The ITO, Ward-1(4), Surat V. M/s. Praful Agarwal Prints Pvt.Ltd., Surat

ITA 1860/AHD/2010

• Counselvise Citation: 186020514 RSA 2010
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Unexplained cash credit; Business income; Depreciation; Deemed to accrue or arise in india; Bad and doubtful debts; Capital receipt; Capital expenditure
• Section: 14A; 133(6); 32; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO.1567/AHD/2010 A.Y. 2007-08 M/S. PRAFUL AGARWAL PRINTS P. LTD., 127-A, GAJJAR CHAMBERS, FALSAWADI, BEGUMPURA, SURAT PAN: AACCP 3634N V/S. ITO, WARD 1(4), SURAT. (APPELLANT) (RESPONDENT) ITA NO.1860/AHD/2010 A.Y. 2007-08 ITO, WARD 1(4), SURAT. V/S. M/S. PRAFUL AGARWAL PRINTS P. LTD., 127-A, GAJJAR CHAMBERS, FALSAWADI, BEGUMPURA, SURAT PAN: AACCP 3634N (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.C. MATHEWS, SR.D.R. ASSESSEE(S) BY : SHRI MEHUL R. SHAH, AR / DATE OF HEARING : 08/01/2014 / DATE OF PRONOUNCEMENT: 26/02/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, J.M. FOR A.Y. 2007-08 CROSS APPEALS HAVE BEEN FILED EMA NATING FROM THE ORDER OF LEARNED CIT(A)-I, SURAT DATED 23. 03.2010. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE HEREBY DE CIDED AS FOLLOWS: ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 2 - GROUND NO.1: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN MA KING ADDITION OF RS.35,74,216/- AS CESSATION OF LIABILITY U/S. 41(1) OF THE IT ACT, 1961. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 30 TH OF OCTOBER, 2009 WERE THAT THE ASSESSEE COMPANY HAD NOT UNDERTAKEN ANY BUSINESS AC TIVITY FOR THE YEAR UNDER CONSIDERATION. PREVIOUSLY AS PER AO, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DYING OF GREY CLOTH ON J OB WORK BASIS. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD SHOWN FOL LOWING THREE CREDITORS AS OUTSTANDING IN THE BOOKS OF ACCOUNT. SUNDRY CREDITORS FOR GOODS RS.72,690/- SUNDRY CREDITORS FOR OTHERS RS.90,350/- SUNDRY CREDITORS FOR CAPITAL GOODS RS.35,83,568/- 4. ON PERUSAL OF BALANCE SHEET, IT WAS NOTED BY THE AO THAT UNDER THE HEAD SUNDRY CREDITORS FOR GOODS THERE W AS A LIST OF FEW PARTIES AND THE AMOUNT OUTSTANDING WAS RS.72,690/-. LIKEWISE, UNDER THE HEAD SUNDRY CREDITOR FOR CAPITAL GOODS THERE WAS A LIST OF PARTIES AND THE OUTSTANDING AMOUNT WAS RS.35,83, 568/-. IT WAS ALSO NOTED BY THE AO THAT IN A.Y. 2002-03 AN AMOUNT OF RS.1,72,392/- WAS ADDED BACK IN THE TOTAL INCOME OF THE ASSESSEE. IN RESPECT OF THE AMOUNT OF RS.35,83,658/-, THE ASS ESSEE HAS INFORMED THAT THE LIST ALONG WITH ADDRESSES OF THOS E CREDITORS HAD BEEN FURNISHED. IT WAS ALSO INFORMED THAT THE SAID AMOUNT WAS TREATED AS A CAPITAL RECEIPT BEING THOSE SUNDRY CRE DITORS WERE RELATED TO THE CAPITAL GOODS BY INVOKING THE PROVIS ION OF SECTION 41(1) OF IT ACT. THE ASSESSEES REQUEST WAS THAT AL THOUGH IT WAS ADDED IN THE P & L A/C BUT NOT TO BE TAXED IN THE H ANDS OF THE ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 3 - ASSESSEE. ACCORDING TO AO, THE DETAILS WERE INCOMPL ETE; HENCE, THE REQUISITE NOTICE U/S. 133(6) COULD ALSO NOT BE ISSU ED. HE HAS HELD THAT THOSE CREDITORS WERE BOGUS IN NATURE. THE AO H AS PLACED RELIANCE ON KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT (1992) 196 ITR 845 (CAL.) FOR THE LEGAL PROPOSITION THAT WHERE THE CONDUCT AND SURROUNDING CIRCUMSTANCES DEMONSTRATED THAT THE AMOUNT HAD BEEN REMITTED OR FORGONE OR THAT THE LIA BILITY HAD CEASED TO EXIST AGAINST THE ASSESSEE, THEN IT WOULD BE A CLEAR CASE OF REMISSION OR CESSATION OF LIABILITY. ACCORDING TO A O EVEN IN A.Y. 2002-03 AN AMOUNT OF RS.1,72,392/- WAS TAXED. THE A O HAS ALSO PLACED RELIANCE ON A DECISION OF NECTOR BEVERAGES P VT. LTD. VS. CIT, (2004) 139 TAXMAN 70 (MUM) FOR THE LEGAL PROPO SITION THAT THE TERM EXPENDITURE USED IN SECTION 41(1) OF IT ACT COVERS EVEN THE CAPITAL EXPENDITURE. THE EXPRESSION EXPENDITUR E U/S.41(1) IS WIDE ENOUGH TO INCLUDE CAPITAL EXPENDITURE AS WELL. THE AO HAS CONCLUDED THAT THE ASSESSEE HAD FAILED TO PROVE THE EXISTENCE OF THE LIABILITY AND THAT THE ASSESSEE HAD OFFERED AN AMOU NT IN THE PAST, THEREFORE, HE HAS CONCLUDED THAT THE PROVISIONS OF THE SAID SECTION WERE TO BE APPLIED ON THE ASSESSEE. ACCORDINGLY, HE HAS CONCLUDED THAT THE LIABILITY HAD NOT EXISTED AND IT HAD CEASE D TO EXIST AS ON 31 ST OF MARCH, 2007; HENCE, TAXED THE AMOUNT OF RS.35,74 ,216/- IN THE HANDS OF THE ASSESSEE. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 4. ACCORDING TO LEARNED CIT(A), THERE WAS NO MOVEME NT IN RESPECT OF THOSE ACCOUNTS AND THE ASSESSEE HAS NOT PROVED THAT ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 4 - THOSE LIABILITY HAD IN FACT EXISTED; HENCE, THE ACT ION OF THE AO WAS CONFIRMED IN THE FOLLOWING MANNER: I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELL ANT AND THE OBSERVATION OF THE AO. FROM THE SUBMISSION GIVEN BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS, IT IS CLEAR THAT ONLY IN RESPECT OF TWO CREDITORS, NAMELY, MAUSUM ENTERPRISE, THERE WAS A P AYMENT OF RS.70,000/- DURING THE F.Y. 2003-04 BUT AFTER 31.03 .2004 THERE HAS BEEN NO MOVEMENT AT ALL. IN RESPECT OF ACCURATE TRA NSIT PVT. LTD., THERE WAS A PAYMENT OF RS.25,19,000/- DURING THE F. Y. 2003-04 BUT THERE HAS BEEN NO MOVEMENT AFTER 31.03.2004. THEREF ORE, IN RESPECT OF THE BALANCE THERE HAS BEEN NO MOVEMENT AT ALL FOR T HE LAST SEVEN YEARS OR MORE. FURTHER THE APPELLANT ITSELF HAS ADMITTED THAT ALL THESE CREDITORS HAVE CEASED BECAUSE ON RECEIPT OF SHOW-CA USE NOTICE PROPOSING TO ADD THEM U/S.41(1) THE ASSESSEE ITSELF STATED THAT IN THE RETURN FOR A.Y. 2009-10 IT WILL OFFER THEM SUO MOTO . CONSIDERING THE FACT THAT THERE HAS BEEN NO MOVEMENT IN ALMOST ALL THE CREDITORS FOR LAST 7 TO 10 YEARS AND CONSIDERING THAT ONLY IN TWO CASES THERE IS MOVEMENT LONG BACK AND THERE AS BEEN NO MOVEMENT FR OM F.Y. 2003- 04 ONWARDS, I AGREE WITH THE AO THAT THE CONDUCT OF THE APPELLANT ITSELF SHOWS THAT THESE LIABILITIES HAVE CEASED. TH E ADDITION MADE BY THE AO IS THEREFORE, CONFIRMED AND THIS GROUND OF A PPEAL IS DISMISSED. 5. ON BEHALF OF THE ASSESSEE, LEARNED AR, MR. MEHUL R. SHAH APPEARED AND AT THE OUTSET INFORMED THAT THE DECISI ON OF HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF NECTOR BEVERAGES (SUPRA); AS RELIED UPON BY AO; WAS LATER ON OVERRUL ED BY THE HONBLE APEX COURT TITLED AS NECTOR BEVERAGES, 314 ITR 314 (SC), WHEREIN IT WAS HELD THAT IN ITS VERY NATURE D EPRECIATION IS NEITHER A LOSS NOR AN EXPENDITURE, NOR A TRADING LI ABILITY REFERRED IN SECTION 41(1) OF IT ACT. HE HAS PLEADED THAT ALTHOU GH THE BUSINESS ACTIVITY HAD STOPPED BUT THE ASSESSEE HAS ACCEPTED THE LIABILITY BY SHOWING THE SAME IN THE BOOKS OF ACCOUNT. 6. FROM THE SIDE OF REVENUE, LEARNED DR HAS PLEADED THAT THE BUSINESS OF THE ASSESSEE HAD STOPPED AND THERE WAS NO SCOPE OF ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 5 - LIQUIDATION OF THOSE LIABILITIES; HENCE, THOSE LIAB ILITIES HAD IN FACT CEASED TO EXIST, THEREFORE, THE PROVISIONS OF SECTI ON 41(1) OF IT ACT HAVE CORRECTLY BEEN APPLIED BY THE ASSESSEE. HE HAS PLACED RELIANCE ON THE DECISION OF SURESH KUMAR T. JAIN, 128 ITD 74 (BAN). HE HAS ALSO PLACED RELIANCE UPON A DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE OF INCOME TAX OFFICER VS. AHUJA G RAPHIC MACHINERY (P) LTD., (2007) 111 TTJ 445 (MUM). 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. THE PROVISIONS OF SECTION 41(1) PRESCRIBES THAT WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RES PECT OF ANY EXPENDITURE OF TRADING LIABILITY INCURRED BY THE AS SESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, THE SAID AMO UNT IN RESPECT OF WHICH EXPENDITURE OR TRADING LIABILITY HAS CEASE D TO EXIST OR REMITTED THEN THE BENEFIT ACCRUING TO THE ASSESSEE SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY CHARGEABLE TO INCOME TAX OF THAT PREVIO US YEAR, WHETHER THE BUSINESS IN RESPECT OF WHICH THE DEDUCT ION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT. WE HAVE N OTED THAT THE DECISION WHICH RELIED UPON BY THE AO WAS SUBSEQUENT LY OVERRULED BY THE HONBLE APEX COURT. THE OBSERVATION OF THE H ONBLE COURT AS PER THE HEAD NOTES WAS AS UNDER: PRIOR TO APRIL 1, 1988, EACH OF SUB-SECTIONS (1) T O (4) OF SECTION 41 OF THE INCOME-TAX ACT, 1961, DEALT WITH A DIFFERENT AN D DISTINCT CIRCUMSTANCE. SUB-SECTION (1) DEALT WITH RECOUPMENT OF TRADING LIABILITY, SUB SECTION (2) DEALT WITH BALANCING CHA RGE, SUB-SECTION (3) SPECIFICALLY DEALT WITH BALANCING CHARGE IN RESPECT OF ASSETS RELATING TO SCIENTIFIC RESEARCH AND SUB-SECTION (4) DEALT WITH RECOVERY OF BAD DEBTS. THEREFORE, ONE CANNOT READ RECOUPMENT UNDER ONE SUB-SECTION INTO ANOTHER. PRIOR TO APRIL 1, 1988, BOTH SUB-SECT ION(1) AND SUB- SECTION (2) OF SECTION 41 EXISTED IN THE STATUTE BO OK. SECTION 41(2) ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 6 - SPECIFICALLY BROUGHT TO TAX THE BALANCING CHARGE AS A DEEMED INCOME UNDER THE ACT. THE NECESSITY TO KEEP SECTION 41(2) AS A PROVISION IN ADDITION TO SECTION 41(1) AROSE FROM THE FACT THAT IN ITS VERY NATURE DEPRECIATION IS NEITHER A LOSS, NOR AN EXPENDITURE, NOR A TRADING LIABILITY REFERRED TO IN SECTION 41(1). THEREFORE, FOR THE ASSESSMENT YEARS 1990-91 TO 1998 -99 (WHEN SECTION 41(2) STOOD DELETED) IN RELATION TO AN ITEM OF ANY DEPRECIABLE ASSET WHICH DID NOT EXCEED RS.5,000 IN COST FOR WHICH DEP RECIATION HAD BEEN ALLOWED UNDER SECTION 32(1)(II) AT 100 PER CENT., T HE DEPARTMENT IS NOT ENTITLED TO TAX THE SALE PROCEEDS OF THAT ASSET AS BUSINESS INCOME UNDER SECTION 41(1). 7.1. OUR ATTENTION HAS ALSO BEEN DRAWN ON THE NOTE S OF ACCOUNT PREPARED BY THE ASSESSEE FOR THE ACCOUNTING PERIOD ENDED ON 31 ST OF MARCH, 2010 WHEREIN AS PER NOTE NO.5 IT WAS PROVIDE D AS THE BOARD OF DIRECTORS OF THE COMPANY HAS DECIDED TO TR ANSFER THE CREDITORS FOR CAPITAL GOODS AMOUNTING TO RS.35,83,5 68/- TO CAPITAL RESERVE ACCOUNT AT THEIR MEETING HELD ON 27 .08.2010. THE APPELLANT HAS, THEREFORE, TRIED TO DEMONSTRATE THAT IN SUBSEQUENT YEAR THE REQUISITE ENTRY IN THE BOOKS OF ACCOUNT HAVE BEEN MADE BUT THAT WAS BEING A CAPITAL RECEIPT; HEN CE, THE AMOUNT WAS TRANSFERRED TO CAPITAL RESERVE ACCOUNT. OUR ATT ENTION HAS ALSO BEEN DRAWN ON A DECISION OF ITAT A BENCH AHMEDABA D PRONOUNCED IN THE CASE OF SRI VISHNU ANANT MAHAJAN BEARING ITA NO.3002/AHD/2009 FOR A.Y. 2006-07, ORDER DATED 21.0 9.2012 WHEREIN THE OBSERVATION AS QUOTED WAS AS UNDER: COMING TO THE QUESTION REGARDING DEPRECIATION BEING AN EXPENDITURE OR NOT, IT HAS BEEN HELD IN THE CASE OF HOSHANG D. NANAVATI (SUPRA) THAT SECTION 14A DEALS ONLY WITH THE EXPENDITURE AN D NOT ANY STATUTORY ALLOWANCE ADMISSIBLE TO THE ASSESSEE. THE DECISION HAS BEEN ARRIVED AT AFTER CONSIDERING THE DECISION IN THE CASE OF NECTA R BEVERAGES PVT. LTD. VS. DCIT (2009) 314 ITR 314. THE LD. CIT(DR) H AS NOT BEEN ABLE TO DISPLACE THE RATIO OF THESE CASES. THUS, ON CONS IDERATION, WE FIND THAT SECTION 14A USES THE WORDS EXPENDITURE INCURR ED BY THE ASSESSEE IN RELATION TO INCOME. A STATUTORY ALLOWANCE UNDER SECTION 32 IS NOT ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 7 - AN EXPENDITURE. THEREFORE, WE ARE IN AGREEMENT WITH THE DECISION OF THE DIVISION BENCH IN THE CASE OF HOSHANG D. NANAVA TI. 7.2. EVEN IN THE CASE OF CIT VS. SUGAULI SUGAR WORK S PVT. LTD., (1991) 236 ITR 518 (SC), IT WAS HELD THAT A UNILATE RAL ACTION IN WRITING OFF THE LIABILITY DO NOT AMOUNT TO REMISSIO N OR CESSATION OF LIABILITY. ALTHOUGH, IN THAT CASE THE UNILATERAL AC TION WAS ON THE PART OF THE ASSESSEE BUT ON THE SAME REASONING WE CAN AL SO HOLD IN THE PRESENT SET OF FACTS AND CIRCUMSTANCES OF THE CASE THAT EVEN THE AO HAS UNILATERALLY ACTED AND CONSIDERED THAT THE LIAB ILITY IN QUESTION HAD CEASED TO EXIST. ON BOTH THE COUNTS THAT THE LI ABILITY BEING CAPITAL IN NATURE; HENCE, NOT TO BE TAXED IN THE HA NDS OF THE ASSESSEE. IN THE LIGHT OF THE NECTOR BEVERAGES (SUP RA) AND ALSO IN THE LIGHT OF THE DECISION OF SUGAULI SUGAR WORKS (S UPRA), WE HEREBY REVERSE THE FINDINGS OF THE LEARNED CIT(A) A ND ALLOW THIS GROUND OF THE ASSESSEE. 8. GROUND NO.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN PARTLY CONFIRMING THE ACTION OF ASSESSING OFFICE R OF SUSTAINING ADDITION OF RS.2,25,000/- OUT OF TOTAL OF RS.19,00, 000/- ON ACCOUNT OF UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT. 9. IT WAS NOTED BY THE AO THAT THERE WAS INCREASE I N UNSECURED LOAN IN THE BALANCE SHEET AMOUNTING TO RS.12,20,555/. THE SAID UNSECURED LOAN WAS INCREASED AS PER THE FO LLOWING EXPLANATION: LOAN TAKEN FROM MR. ANIL KUMAR JALAN RS.11,00,000/- AMOUNT OF REFUND REPAID (-) RS.4,05,000/- BALANCE OUTSTANDING RS.6,95,000/- ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 8 - LOAN TAKEN FROM MAHENDRA AGARWAL RS.8,00,000/- AMOUNT OF REFUND REPAID (-) RS.2,74,445/- BALANCE OUTSTANDING RS.5,25,555/- 9.1 AO HAS DISCUSSED THE PROVISIONS OF SECTION 68 O F IT ACT ALONG WITH CERTAIN CASE LAWS AND THEREAFTER TAXED T HE SAME AFTER ASSIGNING FOLLOWING REASONS: DESPITE GIVING SPECIAL OPPORTUNITIES VIDE VARIOUS N OTICES AS DETAILED SUPRA, THE ASSESSEE-COMPANY COMPLETELY FAILED TO FU RNISH EVEN THE CONFIRMATIONS FORM THESE TWO DIRECTORS OF THE ASSES SEE-COMPANY, OTHER DOCUMENTS/EVIDENCES AS REQUESTED VIDE THESE N OTICE(S) WERE ALSO NOT FURNISHED AT ANY STAGE DURING THE ASSESSMENT PR OCEEDINGS. THE ASSESSEE COMPANY SUBMITTED MERELY FIGURE WORK VIDE TWO SUBMISSIONS WHEREIN IT HAD SUBMITTED THAT THE OLD DEMAND OUTSTA NDING WERE PAID BY THE DIRECTORS ON BEHALF OF THE ASSESSEE COMPANY DURING THE FY 2005-06 RELEVANT TO THE A.Y. 2006-07 WHICH AS CONSI DERED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY IN THE FY 2006- 07 RELEVANT TO AY 2007-08 AND DID NOT SUBMITTED ANY OF THE EVIDENCES REQUESTED. UNDER THESE CIRCUMSTANCES, IT CAN BE VERY WELL INFERRED T HAT THE AGGREGATE SUM OF THE CREDITS AS APPEARING THE BOOKS OF ACCOUN TS AT RS.19,00,000/- REMAINS UN-EXPLAINED AS NONE OF THE CONDITIONS TO CONSIDER PARTICULAR CASH CREDITS TO BE EXPLAINED AN D LISTED ABOVE ARE SATISFIED IN THE INSTANT CASE. ACCORDINGLY, A SUM O F RS.19,00,000/- IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMP ANY CONSIDERING THE SAME TO BE UN-EXPLAINED CASH CREDITS UNDER PROV ISIONS OF SECTION 68 OF THE IT ACT. 10. WHEN THE MATTER WAS CARRIED BEFORE LEARNED CIT( A), IT WAS EXPLAINED THAT NO CASH WAS CREDITED IN THE ACCOUNT OF THOSE DIRECTORS BUT THERE WAS AN INCOME TAX LIABILITY WHI CH WAS RECOVERED AND THEREAFTER A REFUND WAS GRANTED; HENC E, THE PROVISIONS OF SECTION 68 WERE WRONGLY INVOKED. THE MAIN EXPLANATION OF THE ASSESSEE BEFORE LEARNED CIT(A) I S REPRODUCED BELOW: DURING THE APPELLATE PROCEEDINGS, THE APPELLANT STA TED THAT THIS IS NOT A CASH CREDIT OF THE TYPE WHICH IS COVERED BY THE P ROVISIONS OF SECTION 68. THE APPELLANT STATED THAT THE DIRECTORS OF THE COMPANY, MR. ANIL KUMAR JALAN MAHENDRA KUMAR AGARWAL, HAD PAID THE AP PELLANT OCMPNAYS INCOME TAX LIABILITY WHEN THE RECOVERY HA S BEEN MADE BY ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 9 - THE TRO, RANGE-1, SURAT. THE PAYMENT WAS MADE TO TH E TRO IN THE FINANCIAL YEAR 2005-06 RELEVANT TO A.Y. 2006-07, I. E., LAST YEAR. HOWEVER, SINCE THESE WERE NOT ACCOUNTED IN THAT YEA R IN F.Y.2006-07 AS ON 01.04.2006 THESE LIABILITIES WERE ACCOUNTED F OR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREFORE, THESE CREDITS A RE COMING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS A CONSEQUENT OF THE DIRECTORS HAVING MADE THE PAYMENT TOWARDS TAX. AS A PROOF, TH E ASSESSEE HAS FILED COPY OF TRO RECEIPTS. THE TRO BEING MR. SANJA Y JAIN, RANGE-1, SURAT. AS PER THE DETAILS FILED, SHRI ANIL HAD PAID RS.10,50,000/- FROM 13.09.2005 TO 20.03.2006 IN INSTALMENT OF RS.1.5 LA KH. SIMILARLY, MR. MAHENDRA HAD PAID RS.6,25,000/- FROM 12.09.2005 TO 20.03.2006 IN SIX INSTALMENTS OF RS.1 LAKH EACH AND ONE INSTALMEN T OF RS.25,000/- 10.1 HOWEVER, LEARNED CIT(A) WAS PARTLY CONVINCED W ITH THE SAID EXPLANATION OF THE ASSESSEE AND HELD THAT THE RECEIPT FROM THE REVENUE DEPARTMENT WERE ONLY TO THE EXTENT OF RS.16 ,75,000/-, HOWEVER, THE TOTAL AMOUNT DEPOSITED WAS RS.19 LACS, THEREFORE, THE BALANCE AMOUNT OF RS.2,25,000/- WAS TAXED IN THE HA NDS OF THE ASSESSEE. 11. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO PERU SED THE RELEVANT ACCOUNTS AS PER THE PAPER BOOKS FILED BY T HE ASSESSEE. THE MAIN ARGUMENT OF LEARNED SR.D.R., MR. K.C. MATHEW I S THAT THE ASSESSEE HAS NOT FURNISHED THE REQUISITE INFORMATIO N AT THE STAGE OF THE ASSESSMENT, THEREFORE, THE PROVISIONS OF SECTIO N 68 WERE RIGHTLY INVOKED BY THE AO. 11.1 ON THE OTHER HAND, FROM THE SIDE OF THE ASSESS EE, LEARNED AR, MR. MEHUL R. SHAH HAS PLACED RELIANCE ON THE EX PLANATION SUBMITTED TO THE REVENUE AUTHORITIES; RELEVANT PORT ION IS EXTRACTED BELOW: ALTHOUGH THE PAYMENTS WERE MADE BY TWO CREDITORS IN THE F.Y. 2005- 06 BUT ADJUSTMENT ENTRY IN THE BOOKS OF ACCOUNTS OF ASSESSEE COMPANY WAS MADE ON 01.04.2007 CREDITING THE ACCOUNT OF JAL AN SYNTHETICS AND ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 10 - SHRI MAHENDRAKUMAR AGARWAL BY SUM OF RS.11,00,000/- AND RS.8,00,000/- RESPECTIVELY AND DEBITING THE ACCOUNT OF ADVANCE IT APPEAL A/C. DURING THE YEAR UNDER CONSIDERATION, AS SESSEE RECEIVED REFUND OF RS.6,86,113/- WHICH WAS CREDITED IN THE B ANK ACCOUNT OF THE ASSESSEE ON 10.02.2007. OUT OF SUM OF RS.6,86,113/- , THE SUM OF RS.4,05,000/- WAS PAID TO SHRI ANILKUMAR JALAN AND RS.2,74,445/- WAS PAID TO SHRI MAHENDRAKUMAR AGARWAL AS THEY HAVE PAI D THE INCOME TAX LIABILITY FROM THEIR OWN FUNDS. ACCORDINGLY THE REVERSE ENTRY WAS MADE DEBITING THE ACCOUNT OF SHRI ANILKUMAR JALAN A ND SHRI MAHENDRAKUMAR AGARWAL AND CREDITING THE ACCOUNT OF ADVANCE IT APPEAL A/C. IN SUCCEEDING YEAR ALSO THE REFUND OF R S.11,80,822/- WAS ISSUED TO ASSESSEE OUT OF THE PAYMENT MADE BY ABOVE TWO DIRECTORS. THIS REFUND WAS ALSO DISTRIBUTED AMONG THESE TWO DI RECTORS BY ISSUING CHEQUES TO THEM AND REVERSE ENTRY WAS PASSED LIKE I N PRECEDING YEAR. 12. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT IN A SITUATION WHEN THE DIRECTORS ARE SUBJECT TO TAX AND FILING THE RETURNS OF INCOME IN THEIR INDEPENDE NT CAPACITY, THEREFORE, THE REQUISITE INQUIRY SHOULD HAVE BEEN M ADE IN THEIR RESPECTIVE HANDS AS HELD IN THE CASE OF STEELAR INVESTMENTS, 251 ITR 263 (SC) . RATHER, WE ARE OF THE VIEW THAT PART RELIEF GIVEN BY THE LEARNED CIT(A) WAS NOT IN LINE WITH THE SEVERAL JUDGMENTS PASSED IN THIS REGARD THAT THE PROPER ACTION IS REQ UIRED TO BE TAKEN IN THE HANDS OF THE PERSONS IN WHOSE ACCOUNTS THE C REDIT IS APPEARING INSTEAD OF INVOKING THE PROVISIONS OF SEC TION 68 IN THE CASE OF THE COMPANY-ASSESSEE. WE, THEREFORE, DIRECT TO DELETE THE ADDITION IN THE CASE OF THIS ASSESSEE-COMPANY. 13. IN THE RESULT, GROUND RAISED BY THE ASSESSEE IS ALL OWED. B. ITA NO.1860/AHD/2010 (REVENUES APPEAL) 14. THE ONLY GROUND OF THE REVENUE IS REPRODUCED BE LOW: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO O N ACCOUNT OF ITA NO.1567 & 1860/AHD/2010 PRAFUL AGARWAL PRINTS P. LTD. VS. ITO WARD 1(4), SU RAT A.YS. 2007- 08 - 11 - UNEXPLAINED CASH CREDIT U/S.68 OF THE IT ACT TO THE EXTENT OF RS.16,75,000/- OUT OF TOTAL ADDITION OF RS.19,00,00 0/- 15. IN THE LIGHT OF THE DECISION TAKEN HEREINABOVE WHILE DECIDING THE GROUND NO.2 OF THE ASSESSEES APPEAL, THIS GROU ND OF THE REVENUE IS HEREBY DISMISSED. 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 26/02/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD