DCIT-CC3(2), Mumbai V. SUDAMA TEXTILES TRADINGS P LTD., Mumbai

ITA 2118/MUM/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0453 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 12-10-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 04-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment
• Section: 69; 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 2118/MUM/2019 Assessment Year: 2011-12 DCIT-CC-3(2), Room No. 1913, Air India Building, Nariman Point, Mumbai-400021. Vs. Sudama Textile Trading P. Ltd., Room No. 4, Shivram Patel Chowk, Hanuman Nagar, Kurar Village, Malad (E), Mumbai-400064. PAN No. AAOCS 4200 K Appellant Respondent Assessee by : None Revenue by : Mr. Rakesh Garg, CIT-DR Date of Hearing : 13/10/2022 Date of pronouncement : 18/10/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against the order dated 29.01.2019 passed by the Ld. Commissioner of Income-tax (Appeals)-51, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2011-12, raising following grounds : 1. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs 7,50,00,000/ 18,75,000/ without considering the fact that the said entry is merely an accommodation entry and the assessee was a conduit for introducing unaccounted fun beyond doubt. 2. 2. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs 7,50,00,000/ observing that the investment reflected in out of corresponding liabilities as the assessee company is not carrying any business actually and the said entry is unexplained 3. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective 7,50,00,000/ 18,75,000/ without considering the fact that the addition made on substantive basis has not reached its finality 2. In the grounds rai of protective addition of commission of ₹18,75,000/ Sudama Textile Trading P. Ltd. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs 0,000/- on account of unaccounted investment and of Rs 18,75,000/- on account of unaccounted commission u/s 69C without considering the fact that the said entry is merely an accommodation entry and the assessee was a conduit for introducing unaccounted funds which has been proved beyond doubt. 2. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs 7,50,00,000/- on account of unaccounted investment by observing that the investment reflected in the balance sheet is out of corresponding liabilities as the assessee company is not carrying any business actually and the said entry is unexplained On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs 7,50,00,000/- on account of unaccounted investment and of Rs 18,75,000/- on account of unaccounted commission u/s 69C without considering the fact that the addition made on substantive basis has not reached its finality In the grounds raised, the Revenue is aggrieved protective addition of ₹7,50,00,000/- and corresponding 18,75,000/- on the said unaccounted investment. Sudama Textile Trading P. Ltd. ITA No. 2118/M/2019 2 On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs on account of unaccounted investment and of Rs on account of unaccounted commission u/s 69C without considering the fact that the said entry is merely an accommodation entry and the assessee was a conduit for ds which has been proved 2. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the protective addition of Rs on account of unaccounted investment by the balance sheet is out of corresponding liabilities as the assessee company is not carrying any business actually and the said entry is On the facts and circumstances of the case and in law, the Ld addition of Rs on account of unaccounted investment and of Rs on account of unaccounted commission u/s 69C without considering the fact that the addition made on sed, the Revenue is aggrieved with deletion and corresponding on the said unaccounted investment. 3. At the outset, we may like to mention that despite notifying for several times neither anyone attended on behalf of the assessee nor any adjournment was sought. The notice post on 09.02.2022, 02.05.2022 and 09.06.2022 have ret In view of the same, directed the Ld. DR to serve the notice on the assessee for hearing dated 13.10.2022. The Ld. DR has notice by affixture. circumstances, we were interested in responding the appeal and therefore same was heard ex-parte qua the assessee after hearing the arguments of the Ld. DR. 4. The only issue in the appeal is with re protective addition by the Ld. CIT(A). The relevant finding of the Ld. CIT(A) is reproduced as under: “5.3.5 It is observed that the AO has made the said additions of Rs. 7.50,00,000/- in the hands of our assessee on protective basis b that the said investments in M/s Rikosh Fashions P Ltd. (Rs 25,00,000/ Sudama Textile Trading P. Ltd. At the outset, we may like to mention that despite notifying for several times neither anyone attended on behalf of the assessee nor ournment was sought. The notices sent through registered on 09.02.2022, 02.05.2022 and 09.06.2022 have ret on the last occasion i.e. 27.07.2022, the Bench directed the Ld. DR to serve the notice on the assessee for hearing dated 13.10.2022. The Ld. DR has filed a report of service of the . Said report is placed on record. In the were of the opinion that assessee interested in responding the appeal and therefore same was heard parte qua the assessee after hearing the arguments of the Ld. DR. The only issue in the appeal is with respect to deletion of protective addition by the Ld. CIT(A). The relevant finding of the Ld. CIT(A) is reproduced as under: 5.3.5 It is observed that the AO has made the said additions of Rs. in the hands of our assessee on protective basis b that the said investments in M/s Rikosh Fashions P Ltd. (Rs 25,00,000/ Sudama Textile Trading P. Ltd. ITA No. 2118/M/2019 3 At the outset, we may like to mention that despite notifying for several times neither anyone attended on behalf of the assessee nor sent through registered on 09.02.2022, 02.05.2022 and 09.06.2022 have returned back. on the last occasion i.e. 27.07.2022, the Bench directed the Ld. DR to serve the notice on the assessee for hearing a report of service of the on record. In the of the opinion that assessee was not interested in responding the appeal and therefore same was heard parte qua the assessee after hearing the arguments of the Ld. DR. spect to deletion of protective addition by the Ld. CIT(A). The relevant finding of the Ld. 5.3.5 It is observed that the AO has made the said additions of Rs. in the hands of our assessee on protective basis by holding that the said investments in M/s Rikosh Fashions P Ltd. (Rs 25,00,000/-), M/s. Bhagwat Textiles P. Ltd. (Rs 1,75,00,000/ Textiles (India) P Ltd (Rs 1,50,00,000/ P Ltd. (Rs 4,00,00,000/ of section 69 can be invoked if (i) the said investment is not recorded in the regular books and (il) the assessee offers no explanation about the source or the explanation offered is not satisfactory. It is rele note that both these conditions are to be cumulatively satisfied. The Hon'ble Orissa High Court in the case of Aurobindo Sanitary Stores (276 ITR 549) has held that the primary condition to be satisfied before invoking the provisions of section 69 the AO that the investments are not recorded in the regular books. In the instant case, there is no dispute that the said amount of investment is duly recorded in the regular books of accounts. The source of an investment which is reflected in the Balance Sheet is out of the corresponding liabilities shown in the Balance Sheet including the ones which got squared up and therefore cannot be treated as unexplained. Also, the corresponding additions have been made in the ha Rikosh Fashions P Ltd., M/s. Bhagwat Textiles P. Ltd., M/s First Winner Textiles (India) P Ltd and M/s First Winner Industries P Ltd. on Vsubstantive basis have been confirmed vide my orders in No.CIT(A) 51/IT-855/16- dated 03.11.2017, Appeal No.CIT(A) and Appeal No.CIT(A) principle, the action of the AO in making the said protective addition us 68 cannot be sustai 5.3.6 Similarly, the protective addit ₹18,75,000/- being the unaccounted estimated commission @ 2.5% on the accommodation entry of the said investment of Rs 7,50,00,000/ Sudama Textile Trading P. Ltd. Bhagwat Textiles P. Ltd. (Rs 1,75,00,000/-), M/s First Winner Textiles (India) P Ltd (Rs 1,50,00,000/-) and M/s First Winner Industries P Ltd. (Rs 4,00,00,000/-) are unexplained. It is noted that the provisions of section 69 can be invoked if (i) the said investment is not recorded in the regular books and (il) the assessee offers no explanation about the source or the explanation offered is not satisfactory. It is rele note that both these conditions are to be cumulatively satisfied. The Hon'ble Orissa High Court in the case of Aurobindo Sanitary Stores (276 ITR 549) has held that the primary condition to be satisfied before invoking the provisions of section 69 is that there should be a finding of the AO that the investments are not recorded in the regular books. In the instant case, there is no dispute that the said amount of investment is duly recorded in the regular books of accounts. The source of an nt which is reflected in the Balance Sheet is out of the corresponding liabilities shown in the Balance Sheet including the ones which got squared up and therefore cannot be treated as unexplained. Also, the corresponding additions have been made in the ha Rikosh Fashions P Ltd., M/s. Bhagwat Textiles P. Ltd., M/s First Winner Textiles (India) P Ltd and M/s First Winner Industries P Ltd. on Vsubstantive basis have been confirmed vide my orders in No.CIT(A) -17 dated 20.11.2018, Appeal No CIT(A)-51/IT 03.11.2017, Appeal No.CIT(A)-51/IT-352/16-17 dated 03.11.2017 No.CIT(A)-51/IT-363/16-17 dated 27.07.2018. Therefore, in principle, the action of the AO in making the said protective addition us 68 cannot be sustained. 5.3.6 Similarly, the protective addition made by the AO u/s 69C of being the unaccounted estimated commission @ 2.5% on the accommodation entry of the said investment of Rs 7,50,00,000/ Sudama Textile Trading P. Ltd. ITA No. 2118/M/2019 4 ), M/s First Winner ) and M/s First Winner Industries nexplained. It is noted that the provisions of section 69 can be invoked if (i) the said investment is not recorded in the regular books and (il) the assessee offers no explanation about the source or the explanation offered is not satisfactory. It is relevant to note that both these conditions are to be cumulatively satisfied. The Hon'ble Orissa High Court in the case of Aurobindo Sanitary Stores (276 ITR 549) has held that the primary condition to be satisfied before is that there should be a finding of the AO that the investments are not recorded in the regular books. In the instant case, there is no dispute that the said amount of investment is duly recorded in the regular books of accounts. The source of an nt which is reflected in the Balance Sheet is out of the corresponding liabilities shown in the Balance Sheet including the ones which got squared up and therefore cannot be treated as unexplained. Also, the corresponding additions have been made in the hands of M/s Rikosh Fashions P Ltd., M/s. Bhagwat Textiles P. Ltd., M/s First Winner Textiles (India) P Ltd and M/s First Winner Industries P Ltd. on Vsubstantive basis have been confirmed vide my orders in No.CIT(A)- 51/IT-328/16-17 17 dated 03.11.2017 17 dated 27.07.2018. Therefore, in principle, the action of the AO in making the said protective addition us ion made by the AO u/s 69C of being the unaccounted estimated commission @ 2.5% on the accommodation entry of the said investment of Rs 7,50,00,000/- also cannot be sustained in principle considering t of unexplained investment itself has in principle been deleted and also because the corresponding substantive additions made us 69C by the AO in the hands of M/s Rikosh Fashions P Ltd., M/s. Bhagwat Textiles P. Ltd., M/s First W Industries P Ltd. on substantive basis have been confirmed vide my orders in No.CIT(A) CIT(A)-51/IT-328/16 352/16-17 dated 03.11.2017 and Appeal No.CIT(A) dated 27.07.2018. However, as noted earlier, the AO is directed to verify the facts in respect of the quantum of substantive and protective additions made related to MIs Rikosh Fashions P Ltd. and accord adopt the correct figure while computing the protective addition us 69C being the unexplained commission expenditure. Accordingly, ground Nos. 1 to 3 of the appeal are partly allowed. 5. We find that the Ld. CIT(A) has the hands of the four First Winner Textile (India) P. Ltd. and M/s First Winner Industries P. Ltd. on substantive basis and therefore, he has deleted the addition in the hands of the assessee which basis. Sudama Textile Trading P. Ltd. cannot be sustained in principle considering that the protective addition of unexplained investment itself has in principle been deleted and also because the corresponding substantive additions made us 69C by the AO in the hands of M/s Rikosh Fashions P Ltd., M/s. Bhagwat Textiles P. Ltd., M/s First Winner Textiles (India) P Ltd and M/s First Winner Industries P Ltd. on substantive basis have been confirmed vide my orders in No.CIT(A)-51/IT-355/16-17 dated 20.11.2018, Appeal No 328/16-17 dated 03.11.2017, Appeal No.CIT(A) ated 03.11.2017 and Appeal No.CIT(A)-51/IT dated 27.07.2018. However, as noted earlier, the AO is directed to verify the facts in respect of the quantum of substantive and protective additions made related to MIs Rikosh Fashions P Ltd. and accord adopt the correct figure while computing the protective addition us 69C being the unexplained commission expenditure. Accordingly, ground 1 to 3 of the appeal are partly allowed.” We find that the Ld. CIT(A) has sustained the four entities i.e. M/s Bhagwat Textile P. Ltd., M/s First Winner Textile (India) P. Ltd. and M/s First Winner Industries P. Ltd. on substantive basis and therefore, he has deleted the addition in the hands of the assessee which was made on protective Sudama Textile Trading P. Ltd. ITA No. 2118/M/2019 5 hat the protective addition of unexplained investment itself has in principle been deleted and also because the corresponding substantive additions made us 69C by the AO in the hands of M/s Rikosh Fashions P Ltd., M/s. Bhagwat Textiles P. inner Textiles (India) P Ltd and M/s First Winner Industries P Ltd. on substantive basis have been confirmed vide my 17 dated 20.11.2018, Appeal No 17 dated 03.11.2017, Appeal No.CIT(A)-51/IT- 51/IT-363/16-17 dated 27.07.2018. However, as noted earlier, the AO is directed to verify the facts in respect of the quantum of substantive and protective additions made related to MIs Rikosh Fashions P Ltd. and accordingly adopt the correct figure while computing the protective addition us 69C being the unexplained commission expenditure. Accordingly, ground the addition in i.e. M/s Bhagwat Textile P. Ltd., M/s First Winner Textile (India) P. Ltd. and M/s First Winner Industries P. Ltd. on substantive basis and therefore, he has deleted the made on protective 5.1 We are of the opinion that protective assessments are framed by an Assessing Officer mainly where the Assessing Officer is not sure enough in whose hands income is chargeable to tax or which year the income is chargeable to protective assessment is to protect from action in the hands of the other person or other assessment year becoming barred by limitation. But when the substantive assessment made by the Assessing Officer is upheld by the Ld. in confirming the protective assessment in the case of another assessee. The Ld. Appellate Authority has to take a judicious call as to in whose hand addition has to be upheld and the Revenue has also to take up a stand as i assessed. Same income cannot be persons, first on substantive basis In the circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue-in Sudama Textile Trading P. Ltd. We are of the opinion that protective assessments are framed Assessing Officer mainly where the Assessing Officer is not sure enough in whose hands income is chargeable to tax or which year the income is chargeable to tax. Main purpose of the making protective assessment is to protect from action in the hands of the other person or other assessment year becoming barred by limitation. But when the substantive assessment made by the Assessing Officer is upheld by the Ld. CIT(A), then he is not justified in confirming the protective assessment in the case of another assessee. The Ld. Appellate Authority has to take a judicious call as to in whose hand addition has to be upheld and the Revenue has stand as in whose hands the income has to be assessed. Same income cannot be sustained in the hands of the two on substantive basis and secondly on protective basis In the circumstances, we do not find any error in the order of the Ld. in-dispute and accordingly, we upho Sudama Textile Trading P. Ltd. ITA No. 2118/M/2019 6 We are of the opinion that protective assessments are framed Assessing Officer mainly where the Assessing Officer is not sure enough in whose hands income is chargeable to tax or which Main purpose of the making protective assessment is to protect from action in the hands of the other person or other assessment year becoming barred by limitation. But when the substantive assessment made by the then he is not justified in confirming the protective assessment in the case of another assessee. The Ld. Appellate Authority has to take a judicious call as to in whose hand addition has to be upheld and the Revenue has n whose hands the income has to be in the hands of the two and secondly on protective basis. In the circumstances, we do not find any error in the order of the Ld. we uphold the same. The grounds of appeal raised by the Revenue are accordingly dismissed. 6. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Sd/- (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 18/10/2022 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Sudama Textile Trading P. Ltd. The grounds of appeal raised by the Revenue are accordingly In the result, the appeal filed by the Revenue is dismissed. nounced in the open Court in 18/10/2022. Sd/ RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Sudama Textile Trading P. Ltd. ITA No. 2118/M/2019 7 The grounds of appeal raised by the Revenue are accordingly In the result, the appeal filed by the Revenue is dismissed. /10/2022. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Sr. Private Secretary) ITAT, Mumbai