The ACIT, (OSD)Circle-9, Ahmedabad V. M/s. Parth Traders, Ahmedabad

ITA 2032/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94291 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Keywords: Unexplained cash credit; Income from undisclosed sources; Source of fund; Corroborative evidences
• Section: 68; 148

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.3401/AHD/2009 / ASSTT. YEAR: 2003-2004 ITO, WARD - 2(1) SURAT. VS M/S.SHREE M.D. INDUSTRIES D/137, UMA IND. ESTATE UDHANA UDHYOGNAGAR SURAT. PAN : AAPFS 9634 K ./ ITA NO.32/AHD/2010 / ASSTT. YEAR: 2003-04 SHREE M.D. INDUSTRIES D-137, UMA INDUSTRIAL ESTATE UDHNA UDHYOGNAGAR SURAT. PAN : AAPFS 1075 A VS ITO, OSD - 4 RANGE-2 SURAT. ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI D.C. MISHRA, SR.DR ASSESSEE BY : SHRI TUSHAR HEMANI / DATE OF HEARING : 12/08/2015 / DATE OF PRONOUNCEMENT: 27 /08/2015 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE AND REVENUE ARE IN CROSS-APPEAL AGAINST T HE ORDER OF LD.CIT(A)-II, SURAT DATED 4.9.2009 PASSED FOR ASSTT .YEAR 2003-04. ITA NO.3401/AHD/2009 ((SHREE MD INDUSTRIES)-2 2 2. THE ASSESSEE HAS TAKEN SIX GROUNDS OF APPEAL, WH ICH ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPEL LATE TRIBUNAL) RULE, 1963 THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. 3. IN GROUND NO.1 AND 2, THE ASSESSEE HAS RAISED ON LY ARGUMENTS. SIMILARLY, THE GROUND NO.6 IS GENERAL GROUND OF APP EAL, WHEREIN, THE ASSESSEE HAS PLEADED THAT THE ABOVE GROUNDS RAISED BY IT ARE WITHOUT PREJUDICE AND INDEPENDENT TO EACH OTHER. THE ASSES SEE CRAVES TO ADD, AMEND, ALTER, SUBSTITUTE AND MODIFY ITS GROUNDS. 4. THE GROUND NOS.3, 4 AND 5 ARE ONLY SUBSTANTIAL G ROUND. THEY READ AS UNDER: 3. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ADDITION U/S.68 OF T HE ACT FOR UNEXPLAINED PARTNERS CAPITAL OF RS.1,98,50,000/- AS MADE BY THE ITO IN THE HANDS OF THE APPELLANT FIR, WHICH IS NOT ONLY FACTUALLY ERRONEOUS BUT ALSO BAD-IN-LAW AND HENCE, NEEDS TO B E DELETED. 4. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.C IT(A) HAS GROSSLY ERRED IN RESTRICTING THE ADDITION OF RS.84, 00,000/- TO RS.48,00,000/- AS MADE BY THE ITO, U/S.68 OF THE AC T, ALLEGING UNEXPLAINED UNSECURED LOANS, WHICH IS ABSOLUTELY ER RONEOUS AND NEEDS TO BE DELETED. 5. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.C IT(A) HAS GROSSLY ERRED IN UPHOLDING THE LUMP-SUM DISALLOWANC E OF RS.1,00,000/- AS MADE BY THE ITO, OUT OF VARIOUS EX PENSES, BY ALLEGING THAT THE SAME ARE NOT FULLY VERIFIABLE, WH ICH IS ERRONEOUS AND NEEDS TO BE DELETED. 5. THE REVENUE IN ITS APPEAL HAS RAISED THREE GROUN DS, OUT OF WHICH, GROUNDS NO.2 AND 3 ARE GENERAL GROUNDS OF APPEAL. IN GROUND NO.1, THE REVENUE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.36 LAKHS, WHICH WERE MADE WITH THE A ID OF SECTION 68. IN FACT, THIS GROUND IS INTER-CONNECTED WITH GROUND NO .4 OF THE ASSESSEES APPEAL. ITA NO.3401/AHD/2009 ((SHREE MD INDUSTRIES)-2 3 6. THE LD.AO HAS MADE ADDITION OF RS.84 LAKHS ON AC COUNT OF UNEXPLAINED CREDIT. THE LD.CIT(A) HAS RESTRICTED T HIS ADDITION TO RS.48 LAKHS. THE ADDITION WHICH HAS BEEN CONFIRMED BY TH E CIT(A) HAS BEEN CHALLENGED BY THE ASSESSEE, AND ADDITION WHICH HAS BEEN DELETED BY THE CIT(A) IS BEING CHALLENGED BY THE REVENUE IN ITS AP PEAL. 7. WE TAKE ALL THE GROUNDS TOGETHER. 8. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 27.11.2003 DECLARING TOTAL INCOME AT NIL. ACCORDING TO THE AO, IN THE GROUP CASES OF THE ASSESSEE, IN CONSEQUE NCE OF THE SURVEY IN THE CASE OF SHRI PANKAJ DANAWALA, CHARTERED ACCOUNT ANT, SURVEY WAS CARRIED ON 19.1.2004. DURING THE COURSE OF SURVEY, UNACCOUNTED INCOME OF RS.5.00 CRORES WAS DISCLOSED IN DIFFERENT CASES OF THE FIRM FOR DIFFERENT ASSESSMENT YEARS. THE LD.DDIT(INV) TRANS MITTED INFORMATION TO THE AO OF THE ASSESSEE THAT IT IS ONE OF THE BEN EFICIARIES OF INTRODUCTION OF BOGUS CAPITAL IN THE YEAR UNDER ASS ESSMENT. THE LD. AO HAS REOPENED THE ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT. IT REVEALED TO THE AO THAT PARTNERS HAVE INTR ODUCED CAPITAL IN THE FOLLOWING MANNER: A) MOHANBHAI D PATEL : RS.74,92,000/- B) KIRITBHAI M. PATEL : RS.59,04,000/- C) PRIYANGABEN A. PATEL : RS.64,54,000/- TOTAL : RS.1,98,50,000/- ========= 9. THE LD.AO HAS MADE ADDITION OF THIS AMOUNT WITH THE HELP OF SECTION 68 OF THE INCOME TAX ACT ON ACCOUNT OF UNEX PLAINED CREDITS IN THE ACCOUNT. APART FROM THIS, THE LD.AO HAS FOUND CREDIT OF RS.84 LAKHS. IN RESPECT OF UNSECURED LOANS, HE MADE ADDITION OF RS.84 LAKHS. ITA NO.3401/AHD/2009 ((SHREE MD INDUSTRIES)-2 4 10. ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION O F RS.36 LAKHS. THIS ADDITION WAS DELETED FOR THE REASON THAT MOHANBHAI D. PATEL, ONE OF THE PARTNERS OWNED THESE UNSECURED LOANS. 11. THE LD.COUNSEL FOR THE ASSESSEE, AT THE VERY OU TSET, SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND SELLING OF GREY CLOTH. THIS IS THE FIRST YEAR OF T HE OPERATIONS OF THE ASSESSEE-FIRM. IT HAS INSTALLED 40 LOOMS IN THE YE AR UNDER CONSIDERATION, AND HAS ACHIEVED A TURNOVER OF RS.1, 38,68,523/-. IT HAS SHOWN GP AT THE RATE OF 15.10%. THE LD.AO HAS MADE ADDITION OF RS.2.825 CRORES ON ACCOUNT OF UNEXPLAINED CREDIT IN THIS ACCOUNT. THIS AMOUNT IS DOUBLE THAN THE TURNOVER ACHIEVED BY THE ASSESSEE. IN THE FIRST YEAR OF OPERATION, IT CANNOT BE ASSUMED THAT THE ASSESSEE COULD HAVE EARNED THIS MUCH UNEXPLAINED INCOME WHICH HAS BEEN ROUTED THROUGH PARTNERS CAPITAL CONTRIBUTION ROUTE. THU S, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION. HE FURTHER CONTENDED THAT, AS FAR AS THE CONFIRMATION OF ADDITION OUT OF THE UNSECURED LOAN OF RS.48 LAKHS I S CONCERNED, THE ASSESSEE HAS FILED CONFIRMATION, BUT SUCH CONFIRMAT ION HAS BEEN REJECTED BY THE CIT(A) ON THE GROUND THAT THE ASSES SEE SOUGHT TO PLACE ON RECORD THE CONFIRMATION BY WAY OF ADDITIONAL EVI DENCE. HE FURTHER CONTENDED THAT PARTNERS HAVE APPROACHED HONBLE SET TLEMENT COMMISSION BY WAY OF APPLICATION UNDER SECTION 245C . THE HONBLE SETTLEMENT COMMISSION HAS ADMITTED THE PETITION OF KIRITBHAI M. PATEL AND REJECTED THE PETITIONS OF OTHER TWO PARTNERS. BOTH THE PARTNERS HAVE CHALLENGED THE ORDER OF THE LD.SETTLEMENT COMM ISSION BY WAY OF WRIT PETITION IN THE HONBLE HIGH COURT. THE HONB LE BOMBAY HIGH COURT HAS ADMITTED THE PETITIONS AND ALSO STAYED THE ABAT EMENT OF PETITIONS BEFORE THE SETTLEMENT COMMISSION. IF THE ISSUE IS BEING SETTLED UNDER THE PETITIONS BEFORE THE SETTLEMENT COMMISSION, THE N THE CAPITAL CONTRIBUTED BY THE PARTNERS WOULD NOT BE TREATED AS UNEXPLAINED CAPITAL AND ADDITIONS IN THE HANDS OF THE ASSESSEE WOULD NO T BE MADE. HE ITA NO.3401/AHD/2009 ((SHREE MD INDUSTRIES)-2 5 PLACED ON RECORD COPY OF THE HONBLE HIGH COURT ORD ER DATED 12.3.2015. THE HONBLE COURT HAS OBSERVED THAT THESE PETITIONS BE TAKEN UP FOR FINAL HEARING BOARD IN THE WEEK COMMENCING FROM 6.4 .2015. THUS, THE PETITION CAN BE DISPOSED OF ON ANY DAY. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE OUTCOME OF THE SETTLEMENT COMMISS ION PROCEEDINGS HAS BEARING ON THE DECISIONS OF THESE APPEALS. 12. THE LEARNED DR, ON THE OTHER HAND, CONTENDED TH AT THE ASSESSEE IS NOT BEFORE THE SETTLEMENT COMMISSION. IT IS THE PARTNERS. ADDITIONS IN THE HANDS OF THE PARTNERS HAVE BEEN MADE ON PROT ECTIVE BASIS. THEREFORE, THE SETTLEMENT COMMISSION PROCEEDING HAS NO BEARING ON THE PRESENT APPEAL. 13. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. FROM PERUSAL OF THE RECORD, IT R EVEALS THAT THE ADDITION OF RS.1.985 CRORES HAS BEEN MADE UNDER SECTION 68 O F THE INCOME TAX ACT. THE THREE PARTNERS HAVE CONTRIBUTED THIS CAPI TAL. IT HAS BEEN TREATED AS UNEXPLAINED CREDITS. IF THE PETITION IN THE SETTLEMENT COMMISSION ARE BEING ACCEPTED, AND TAXABILITY OF TH E AMOUNT IN THEIR HANDS IS RESOLVED, THEN, IT WILL BE EASY TO ASCERTA IN WHETHER THE PARTNERS HAVE SOURCE OF FUNDS FOR MAKING CAPITAL CONTRIBUTIO N. THEREFORE, THE OUTCOME OF THE SETTLEMENT COMMISSION PROCEEDING HAS A BEARING IN THE PRESENT CASE. 14. AS FAR AS THE ADDITION ON ACCOUNT OF UNSECURED LOAN OF RS.84 LAKHS IS CONCERNED, IT EMERGES OUT FROM THE RECORD THAT T HE ASSESSEE HAS OPENED 150 FICTITIOUS BANK ACCOUNTS. THE LD.AO HAS NOTICED THE NAMES OF 10 PERSONS, AGAINST WHOM, CASH CREDITS ARE APPEA RING. THE AO HAS DIRECTED THE ASSESSEE TO PRODUCE THESE ENTITIES BEF ORE HIM AND FILE CONFIRMATION. THE ASSESSEE CONTENDED THAT THE BOOK S OF ACCOUNTS HAVE BEEN SEIZED BY THE DRI, THEREFORE, IT IS NOT POSSIB LE TO SUBMIT REQUISITE DETAILS. THE LD.AO HAS MADE ADDITION UNDER SECTION 68 OF THE INCOME TAX ACT. ITA NO.3401/AHD/2009 ((SHREE MD INDUSTRIES)-2 6 15. ON APPEAL, THE LD.CIT(A) HAS PARTLY DELETED THE ADDITION. 16. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT CONFIRMATIONS FILED BY THE ASSESSEE ALONG WITH PAN OF DEPOSITORS HAVE NOT BEEN CONSIDERED BY THE LD.CIT(A) SIMPLY FOR THE REASONS THAT THESE DETAILS WERE NOT PRODUCED BEFORE THE AO. 17. IN THE NEXT GROUND, THE GRIEVANCE OF THE ASSESS EE RELATES TO AD HOC DISALLOWANCE OF RS.1.00 LAKH OUT OF THE MISC. EXPE NSES. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, ALL VOUCHERS W ERE SHOWN TO THE AUDITORS, WHO HAVE VERIFIED THE ACCOUNTS, AND THERE FORE NO DISALLOWANCE IS TO BE MADE. 18. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES OF THE CASE, ON THESE THREE ISSUES, WE ARE OF THE VIEW THAT THE PROCEEDINGS QUA THE ADDITION OF RS.1.985 CRORES IS DIFFICULT TO RESOLVE CONCLUSIVELY UNLESS THE OUTCOME OF THE SETTLEMENT COMMISSION PROCEEDING ARE ASCERTAINED. 19. A PERUSAL OF THE HONBLE BOMBAY HIGH COURTS IN TERIM-ORDER DATED 12.3.2015 ON THE PETITIONS OF THE PARTNERS REVEALS THAT THESE PETITIONS WERE TO BE PLACED FOR FINAL HEARING BOARD IN THE WE EK COMMENCING FROM 6.4.2015, MEANING THEREBY, THE WRIT PETITIONS ARE O N THE BOARD OF HONBLE HIGH COURT AND LIKELY TO BE DISPOSED OF ON AN EARLY DATE. THEREFORE, WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE CIT(A) FOR RE-ADJUDICATION. THE LD.FIRST APPEL LATE AUTHORITY WILL TAKE UP THE PROCEEDINGS PREFERABLY AFTER ASCERTAINING OF OUTCOME OF THE SETTLEMENT PETITIONS. IN CASE THE OUTCOME IS NOT BR OUGHT TO THE NOTICE OF LD.FIRST APPELLATE AUTHORITY, WITHIN REASONABLE PER IOD, THEN THE LD.FIRST APPELLATE AUTHORITY WILL BE AT LIBERTY TO PROCEED I N ACCORDANCE WITH LAW. 20. AS FAR AS OTHER TWO ISSUES ARE CONCERNED, BOTH THE PARTIES HAVE CONCEDED THAT THESE ISSUES MAY ALSO BE RESTORED TO THE FILE OF THE ITA NO.3401/AHD/2009 ((SHREE MD INDUSTRIES)-2 7 LD.FIRST APPELLATE AUTHORITY FOR FRESH ADJUDICATION , BECAUSE, THE ADDITION U/S.68 HAS A LINK WITH SETTLEMENT COMMISSION PROCEE DINGS. THE BOOKS WERE SEIZED BY THE DRI, THEREFORE, RELEVANT MATERIA L WAS NOT PRODUCED. AS FAR AS AD HOC ADDITION IS CONCERNED, WE FIND THAT THE ASSESSEE H AS DEBITED FOLLOWING EXPENSES: MILLGIN EXPENSES : 2,02,700 MACHINERY REPAIRS : 52,295 POWER EXPENSES : 9,16,481 FACTORY EXPENSES : 13,000 OTHER ADMINISTRATIVE EXPENSES : 14,657 TOTAL : 11,99,133 21. THE LD.AO DISALLOWED RS.1,00,000/- ON ACCOUNT O F NON-FILING OF SUPPORTING EVIDENCE. BUT FROM THE ORDERS, EXACT FA ILURE OF THE ASSESSEE NOT DISCERNIBLE. MAJOR ITEM OF EXPENSES IS FOR PO WER WHICH CAN EASILY BE VERIFIED FROM THE ELECTRICITY DEPARTMENT. THUS, BOTH THESE ISSUES ALSO REQUIRED RE-APPRECIATION AT THE LEVEL OF LD.FI RST APPELLATE AUTHORITY. TAKING INTO CONSIDERATION THE IMPUGNED ORDERS AND T HE STAND OF THE LD.REPRESENTATIVE, WE SET ASIDE THIS ISSUE ALSO TO THE FILE OF THE LD.CIT(A). THE LD.CIT(A) SHALL HAVE A RE-LOOK ON T HE TOTAL ADDITION OF RS.84 LAKHS MADE UNDER SECTION 68 OF THE INCOME TAX ACT. 22. IN VIEW OF THE ABOVE, BOTH THE APPEALS ARE ALLO WED FOR STATISTICAL PURPOSE. ALL THE ISSUES INVOLVED IN THESE APPEALS ARE RESTORED TO THE FILE OF THE LD.CIT(A) FOR RE-ADJUDICATION. THE LD.FIRST APPELLATE AUTHORITY WILL GRANT DUE OPPORTUNITY OF HEARING TO BOTH THE SIDE. THE OBSERVATIONS MADE BY US WILL NOT IMPAIR OR INJURE THE STAND OF T HE LD.AO AND WILL NOT CAUSE ANY PREJUDICE TO THE DEFENCE/EXPLANATION OF T HE ASSESSEE. 23. IN THE RESULT, ALL THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 27 TH AUGUST, 2015 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 27/08/2015