The ACIT, Circle-6, Surat V. M/s. Tulsi Bhojnalaya,

ITA 1884/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8979 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 25-08-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Rejection of books of accounts; Unexplained investment; Business income; Income from undisclosed sources; Deemed to accrue or arise in india
• Section: 69C; 133A; 145

Judgement Text

1 ITA NO. 1884/AHD/2006 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 1884/AHD./2006 ASSESSMENT YEAR : 2003-2004 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/S. TULSI BHOJNALAY, BARDOLI, SURAT CIRCLE-6, SURAT (PAN : AABFT 4547 N) (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI C.K. MISHRA, SR . D.R. RESPONDENT BY : SMT. URVASHI SHODHAN O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE DEPARTMENT IS AGAINST THE ORDER DATED 12.06.2006 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-IV, SURAT FOR T HE ASSESSMENT YEAR 2003-04. 2. GROUND NOS. 1 & 2 OF THIS APPEAL ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LA W, THE LD. C.I.T.(A) HAS ERRED IN DELETING THE ADDITION OF RS.10,80,000/ - MADE ON ACCOUNT OF UNEXPLAINED INTRODUCTION OF CAPITAL BY THE PARTNERS OF THE FIRM U/S. 68 OF THE I.T. ACT. 2. THE LD. C.I.T.(A) HAS ERRED IN NOT APPRECIATING THE FACTS THAT THE CAPITAL INTRODUCED BY THE PARTNERS WAS OUT OF THEIR BUSINESS ACTIVITIES. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A FIRM. A S URVEY UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE AT GIDC TEN SURAT, DHULIA ROAD, BARDOLI, DIST. SURAT ON 12.03.2002. DURING THE COURSE OF SUR VEY, STATEMENT OF SHRI VITHALBHAI PATEL WAS RECORDED AND UNACCOUNTED INCOME OF RS.17,50,000/- N OT RECORDED IN THE BOOKS OF ACCOUNTS WAS DISCLOSED. 4. THE A.O. REJECTED THE BOOKS OF ACCOUNTS BY INVOK ING THE PROVISIONS CONTAINED IN SECTION 145(3) AND ESTIMATED THE TOTAL GROSS PROFIT AT 40%, WHICH COMES TO RS.8,87,824/-. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF A.O. REJECTING THE BOOK RESULTS UNDER SECTION 143(3 ) OF THE INCOME TAX ACT, 1961. 2 ITA NO. 1884/AHD/2006 5. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTI CED THAT FOUR PARTNERS OF THE FIRM HAVE COLLECTIVELY INTRODUCED CAPITAL TO THE TUNE OF RS.1 0,80,000/- BEFORE THE DATE OF SURVEY. THE ASSESSEE SUBMITTED THE EXPLANATION THAT IT WAS A PA RT OF SUNDRY BUSINESS INCOME DECLARED AT THE TIME OF SURVEY AND WAS EARNED FROM THEIR NORMAL BUS INESS ACTIVITIES. THE A.O. DID NOT ACCEPT THE EXPLANATION ON THE GROUND THAT NO CREDIBLE EVIDENCE WAS PRODUCED IN SUPPORT OF THE CLAIM. HE, THEREFORE, MADE THE ADDITION OF RS.10,80,000/- UND ER SECTION 68 OF THE INCOME TAX ACT, 1961. 6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE INTRODUCTION OF CAPITAL OF RS.10,80,000/- BY THE PARTNERS WAS A PART OF UNDISCLOSED INCOME OF RS.17,50,000/- SURRENDERED BY THE ASSESSEE AT THE TIME OF SURVEY AND BROUGHT IN ITS BOOKS OF ACCOUNTS. THEREFORE, THERE IS NO JUSTIFICATION FOR MAKING THE ADDITION TO PARTNERS CAPITAL ACCOUNT AS UNEXPLAINED INVESTMENT . HE ACCORDINGLY DELETED THE SAID ADDITION. 7. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING, ON BEHALF OF REVENUE SHR I C.K. MISHRA, SR. D.R. APPEARED AND CONTENDED THAT THERE IS NO JUSTIFICATION FOR DELETI NG THE ADDITION OF RS.10,80,000/- MADE BY THE A.O. UNDER SECTION 68 OF THE INCOME TAX ACT, 1961. 9. ON THE OTHER HAND, SMT. URVASHI SHODHAN APPEARIN G ON BEHALF OF THE ASSESSEE CONTENDED THAT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED AND PR OFIT ESTIMATED AS PER PROVISIONS OF SECTION 144, NO ADDITION TO BE MADE IN RESPECT OF ANY CASH CREDI TED IN THE BOOKS OF ACCOUNTS UNDER SECTION 68. IN SUPPORT OF THIS, SHE PLACED RELIANCE ON THE DECI SION OF THE ITAT, C BENCH, AHMEDABAD IN THE CASE OF SAI INSPIRATION CONSTRUCTION PVT. LTD. VS. - ITO, WARD-8(1), AHMEDABAD IN ITA NO. 3696/AHD/2004 FOR THE ASSESSMENT YEAR 2001-02, WHER EIN IT WAS HELD THAT WHEN THE BOOKS OF ACCOUNTS STAND REJECTED, THE CONCLUSION IS THAT THE RE ARE NO BOOKS OF ACCOUNTS IN THE EYES OF LAW. THEREFORE, NO ADDITION UNDER SECTION 68 AND 69C CAN BE MADE. 3 ITA NO. 1884/AHD/2006 10. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS UPHELD THE ACTION OF A.O. REJECTIN G THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE INCOME TAX ACT, 1961. AFTER APPRECIATING THE ACCOUNTING ENTRY MADE IN THE BOOKS OF ACCOUNTS, IN THE IMPUGNED ORDER, THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION FOR THE DETAILED REASONS GIVEN IN PAGE 7, WHICH ARE AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE ENTRIES PASSED BY THE APPELLANT IN HIS BOOKS OF ACCOUNTS. THE FACT IS, TH AT THE APPELLANT SURRENDERED UNDISCLOSED INCOME OF RS.17,50,000/- AT THE TIME OF SURVEY AND THIS INCOME WAS NOTHING BUT INCOME EARNED OUT OF REGULAR BUSINESS W HICH WAS NOT BROUGHT INTO THE BOOKS OF ACCOUNTS. I DO NOT AGREE WITH THE A.O.S O BSERVATION THAT THIS INTRODUCTION OF CAPITAL WAS UNEXPLAINED SINCE THE A PPELLANT HAS PASSED REGULAR BOOK ENTRIES IN THIS CASE. THE APPELLANT HAD NO OTH ER ALTERNATIVE BUT TO INTRODUCE THE UNACCOUNTED INCOME IN ITS BOOKS OF ACCOUNTS AND IF THIS SUM OF RS.10,80,000/- IS CONSIDERED AS UNEXPLAINED, THEN THE TOTAL ADDITI ON WOULD BE DOUBLE OF THIS AMOUNT WHICH IS NOT JUSTIFIED AT ALL. WHAT THE APPE LLANT HAS DONE IS DEBITING PARTNERS CAPITAL ACCOUNT TO SUNDRY BUSINESS INCOME ACCOUNT, SINCE IT WAS BUSINESS INCOME WHICH WAS EARNED FROM TIME TO TIME AND THE FUNDS INTRODUCED BY PARTNERS IN THEIR CAPITAL ACCOUNT WAS THE SAME UNAC COUNTED INCOME WHICH WAS EARNED DURING THE COURSE OF THE YEAR. IN VIEW OF TH IS, THERE IS NO JUSTIFICATION IN TREATING THE ADDITION TO PARTNERS CAPITAL ACCOUNT AS UNEXPLAINED INVESTMENT/ DEEMED INCOME AND ADDITION ON THIS ACCOUNT IS DIREC TED TO BE DELETED. 10.1. IN OUR OPINION, THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DELETING THE ADDITION OF RS.10,80,000/- MADE BY THE A.O. UNDER SECTION 68 OF THE INCOME TAX ACT, 1961. EVEN THOUGH, WE AGREE WITH TH E PROPOSITION OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT THE ADDITION OF RS.10,80,0 00/- IS COVERED UNDER THE OVERALL DISCLOSURE OF RS.17,50,000/- MADE BY THE PARTNERS AT THE TIME OF SURVEY AND WERE BROUGHT INTO THE BOOKS OF ACCOUNTS OF THE FIRM. IT WAS THE SURRENDERED MONEY WHICH WAS BROUGHT INTO THE BOOKS BY THE PARTNERS AS THEIR CAPITAL CONTRIBUTION, THEREFORE, NO SEPARATE ADDITION OF RS.10,80,000/- CAN BE MADE UNDER SECTION 68 OTHERWISE THERE WOULD BE DUPL ICATION OF ADDITION. ON THIS GROUND ALONE, WE INCLINED TO UPHOLD THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). BOTH THE GROUNDS OF APPEAL ARE ACCORDINGLY REJECTE D. 11. GROUND NO. 3 OF THIS APPEAL IS AS UNDER :- THE LD. CIT.(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,15,596/- ON ACCOUNT OF UNEXPLAINED INVESTMENT MADE TOWARDS SHOP RENOVATION 12. IN THE ASSESSMENT ORDER, THE A.O. MADE THE ADDI TION OF RS.1,15,596/- ON ACCOUNT OF UNEXPLAINED INVESTMENT UNDER SECTION 69C OF THE INC OME TAX ACT, 1961. IN THE ASSESSMENT ORDER, 4 ITA NO. 1884/AHD/2006 THE A.O. OBSERVED THAT THE ASSESSEE HAD INCURRED EX PENSES ON SHOP RENOVATION AND NO EVIDENCE IN RESPECT OF PURCHASE OF STONES AT RS.35,086/- AND PU RCHASE OF RS.80,510/- WAS AVAILABLE WITH THE ASSESSEE. HE ACCORDINGLY MADE THE ADDITION UNDER SE CTION 69C OF THE INCOME TAX ACT, 1961. 13. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS), COPIES OF BILLS IN RESPECT OF THESE PURCHASES WERE FILED, WHICH WERE A LSO PRODUCED BEFORE THE A.O. IT WAS CONTENDED THAT ONCE BOOK PROFITS ARE ESTIMATED BY R EJECTING BOOK RESULTS, IT WAS NOT PERMISSIBLE TO RELY ON THE REJECTED BOOKS OF ACCOUNTS FOR MAKIN G AN ADDITION OF AN ITEM IN THE PROFIT & LOSS A/C. 14. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ACCEPTED THIS PLEA FOR THE DETAILED REASONS GIVEN IN PAGE 8, WHIC H ARE AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS AND ALTHOUGH I A M INCLINED TO AGREE WITH THE A.O.S ACTION ON THIS ACCOUNT, THE APPELLA NTS ARGUMENT ALSO HAS CONSIDERABLE FORCE. ONCE THE BOOKS OF ACCOUNTS ARE REJECTED BY INVOKING THE PROVISIONS OF SEC. 145 OF THE I.T. ACT, SUCH RE JECTED BOOKS CAN NOT BE USED FOR MAKING A DISALLOWANCE OF A PARTICULAR EXPE NDITURE DEBITED TO THE ACCOUNTS. SINCE I HAVE HELD THAT THE BOOKS RESULTS WERE RIGHTLY REJECTED AND PROFIT ESTIMATED ACCORDINGLY, NO FURTHER ADDITI ON IN RESPECT OF ANY EXPENDITURE CAN BE MADE SINCE IT WOULD LEAD TO AN A NOMALY IN THAT THE SAME REJECTED BOOKS ARE BEING USED AS IF THE ACCOUN TS WERE CORRECT. IN VIEW OF THIS, ADDITION ON ACCOUNT OF UNEXPLAINED EX PENDITURE IS DIRECTED TO BE DELETED. 15. BEFORE US, THE LD. D.R. CONTENDED THAT THE ADDI TION WAS RIGHTLY MADE AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIE D IN DELETING THE SAME. 16. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 17. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW ON THI S ISSUE. AS ALREADY STATED, THE A.O. REJECTED THE BOOKS OF ACCOUNTS AND THE LD. C.I.T.(A) UPHELD THE ACTION OF A.O. IN THESE FACTS, IN OUR OPINION, THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) HAS GIVEN COGENT REASON FOR DELETING THE ADDITION OF RS.1,15,596/- MADE BY THE A.O. UNDER SECTION 69C OF THE INCOME TAX 5 ITA NO. 1884/AHD/2006 ACT, 1961. WE INCLINED TO UPHOLD THE ORDER OF LEARN ED COMMISSIONER OF INCOME TAX(APPEALS). THIS GROUND OF APPEAL IS REJECTED. 18. GROUND NO. 4 OF THIS APPEAL IS AS UNDER :- THE LD. C.I.T.(A) HAS ERRED IN RESTRICTING THE REM UNERATION PAID TO THE PARTNER OF RS.50,000/- AS AGAINST RS.7,20,000/- CLA IMED BY THE ASSESSEE. 19. WE HAVE HEARD BOTH THE SIDES. IN THE IMPUGNED O RDER, THE A.O. TAXED THE INCOME OFFERED AMOUNTING TO RS.17,50,000/- UNDER THE HEAD INCOME FROM OTHER SOURCES AND RE-WORKED OUT THE ALLOWABLE REMUNERATION AT RS.50,000/- AS AGAINST RS .7,20,000/- CLAIMED BY THE ASSESSEE. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS) AFTER CAREFULLY GOING THROUGH THE RELEVANT QUESTION-ANSWE R UNDER WHICH THE ASSESSEE DECLARED THE INCOME, DELETED THE ADDITION FOR THE DETAILED REASO NS GIVEN IN PAGE 9 OF THE IMPUGNED ORDER. THE SAID PARA IS EXTRACTED HERE IN BELOW :- I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE TH ROUGH THE STATEMENT OF THE PARTNER RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS. IT IS SEEN THAT THE DECLARATION OF UNA CCOUNTED INCOME WAS MADE IN THE HANDS OF THE FIRM WHICH HAD NO OTHER AC TIVITY BUT RUNNING OF A RESTAURANT AND UNDERSTANDABLY THIS UNACCOUNTED INCOME WOULD BE EARNED FROM THE BUSINESS ACTIVITY OF THE RESTAURANT ONLY AND WOULD PARTAKE THE CHARACTER OF INCOME UNDER THE HEAD BUS INESS. SINCE THIS INCOME WOULD BE BUSINESS INCOME ONLY AND WOULD BE A VAILABLE FOR DISTRIBUTION AMONGST PARTNERS AFTER DEDUCTING THE U SUAL EXPENSES, THERE IS NO JUSTIFICATION ON PART OF THE A.O. IN TR EATING THIS INCOME AS INCOME FROM OTHER SOURCES AND DENYING REMUNERATION CLAIMED BY THE APPELLANT. THE ADDITION MADE ON THIS ACCOUNT IS DIR ECTED TO THE DELETED. 20. AT THE TIME OF HEARING, THE LD. D.R. COULD NOT POINT OUT ANY VALID REASON TO INTERFERE WITH THE AFORESAID FINDING OF LEARNED COMMISSIONER OF IN COME TAX(APPEALS). AS A MATTER OF FACT, IN REPLY TO QUESTION NO. 9, PARTNER OF THE ASSESSEE-FI RM SUBMITTED AS UNDER :- Q.9. DO YOU WANT TO TELL ANYTHING ELSE ? A.9. AS A PARTNER OF M/S. TULSI BHOJNALAY I HAVE TO STATE THAT KEEPING IN VIEW OF THE SURVEY PROCEEDINGS CARRIED O UT BY YOU IN OUR M/S. TULSI BHOJNALAY AND OTHER SISTER CONCERN M/S. TULSI RESTAURANT, BARDOLI, WHERE ALSO SEPARATE PROCEEDINGS ARE GOING ON, I HER EBY ACCEPT AND DISCLOSE RS.20,00,000/- (RUPEES TWENTY LACS ONLY) A S UNDISCLOSED INCOME 6 ITA NO. 1884/AHD/2006 WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS. TH E DETAILS OF THIS DISCLOSURE OF RS.20,00,000/- WILL BE SUBMITTED TO Y OUR OFFICE ON 13.03.2003 AT 3 P.M. THE ABOVE REFERRED VOLUNTARY D ISCLOSURE ALSO INCLUDES RENOVATION AND FURNITURE EXPENSES OF M/S. TULSI GUEST HOUSE. I MADE THIS DISCLOSURE OF RS.20,00,000/- ON BEHALF OF MY ALL THREE FIRMS AS WELL AS THE PARTNERS OF THE FIRM AND I UNDERTAKE TO PAY WHATEVER INCOME TAX WHICH IS LIABLE TO BE PAID. 21. THE TOTALITY OF THE FACTS CLEARLY INDICATE THAT INCOME DECLARED BY THE ASSESSEE AT THE TIME OF SURVEY IS BUSINESS INCOME ONLY AND WOULD BE AVAI LABLE FOR DISTRIBUTION AMONGST PARTNERS AFTER DEDUCTING THE USUAL EXPENSES. IN THESE CIRCUMSTANCE S, IN OUR OPINION, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DIRECTING THE A.O. TO ALLOW THE ENTIRE REMUNERATION OF RS.7,20,000/-. WE, THEREFORE, INCLI NED TO INTERFERE. THIS GROUND OF APPEAL IS ALSO REJECTED. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 12.02.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12/ 02 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER LAHA/SR.P.S. DEPUTY REGISTRAR, ITAT, AHMEDA BAD