DCIT Ichalkaranji Cir, Kolhapur V. Splice Biotech Pvt Ltd, Kolhapur

ITA 191/PUN/2012

• Counselvise Citation: 19124514 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 01-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Unexplained cash credit
• Section: 10B; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER, AND SHRI R.S.PADVEKAR, JUDICIAL MEMBER. ITA.NO.191/PN/2012 (ASSTT. YEAR : 2003-04) DCIT, ICHALKARANJI CIRCLE, ICHALKARANJI. .. APPELLANT VS. SPLICE BIOTECH PVT. LTD. 218, AZAD ROAD, JAYSINGPUR, TAL. SHIROL, KOLHAPUR. .. RESPONDENT PAN: AAHCS4671F ASSESSEE BY : SHRI KISHOR PHADKE DEPARTMENT BY : SHRI S.K.SINGH DATE OF HEARING : 23.04.2013 DATE OF PRONOUNCEMENT : 29.04.2013 ORDER PER G.S.PANNU, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), KOLHAPUR, DATED 28.11.2011 WHICH, IN TURN, HAS ARISEN FROM THE ASSESSMENT ORDER DATED 31.12.2010 PASSED BY THE ASSESSING OFFICER U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT) PERTAINING TO THE A.Y. 2003-04. 2. ALTHOUGH THE REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL BUT THE SOLITARY GRIEVANCE IS WITH REGARD TO THE AC TION OF THE CIT(A) IN DELETING AN ADDITION MADE BY THE ASSESSING OFFIC ER OF RS.5,96,00,000/- REPRESENTING LOAN FROM SHRI JUGAL KISHORE MANIYAR AND SMT.SUNITA J.MANIYAR, TREATING THE SAME AS UNEXPLAINED CASH CREDIT U/S.68 OF THE ACT. 3. IN BRIEF, THE FACTS ARE THAT CONSEQUENT TO SEARC H ACTION IN THE CASE OF MALU GROUP AT JAYSINGPUR AND PUNE, IT WAS N OTICED THAT ASSESSEE HAD SHOWN RECEIPT OF UNSECURED LOANS FROM SHRI JUGAL KISHORE MANIYAR AND SMT.SUNITA J.MANIYAR OF RS.5,96 ,00,000/- 2 DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO N OTICED THAT SHRI JUGAL KISHORE MANIYAR AND HIS WIFE SMT.SUNITA J.MAN IYAR ARE RELATED TO MALU FAMILY, WHO ARE THE DIRECTORS OF TH E ASSESSEE COMPANY. SMT.SUNITA J.MANIYAR IS THE DAUGHTER OF S HRI BABULAL MANIYARM, WHO IS MARRIED TO THE CREDITOR SHRI JUGAL KISHORE MANIYAR. IN THE SAID BACKGROUND, ASSESSEE WAS REQU IRED TO EXPLAIN THE GENUINENESS OF THE LOAN TRANSACTION AND CREDITW ORTHINESS OF THE LENDERS. IN RESPONSE, ASSESSEE EXPLAINED THAT THE LOAN WAS RAISED FROM SHRI JUGAL KISHORE MANIYAR THOUGH ACCOUNT PAYE E CHEQUE AND THAT THE SAID CREDITOR WAS AN INCOME TAX ASSESSEE A ND HAD ADEQUATE FINANCIAL CAPACITY TO ADVANCE THE IMPUGNED AMOUNTS. ASSESSEE ALSO EXPLAINED THAT SHRI JUGAL KISHORE MANIYAR WAS A B.TECH BY QUALIFICATION AND WAS MANAGING DIRECTOR OF A STOCK EXCHANGE LISTED COMPANY NAMELY, HAR GOVIND INTERNATIONAL LTD., WHIC H WAS ENGAGED IN MANUFACTURING ZIP FASTENERS. IT WAS ALS O EXPLAINED THAT THE CREDITOR WAS FROM A REPUTED BUSINESS FAMILY OF NAGPUR WHICH WAS ENGAGED IN THE BUSINESS OF MANUFACTURING PVC PI PES AND HFPE WOVEN SACKS, ETC. IT WAS ALSO EXPLAINED THAT THE UNSECURED LOAN ADVANCED TO THE ASSESSEE WAS OUT OF EXPORT EARNINGS OF SHRI JUGAL KISHORE MANIYAR FROM EXPORT OF SOFTWARE. THE ASSES SING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE AND FOR THE REASONS DISCUSSED IN PARA 8 OF THE ASSESSMENT O RDER, THE EXPLANATION HAS BEEN REJECTED. INSTEAD AS PER THE ASSESSING OFFICER, THE CLAIM OF THE CREDITOR OF HAVING CARRIED OUT ACT IVITY OF SOFTWARE DEVELOPMENT AND EXPORT WAS INCORRECT AND WAS DOUBTF UL. THEREFORE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE COMPAN Y HAD CIRCULATED ITS OWN FUNDS AND INTRODUCED THE SAME AS IMPUGNED LOANS THROUGH THE NAMES OF CREDITORS SHRI JUGAL KIS HORE MANIYAR AND SMT.SUNITA J.MANIYAR. ACCORDINGLY, THE ADDITION OF RS.5,96,00,000/- WAS MADE TO THE TOTAL INCOME OF TH E ASSESSEE ON A PROTECTIVE BASIS. 4. IN APPEAL, THE CIT(A) HAS DELETED THE ADDITION O N THE GROUND THAT THE INABILITY OF THE CREDITOR TO PROVE THAT TH E LOAN WAS ADVANCED FROM THE BUSINESS OF EXPORT EARNINGS, WOULD NOT BE MATERIAL TO 3 DOUBT HIS CREDITWORTHINESS. AS PER THE CIT(A) THE CREDITOR DID NOT DENY THE ADVANCING OF MONEY AND ALSO THE MONEY ADVA NCED TO THE ASSESSEE REPRESENTED THE INCOME OF THE CREDITOR WHI CH HE HAS DECLARED IN ITS RETURN OF INCOME. AS PER THE CIT(A ) MERELY BECAUSE THE CLAIM OF THE CREDITOR FOR EXEMPTION U/S.10B OUT OF EXPORT EARNINGS HAS BEEN DENIED, IT WOULD NOT LEAD TO THE IMPUGNED ADDITION IN THE HANDS OF THE ASSESSEE. THE LD. CIT (A) HAS NOTICED THAT THE DISALLOWANCE OF THE CREDITORS CLAIM FOR D EDUCTION U/S.10B OF THE ACT WAS DUE TO THE FACT THAT HE COULD NOT PR OVE THE GENUINENESS OF EXPORTS BUT AT THE SAME TIME THE ENT IRE INCOME WAS HELD TAXABLE IN THE HANDS OF THE CREDITOR. AS PER THE CIT(A), ONCE THE INCOME HAS BEEN TAXED IN THE HANDS OF A PARTICU LAR PERSON, IT FORMS A PART OF HIS CAPITAL AND ITS DISBURSEMENT AS A LOAN TO A THIRD PARTY WOULD NOT MAKE SUCH LOAN AS UNEXPLAINED INCOM E IN THE HANDS OF SUCH THIRD PARTY. THE FOLLOWING DISCUSSIO N IN THE ORDER OF THE CIT(A) IS WORTHY OF NOTICE: 22. I FIND THAT THE REASONS GIVEN BY THE ASSESSING OFFICER ARE NOT CONCLUSIVE. SHRI MANIYAR HAD SHOWN A SUBSTANTIAL AMOUNT OF INCOME AS HIS INCOME FROM SOFTWARE EXPORTS. THAT INCOME WAS REFLECTED IN THE RETURN OF INCOME FILED BY SHRI MANIYAR AND DEDUCTIO N UNDER SECTION 10B WAS CLAIMED AGAINST IT. IT WAS OU T OF THAT INCOME WHICH WAS SHOWN IN THE BOOKS OF ACCOUNT AND DECLARED IN THE RETURN OF INCOME THAT LOANS WER E ADVANCED TO SPLICE BIOTECH PVT. LTD. HENCE, THIS IS A CASE WHERE THE SOURCES HAD ADMITTED A PARTICULAR AMOUNT AS HIS INCOME. THAT PERSON IS REGULARLY ASSESSED TO TAX AND AN INCOME-TAX RETURN HAS ALSO BEEN FILED IN RESPECT OF SUCH RECEIPTS. ALL RECEIPT S CAME THROUGH BANKING CHANNEL AND WAS THEREAFTER UTILIZED BY SHRI MANIYAR BY ADVANCING IT TO OTHER SISTER CONCERNS OR TO THE MALU FAMILY. IN ASSESSMENT OF SH RI MANIYAR, THE GENUINENESS OF EXPORT OF SOFTWARE WAS DOUBTED AND ENQUIRIES WERE CONDUCTED WITH STPI OFFICIALS. VARIOUS OTHER ENQUIRIES WERE ALSO MADE A ND IT WAS CONCLUDED THAT THE INCOME SHOWN IN THE BOOKS OF ACCOUNT COULD NOT BE HELD TO BE THE INCOME FROM SOFTWARE EXPORTS. SINCE THOSE AMOUNTS WERE CREDITED IN THE BOOKS OF SHRI MANIYAR AND, THEREFORE, REFLECTED IN ITS ACCOUNTS, IT WAS TAXED AS UNEXPLAINED CASH CRED IT DURING COURSE OF ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04. IT IS THIS MONEY WHICH HAS BEEN SHOWN BY SHRI MANIYAR IN HIS RETURN OF INCOME AND WHICH HAS 4 BEEN TAXED AS UNEXPLAINED CASH CREDIT AND WHICH HAS BEEN CONFIRMED IN APPEAL THAT HAS BEEN FORWARDED TO THE APPELLANT AS LOANS. IN FACT, THESE LOANS ARE SH OWN OUTSTANDING IN THE BOOKS OF ACCOUNT OF THE APPELLAN T. THE ASSESSING OFFICER IS OF THE OPINION THAT SINCE SHRI MANIYAR HAD SHOWN BOGUS EXPORT INCOME, HE DID NOT HAVE THE CREDITWORTHINESS TO ADVANCE LOANS TO THE APPELLANT. ANOTHER FACTOR WHICH BORE HEAVILY IN THE MIND OF THE ASSESSING OFFICER WAS THAT THE LOAN WAS ADVANCED WITHOUT INTEREST. 23. IN MY CONSIDERED OPINION, THE FACT THAT SHRI MANIYAR HAS BEEN UNABLE TO PROVE THAT THE SAID INCOME WAS NOT FROM THE BUSINESS OF EXPORT OF SOFTWARE, WOULD NOT BE MATERIAL IN DOUBTING HIS CREDITWORTHINESS. HE HAS NOT DENIED THAT THE MONEY ADVANCED REPRESENTED HIS INCOME AND IN FACT HE HAS SHOWN IT AS SUCH IN THE RETURN OF INCOME. IT IS THE CLAIM OF DEDUCTION WHICH HAS BEEN DISALLOWED DUE TO THE FACT THAT HE COULD NOT PROVE THE GENUINENESS OF EXPORTS AND HENCE, THE ENTIRE AMOUNT HAS BEEN HELD TO BE TAXABLE IN THE HANDS OF SHRI MANIYAR. ONCE TH E INCOME HAS BEEN TAXED IN THE HANDS OF A PARTICULAR PERSON, IT FORMS A PART OF HIS CAPITAL AND ITS DISBURSEMENT AS A LOAN TO A THIRD PART WOULD NOT MA KE THAT UNEXPLAINED IN THE HANDS OF THE THIRD PARTY. THERE SHOULD BE SOME MATERIAL ON RECORD TO SHOW THA T THE APPELLANT'S OWN MONEY WAS ROUTED THROUGH SHRI MANIYAR AND THAT IT WAS NOT OFFERED FOR TAX AT ANY STAGE OR WAS NOT SHOWN AS INCOME AT ANY STAGE BEFORE REACHING THE APPELLANT. SUCH EVIDENCE IS CONSPICUOUSLY ABSENT. HENCE, BECAUSE THE INCOME HAS BEEN OFFERED FOR TAXATION IN THE RETURN OF INCOME F ILED BY SHRI MANIYAR WHO HAD SHOWN IT IN HIS BOOKS, IT CANNOT BE SAID THAT THE SOURCE OF LOAN IS UNEXPLAIN ED. THAT SHRI MANIYAR HAD MADE A WRONGFUL CLAIM OF EXEMPTION OF THESE RECEIPTS AS TAX FREE INCOME UNDE R SECTION 10B WILL NOT BE OF MUCH CONSEQUENCE WHILE DEALING WITH THE NATURE OF LOAN IN THE HANDS OF THE APPELLANT. ONCE A PARTICULAR AMOUNT HAS BEEN BROUGH T TO TAX IN A PERSON'S HAND, IT CANNOT BE SAID THAT T HAT PERSON DOES NOT HAVE THE CREDITWORTHINESS TO ADVANC E OUT OF SUCH AMOUNTS TO THIRD PARTIES. FURTHER, THER E SHOULD BE SOME PROOF THAT THESE ARE UNEXPLAINED CREDIT IN THE HANDS OF THE APPELLANT AND THAT SHRI MANIYAR WAS JUST A CONDUIT. SUCH EVIDENCES ARE NOT PRESENT. IN THESE TYPES OF CASES, THE NORMAL EXERCI SE WHICH IS TAKEN IS THAT THE INCOME IS BROUGHT TO TAX SUBSTANTIVELY IN THE HANDS OF ONE PERSON AND PROTECTIVELY IN THE HANDS OF ANOTHER PERSON, WHO MA Y ALSO BE THE RECIPIENT OF THE SAME INCOME. IN THIS C ASE, THE ORIGINAL RECIPIENT IS SHRI MANIYAR AND THE INCO ME HAS BEEN TAXED IN HIS HANDS. SOME MONEY HAS THEN 5 FLOWED INTO THE HANDS OF THE APPELLANT. THEREFORE, ALTHOUGH THERE CAN BE A DOUBT AS TO WHOSE INCOME IT ACTUALLY IS AND WHERE IT SHOULD BE TAXED, SINCE SHR I MANIYAR IS NOT DENYING THAT THE SAID MONEY REPRESEN TS HIS INCOME AND IS TAXED IN HIS HANDS, THERE IS NO S COPE OF TAXING THE SAME AS UNEXPLAINED IN THE HANDS OF T HE APPELLANT. IT HAS NEVER BEEN DOUBTED THAT THE RECEI PTS GIVEN AS LOANS TO THE APPELLANT WERE RECEIVED BY SH RI MANIYAR AND WAS SHOWN BY SHRI MANIYAR AS HIS INCOME . THIS FACT HAS NOT BEEN DOUBTED EVEN IN THE ASSESSME NT OF SHRI MANIYAR. HENCE, THE ADDITION MADE ON THIS C OUNT IS DELETED AND THE APPEAL IS ALLOWED. 5. AGAINST THE AFORESAID, THE REVENUE IS IN FURTHER APPEAL BEFORE US. THE LD. REPRESENTATIVE FOR THE RESPONDENT ASSE SSEE, AT THE OUTSET POINTED OUT THAT IN THE CASE OF THE CREDITOR SHRI JUGAL KISHORE MANIYAR, THE ISSUE RELATING TO THE DENIAL O F DEDUCTION U/S.10B ON THE EXPORT EARNINGS HAS SINCE BEEN ADJUD ICATED BY THE NAGPUR BENCH OF THE TRIBUNAL FOR A.YS. 2001-02, 200 2-03 AND 2003-04 VIDE ORDER IN ITA.NO.99, 100 AND 101/NAG/11 DATED 23.11.2012 AND ALSO FOR A.Y. 2004-05 VIDE ORDER IN ITA.NO.159/NAG/08 DATED 06.03.2009, COPIES OF THE S AID DECISIONS HAVE BEEN PLACED ON RECORD. THE LD. COUNSEL EMPHAS IZED THAT THE TRIBUNAL WAS SATISFIED THAT THE CREDITOR IN QUESTIO N DULY ESTABLISHED THE GENUINENESS OF THE SOFTWARE EXPORTS AND WAS HEL D ENTITLED FOR THE BENEFITS OF SECTION 10B OF THE ACT. IT WAS, T HEREFORE, CONTENDED THAT HAVING REGARD TO THE DECISIONS OF THE TRIBUNAL IN THE CASE OF THE CREDITOR SHRI JUGAL KISHORE MANIYAR, DATED 06.03.20 09 (SUPRA) AND 23.11.2012 (SUPRA), THE SOURCES OF ADVANCING LOANS TO THE ASSESSEE STOOD ESTABLISHED AND, THEREFORE, THE IMPUGNED ADDI TION MADE BY THE ASSESSING OFFICER WAS UNSUSTAINABLE. 6. THE LD. DR APPEARING FOR THE REVENUE, HAS NOT DI SPUTED THE AFORESAID FACTUAL MATRIX BROUGHT OUT BY THE LD. REP RESENTATIVE FOR THE ASSESSEE BUT RELIED UPON THE STAND OF THE ASSES SING OFFICER TO SAY THAT THE CREDITWORTHINESS OF THE CREDITOR WAS D OUBTFUL AND THE GENUINENESS OF THE TRANSACTION WAS NOT ESTABLISHED IN VIEW OF THE DOUBTFUL NATURE OF EXPORT EARNINGS OF THE CREDITOR. 6 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SUM AND SUBSTANCE OF THE DISPUTE LIES IN A SHORT COMPAS S IN AS MUCH AS THE ASSESSEE WAS FOUND TO HAVE RECEIVED UNSECURED L OANS DURING THE INSTANT YEAR TO THE TUNE OF RS.5,96,00,000/- FR OM SHRI JUGAL KISHORE MANIYAR AND SMT.SUNITA J. MANIYAR. THE ASS ESSING OFFICER INVOKED SECTION 68 OF THE ACT AND ACCORDINGLY THE A SSESSEE WAS REQUIRED TO ESTABLISH THE IDENTITY, CREDITWORTHINES S OF THE CREDITOR TO ADVANCE MONIES TO THE ASSESSEE AND THE GENUINENESS OF THE TRANSACTION. THE ASSESSING OFFICER WAS SATISFIED W ITH THE IDENTITY OF THE CREDITOR BUT SO FAR AS THE CAPACITY OF THE PERS ON TO ADVANCE LOAN AND THE GENUINENESS OF THE TRANSACTION WERE CONCERN ED, THE SAME HAVE NOT FOUND TO BE SATISFACTORY BY THE ASSESSING OFFICER. THE PRIMARY REASON WEIGHING WITH THE ASSESSING OFFICER WAS TO THE EFFECT THAT THE SAID CREDITOR CLAIMED TO HAVE ADVANCED MON IES OUT OF ITS EARNINGS FROM DEVELOPMENT AND EXPORT OF SOFTWARE WH ICH WERE CLAIMED AS EXEMPT U/S.10B OF THE ACT, AND SUCH A CL AIM WAS NOT FOUND TO BE GENUINE FOR THE REASONS DESCRIBED IN PA RA 8 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS ALSO R EFERRED TO THE SURVEY ACTION IN THE CASE OF THE CREDITOR WHO WAS P LACED AT NAGPUR. IN SUM AND SUBSTANCE, THE SOURCE OF INCOME OF THE C REDITOR WAS NOT ACCEPTED AS GENUINE AND, THEREFORE, SECTION 68 OF T HE ACT WAS INVOKED BY THE ASSESSING OFFICER. WE FIND THAT THE CONCLUSION OF THE ASSESSING OFFICER IN THE PRESENT CASE ALSO CORRESPO NDED TO THE ASSESSMENTS FINALIZED BY THE ASSESSING OFFICER IN T HE CASE OF THE CREDITOR SHRI JUGAL KISHORE MANIYAR FOR THE A.Y. 20 02-03 AS WELL AS OTHER A.YS. 2001-02, 2002-03 AND 2004-05. THE ASS ESSING OFFICER IN THE CASE OF SHRI JUGAL KISHORE MANIYAR FOUND IT EXPEDIENT TO HOLD THAT THERE WAS NO GENUINE EXPORT EARNINGS SO AS TO BE ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT. THE DISPUTE TRAVELLE D TO THE TRIBUNAL WHEREIN FOR A.Y. 2004-05 VIDE ORDER DATED 06.03.200 9 (SUPRA), AND IN A COMBINED ORDER FOR THE ASSESSMENT YEARS 2001-0 2, 2002-03 VIDE ORDER DATED 23.11.2012 (SUPRA), THE TRIBUNAL H ELD THAT THE CREDITOR IN QUESTION HAD DULY ESTABLISHED THE GENUI NENESS OF EXPORT OF SOFTWARE FOR THE RESPECTIVE YEARS AND WAS ALSO E LIGIBLE FOR THE CLAIM OF DEDUCTION U/S.10B OF THE ACT. THE SAID OR DERS OF THE 7 TRIBUNAL ARE ON RECORD BEFORE US AND THERE IS NO MA TERIAL OR EVEN AN ASSERTION BY THE REVENUE THAT THE AFORESAID DECISIO NS OF THE TRIBUNAL HAVE BEEN ALTERED BY ANY HIGHER AUTHORITY. THEREFORE, HAVING REGARD TO THE AFORESAID DECISIONS OF OUR COO RDINATE BENCH OF NAGPUR TRIBUNAL, WHICH CONTINUE TO HOLD THE FIELD, IT IS IMPERMISSIBLE FOR US TO AFFIRM THE STAND OF THE ASS ESSING OFFICER TO THE EFFECT THAT THE EXPORT EARNINGS OF THE CREDITOR ARE NOT GENUINE SO AS TO HOLD THAT THE IMPUGNED LOANS ADVANCED TO THE ASSESSEE OUT OF SUCH EARNINGS ARE UNEXPLAINED AS PER SECTION 68 OF THE ACT. SINCE THE GENUINENESS OF THE EXPORT EARNINGS OF THE CREDI TOR HAS BEEN ACCEPTED BY THE TRIBUNAL IN ITS ORDERS DATED 06.03. 2009 (SUPRA) AND 23.11.2012 (SUPRA), THE OBJECTION OF THE ASSESSING OFFICER RAISED IN THE INSTANT CASE ARE UNSUSTAINABLE. 8. IN VIEW OF THE AFORESAID WE, THEREFORE, FIND NO JUSTIFICATION TO UPHOLD THE STAND OF THE ASSESSING OFFICER AND ACCOR DINGLY THE ULTIMATE CONCLUSION OF THE CIT(APPEALS) IN DELETING THE ADDITION IS HEREBY AFFIRMED, ALBEIT ON A DIFFERENT GROUND AS D ISCUSSED ABOVE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF APRIL, 2013. SD/- SD/- ( R.S.PADVEKAR ) ( G.S.PANNU ) JUDICIAL MEMBER ACCOUNTANT MEMBER GSPS PUNE, DATED THE 29 TH APRIL, 2013 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DCIT, ICHALKARANJI CIRCLE, ICHALKARANJI. 3. THE CIT(A), KOLHAPUR. 4. THE CIT, KOLHAPUR. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.