSEE WOULD HAVE BROUGHT TO THE KNOWLEDGE OF THE ASSESSING OFFICER OR SHOULD HAVE OBJECTED THE SAME IMMEDIATELY BEFORE THE LEARNED COMMISSIONER (APPEALS) EVEN IN THE GROUND S OF APPEAL TAKEN IN THE MEMO OF FIRST APPEAL , NO SUCH ASSERTION HAS BEEN MADE. THUS, THE ENTIRE STORY OF OBTAINING THE SIGNATURE F OR SURRENDER LETTER IN A FRAUDULENT MANNER BY THE AUTHORISED REPRESENTATIVE IS AN AFTER THOUGHT. BESIDES THIS, NO OTHER EVIDENCE HAS BEEN PLACED ABOUT SUCH A FRAUDULENT CONDUCT OF THE AUTHORISED REPRESENTATIVE. HE FURTHER HELD THAT THERE IS A VARIATION IN THE EXPLANTION OF THE ASSESSEE REGARDING THE NATURE OF THE CAPITAL INTRODUCED. EARLIER, THE ASSESSEE SUBMITTED THAT THE CAPITAL AMOUNTING TO ` 33,32,440 WAS INTRODUCED IN CASH AND SOURCE OF SUCH CASH WAS AGRICULTURAL INCOME OF THE ASSESSEE AND NOW AT THE APPELLATE STAGE IT NATIONAL PHARMACEUTICALS 5 HAS BEEN SUBMITTED THAT CAPITAL INTRODUCTION IS IN THE FORM OF FIXED ASSET OF THE FIRM ACQUIRED BY THE PARTNERS IN THE EARLIER YEARS AND AL SO PARTLY FROM THE PROFIT OF THE FIRM. THE LEARNED COMMISSIONER (APPEALS), THUS, CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. BEFORE US, THE LEARNED COUNSEL REITERATED THE SAME SUBMISSION THAT THE THEN AUTHORISED REPRESENTATIVE , WHO HAD REPRESENT ED THE ASSESSEE AT THE STAGE OF THE ASSESSMENT PROCEEDINGS, HAD FRAUDULENT OBTAINED BLANK SIGNATURE IN THE LETTER HEAD FOR MAKING THE SURRENDER BEFORE THE ASSESSING OFFICER. HE STRONGLY RELIED UPON THE AFFIDAVIT OF THE PARTNERS DATED 9 TH SEPTEMBER 2010, FI LED BEFORE THE LEARNED COMMISSIONER (APPEALS). HE SUBMITTED THAT IN THE STATEMENT OF FACTS FILED BEFORE THE LEARNED COMMISSIONER (APPEALS), THIS CONTENTION WAS DU LY BROUGHT OUT. OTHERWISE ALSO ON MERITS HE SUBMITTED THAT SUCH AN ADDITION CANNOT BE MADE IN THE HANDS OF THE FIRM , BECAUSE THIS IS THE FIRST YEAR OF FORMATION OF THE FIRM I.E., THE PARTNERSHIP FIRM HAS COMMENCED ITS BUSINESS FROM 1 ST JANUARY 2004. THUS, IT CANNOT BE HELD THAT IN SUCH A SHORT SPAN, THE ASSESSEE FIRM MUST HAVE EARNED THIS INCOME. I N SUPPORT OF HIS CONTENTION, HE RELIED UPON THE FOLLOWING CASE LAWS. CIT V/S JAISWAL GRAIN STORES, [2005] 272 ITR 139 (ALL.) ; CIT V/S KEWAL KRISHAN & PARTNERS, [2009] 18 DTR (RAJ.) 121 (RAJ.) ; ABHYUDAYA PHARMACEUTICALS V/S CIT, [2013] 350 ITR 358 (ALL.) ; AND CIT V/S BHARAT ENGINEERING & CONSTRUCTION CO., [1972] 83 ITR 187 (SC) . NATIONAL PHARMACEUTICALS 6 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ORDERS OF THE LEARNED COMMISSIONER (APPEALS). 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VIDE LETTER DATED 20 TH NOVEMBER 2009, HAD SURRENDERED THE AMOUNT OF ` 33,32,446, CREDITED IN THE BOOKS O F ACCOUNT AS CAPITAL OF THE FIRM ON THE GROUND THAT IT WAS IN THE FORM OF CASH INTRODUCED BY THE FIRM WHICH IS A HARD EARNED MONEY FROM THE AGRICULTURAL INCOME. THIS SURRENDER LETTER HAS BEEN OBJECTED BY THE ASSESSEE AT THE FIRST APPELLATE STAGE ON THE GRO UND THAT THE SIGNATURE OF THE PARTNERS WERE OBTAINED FRAUDULENTLY BY THE AUTHORISED REPRESENTATIVE BY MISLEADING THEM THAT IT WOULD BE USED FOR MAKING THE SUBMISSIONS BEFORE THE ASSESSING OFFICER. AT THE APPELLATE STAGE, THE ASSESSEE HAS FILED AFFIDAVIT OF THE PARTNERS THE CONTENTS OF WHICH READS AS UNDER: AFFIDAVIT WE MR. RAJESH RAMAVTAR TIWARI (PAN NO. ABTPT4085C) & MISS NUTAN WAMAN SAVE (PRESENTLY NAMED AS MRS. NUTAN RAJESH TIWARI) (PAN NO. A WIPS 1948P) PARTNERS OF M/S. NATIONAL PHARMACEUTICALS, HER EBY AFFIRM AS FOLLOWS: A) WE FORMED A PARTNERSHIP FIRM NAMELY M/S NATIONAL PHARMACEUTICALS ON 01/02/2004 AND COMMENCED THE BUSINESS OF THE PARTNERSHIP SINCE 01/02/2004. B) PURSUANT TO NOTICE OF THE INCOME TAX DEPARTMENT U/S 148 OF THE INCOME TAX ACT, T HE FIRM FILED ITS RETURN OF INCOME ON 05/01 0/2003DECJARING TOTAL INCOME OF RS. 12,913 FOR ASSESSMENT YEAR 2004/05. C) SINCE WE ARE NOT AWARE OF THE TECHNICALITIES OF THE INCOME TAX LAW WE ENTRUSTED THE RESPONSIBILITY OF ATTENDING THE HEARING OF THE FIR M IN RESPECT ASSESSMENT ULS 147 OF THE ACT FOR A.Y. 2004/05 TO ONE MR. GARJA NATIONAL PHARMACEUTICALS 7 ANDLOR ITS ASSOCIATES BY AUTHORIZING THEM IN THIS BEHALF. D) THE SAID MR. GARJA AND/OR ITS ASSOCIATES ATTENDED THE HEARING OF THE FIRM FROM TIME TO TIME AND SUBMITTED THE DOCUMEN TS ON BEHALF OF THE FIRM. E) DURING THE COURSE OF ASSESSMENT, THE SAID MR. GAJRA OBTAINED OUR SIGNATURE ON BLANK LETTER HEADS EXPLAINING THAT IT IS A NORMAL PRACTICE EMPLOYED BY ALL THE TAX CONSULTANTS SO AS TO CARRY OUT THE ASSESSMENT IN TIME. F) WE W ERE ALSO TOLD THAT, THE ASSESSMENT FOR A.Y. 2004/05 IS TIME BARRING AND HENCE IF CERTAIN STATEMENTS/LETTERS ARE NOT SUBMITTED IN TIME, IT MAY RESULT IN HUGE INCOME TAX DEMAND AND PENALTY ON THE FIRM. G) IN ORDER TO ENABLE THE SAID MR. GAJRA TO COMPLETE T HE ASSESSMENT IN TIME AND TO AVOID TAX AND PENALTIES, WE PROVIDED HIM BLANK LETTER HEADS OF THE FIRM BY PLACING OUR SIGNATURES THEREON. H) WE WERE SHOCKED TO READ THE ASSESSMENT ORDER AND THE REFERENCE THEREIN REGARDING. THE LETTERS SUBMITTED BEFORE ASSE SSING OFFICER DTD. 10/11/2009 AND 20/1112009 HAVING OUR SIGNATURES. I) WE HAVE NEVER SIGNED SUCH STATEMENTS AND WERE NEVER AWARE THAT LETTERS CONTAINING SUCH STATEMENTS ARE BEING SUBMITTED ON BEHALF ON THE FIRM. J) OUR SIGNATURES WERE OBTAINED BY THE S AID MR. GAJRA BY MISLEADING US AND THE SAME ARE MISUTILISED IN A MANNER PREJUDICIAL TO. THE FIRM AND TO CONVEY FALSE INFORMATION TO THE INCOME TAX DEPARTMENT. K) WE THEREFORE PRAY THAT ALL THE ADDITIONS MADE TO MY RETURNED INCOME FOR A.Y. 2004/05 SOLELY ON THE BASIS OF SAID LETTERS BE DELETED AND THE INCOME OF THE FIRM BE ASCERTAINED IN THE LIGHT OF ACTUAL FA CTS. BEFORE ME SD/ SD/ DEPONENTS PLACE : PALGHAR DATE : 09/09/2010 SOLEMNLY AFFIRMED AND EXECUTED BEF ORE ME AT PALGHAR OR SD/ ANAND B. MALI B.A.LL.B ADVOCATE / NOTARY PALGHAR, DIST. THANE 11. FROM THE PERUSAL OF THE AFORESAID AVERMENTS IN THE SO CALLED AFFIDAVIT, IT IS SEEN THAT BOTH THE PART NERS SIMULTANEOUSLY HAVE MADE THEIR AFFIRMATIONS WITHOUT GIVING THEIR INDIVIDUAL PARTICULARS EXCEPT FOR NATIONAL PHARMACEUTICALS 8 MENTIONING THEIR PAN. THE PARAGRAPHS WHICH HAVE BEEN AFFIRMED BY THE DEPONENTS DOES NOT STATE AS TO WHICH PARAGRAPH OR THE PORTION OF THE PARAGRAPH IS B ASED ON INFORMATION AVAILABLE ON RECORD OR THEIR OWN KNOWLEDGE OR THEIR PERSONAL BELIEF. NEITHER THERE IS A GROUND FOR ENTERTAINING SUCH BELIEF NOR ANY SOURCE OF INFORMATION OR MATERIAL ON RECORD HAS BEEN STATED. MOREOVER, THE AFFIRMATION HAVE NOT BEEN EVE N SWEARED UPON OATH. IN AN AFFIDAVIT, IT IS ESSENTIAL THAT THE AFFIANTS OR DEPONENTS SOURCE OF INFORMATION AND ENTERTAINING OF BELIEF HAS TO BE CATEGORICALLY STATED , BECAUSE SUCH AN AFFIDAVIT MAKING A SERIOUS ALLEGATION AGAINST A PROFESSIONAL WILL CAUSE GREAT PREJUDICE AGAINST HIM WITH SERIOUS LEGAL AND CRIMINAL CONSEQUENCES. THE PARTNERS HAVE NOT BROUGHT INTO RECORD AS TO WHAT ACTION HAS BEEN TAKEN AGAINST THE SAID AUTHORIZED REPRESENTATIVE / PROFESSIONAL FOR FRAUDULENTLY MISREPRESENTING THE CASE AND THE REBY CAUSING HUGE TAX LIABILITY. IN TH E S E CIRCUMSTANCES, THE AVERMENTS ASSERTION MADE IN THE AFFIDAVIT CANNOT BE ACCEPTED WITHOUT ANY FURTHER CORROBORATIVE EVIDENCE. REGARDING THE EXPLANATION ABOUT THE SOURCE OF THE AMOUNT CREDITED IN THE BOOKS OF THE FIRM AS GIVEN BEFORE THE LEARNED COMMISSIONER (APPEALS), IT IS SEEN THAT THE ASSESSEE HAS CHANGED ITS VERSION FROM THAT GIVEN BEFORE THE ASSESSING OFFICER BY STATING THAT THE SAID AMOUNT REPRESENT FIXED ASSET WHICH WAS ACQUIRED BY THE PARTNER IN THEIR INDIVIDU AL CAPACITY PRIOR TO THE YEAR UNDER CONSIDERATION AND PARTLY BY NET PROFIT / REMUNERATION EARNED DURING THE YEAR. THIS EXPLANATION IS ALSO NOT CORROBORATED OR SUBSTANTIATED BY ANY EVIDENCE THAT THE SOURCE NATIONAL PHARMACEUTICALS 9 OF THE SAID AMOUNT WAS FROM THE PARTNERS. THOUGH IN PRINCIPLE, WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT IF THE MONEY HAS BEEN CREDITED IN THE BOOK OF THE FIRM ON THE FIRST DAY OF THE BUSINESS OR IN THE INITIAL PERIOD OF FORMATION OF THE FIRM, THEN PRESUMPTION IS THAT SUCH MONEY DOES NOT BEL ONG TO THE ASSESSEE FIRM. HOWEVER, IN THE PRESENT CASE, SUCH A PRESUMPTION CANNOT BE DRAWN FOR THE REASON THAT THE ASSESSEE HAS BEEN GIVING DIFFERENT EXPLANATION AT DIFFERENT STAGES AND THE ASSESSEE COULD HAVE ESTABLISHED ITS CASE BY BRINGING ON RECORD THA T THE SOURCE OF THIS MONEY BELONG ED TO THE PARTNERS AND NOT BY SHIFTING THE ONUS TO THE DEPARTMENT TO PROVE THE SOURCE. THUS, IN THIS BACKGROUND, WE FEEL THAT THE ENTIRE CONDUCT AND EXPLANATION OF THE ASSESSEE WITH REGARD TO THE SOURCE OF THE MONEY CREDITE D IN THE BOOKS OF ACCOUNT COULD NOT BE SATISFACTORILY EXPLAINED AND THE SAME HAS RIGHTLY BEEN CONFIRMED IN THE HANDS OF THE ASSESSEE FIRM. ACCORDINGLY, THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) IS CONFIRMED. 12. 1 2 . IN THE RESULT, ASSESSEES APPEAL IS DISMISSED . 12 TH SEPTEMBER 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 12 TH SEPTEMBER 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH SEPTEMBER 2014 NATIONAL PHARMACEUTICALS 10 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE ; (2) / THE REVENUE; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNE D ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI