Income Tax Officer, Ward-2, Khammam V. M/s Srimanta Granites, Khammam

ITA 227/HYD/2013

• Counselvise Citation: 22722514 RSA 2013
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 22-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Unexplained cash credit; Gift; Depreciation; Source of fund
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER S.NO. ITA NO. A.Y. APPELLANT RESPONDENT 1. 377/H/12 2007-08 M/S SRIMANTHA GRANITES, HYDERABAD. PAN ABFFS 8435 H INCOME TAX OFFICER, WARD 2, KHAMMAM. 2. 227/H/13 2007-08 INCOME TAX OFFICER, WARD 2, KHAMMAM. M/S SRIMANTHA GRANITES, HYDERABAD. PAN ABFFS 8435 H AND C.O. NO. AY CROSS OBJECTOR RESPONDENT 3. 19/H/13 2007-08 M/S SRIMANTHA GRANITES, HYDERABAD. PAN ABFFS 8435 H INCOME TAX OFFICER, WARD 2, KHAMMAM. ASSESSEE BY NONE REVENUE BY SHRI P. SOMASEKHAR REDDY DATE OF HEARING : 19-12-2013 DATE OF PRONOUNCEMENT : -01-2014 O R D E R PER B. RAMAKOTAIAH, A.M.: THESE APPEALS AND C.O. FILED BY ASSESSEE AND REVEN UE FOR AY 2007-08. WHEN THE CASES WERE TAKEN UP FOR HEARING N ONE APPEARED ON BEHALF OF ASSESSEE. EVEN THOUGH COUNSEL APPEARED FOR ASSESSEE AND SOUGHT ADJOURNMENT EARLIER, NONE WERE PRESENT W HEN THE CASES WERE POSTED 29-05-2013 AND 11-09-2013 ALSO. ON 19-1 2-2013, WHEN THE CASE WAS POSTED, NONE WERE PRESENT ON BEHALF OF ASSESSEE. THERE WAS NO REQUEST FOR ANY ADJOURNMENT ALSO. IN VIEW OF THIS AND CONSIDERING THE FACT ASSESSEE GOT RELIEF IN CONSEQU ENTIAL ORDERS, WHICH WAS CONTESTED BY REVENUE, WE ARE OF THE OPINI ON THAT 2 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES ASSESSEE IS NOT INTERESTED IN PURSUING ITS APPEALS AND ACCORDINGLY APPEALS ARE DECIDED ON MERITS AFTER HEARING THE LEA RNED CIT-DR. 2. BRIEFLY THE FACTS LEADING TO THE PRESENT APPEALS ARE THAT ASSESSEE IS A FIRM AND FILED ITS RETURN OF INCOME D ECLARING LOSS OF RS. 1,31,322/- ON 31-10-2007, WHICH WAS PROCESSED AND S ELECTED FOR SCRUTINY. ASSESSMENT WAS COMPLETED DETERMINING TOTA L INCOME AT RS. 1,74,510/- BY MAKING AN ADDITION OF RS. 3,05,832/- TOWARDS (I) DISALLOWANCE OF PROCLAINE CHARGES AND (II) CAR FIN ANCE CHARGES. 3. THE LEARNED CIT INITIATED PROCEEDINGS U/S 263 IN ITIALLY ON THE ISSUE OF DEPRECIATION TO BE RESTRICTED TO 5% AS AGA INST 10% ALLOWED ON THE BUILDING AND SUBSEQUENTLY ON THE ISSUE OF FR ESH CAPITAL AND DISCREPANCY IN THE CAPITAL ACCOUNTS WITH REFERENCE TO BALANCE SHEET AND 3CD REPORT. ON THE FIRST ISSUE, ASSESSEE EXPRES SED NO OBJECTION TO RESTRICT DEPRECIATION CLAIM AND ACCORDINGLY, THE LEARNED CIT DIRECTED TO RECTIFY THE MISTAKE CONSEQUENT TO THE O RDER PASSED U/S 263 OF THE IT ACT. 4. ON THE OTHER TWO ISSUES ON EXAMINATION OF FRESH CAPITAL AND DISCREPANCY, SINCE NO EXPLANATION WAS OFFERED BY AS SESSEE ON THE DATE OF HEARING ON 26-12-2011, THE LEARNED CIT SET ASIDE THE ASSESSMENT AND DIRECTED THE AO TO MAKE THE ASSESSME NT AFRESH AFTER DULY EXAMINING THE ABOVE TWO ISSUES AS PER THE PROV ISIONS OF THE IT ACT. CONSEQUENTLY, THE AO COMPLETED THE ASSESSMENT THEREBY MAKING ADDITION OF AN AMOUNT OF RS. 37,46,000/- INV ESTED BY THE PARTNERS AS UNEXPLAINED CASH CREDIT IN THE HANDS OF THE FIRM. THIS ORDER IS SUBJECT MATTER OF APPEAL BEFORE THE LEARNE D CIT(A), WHO AFTER EXAMINING THE FACTS AND NOTICING THAT THE CAPITAL W AS CONTRIBUTED BY 8 PARTNERS, DELETED THE ADDITION ACCEPTING THE IDENTI TY, SOURCE AND GENUINENESS OF TRANSACTION. LD CIT(A) ALSO STATED T HAT IN RESPECT OF 3 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES THE 5 PARTNERS, THE SAME AO HAS JURISDICTION AND T HEY ARE ASSESSED TO TAX. 5. ASSESSEE PREFERRED APPEAL ON ORDER PASSED U/S 26 3 IN ITA NO. 377/HYD/2012 WHEREAS REVENUE IS AGGRIEVED ON THE OR DER OF CIT(A) AND PREFERRED THE APPEAL IN ITA NO. 227/HYD/2013 WH ILE ASSESSEE FILED C.O. IN CO NO. 19/HYD/2013 IN ITA NO. 227/HYD /2013. 6. SINCE ALL THE ISSUES ARE SIMILAR AND HAVE BEEN I NTER-CONNECTED, THESE APPEALS ARE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. 7. BEFORE EXAMINING THE MERITS OF APPEAL AGAINST TH E ORDER U/S 263, WE INTEND TO TAKE UP APPEAL IN ITA NO. 227/HYD /2013. THIS APPEAL BY REVENUE IS AGAINST THE ORDER OF CIT(A), V IJAYAWADA DATED 14-12-2012. THE AO, AS BRIEFLY STATED, MADE AN ADDI TION OF RS. 37,46,000/- AS UNEXPLAINED CASH CREDIT, WHICH WAS I NTRODUCED BY THE PARTNERS IN THEIR CAPITAL ACCOUNTS INTO THE FIRM. A SSESSEE EXPLAINED BEFORE THE LEARNED CIT(A) AS UNDER: 1. THIS IS THE PARTNERSHIP FIRM WITH 8 PARTNERS, FO RMED IN NOVEMBER 2005, FOR THE PURPOSE OF CARRYING ON GRANI TE BUSINESS. GRANITE FACTORY WAS CONSTRUCTED IN TWO FI NANCIAL YEARS I.E., 2005-06 AND 2006-07. THE PARTNERS HAVE INVESTED THEIR CAPITALS IN BOTH THE FINANCIAL YEARS AND COMP LETED THE CONSTRUCTION. THE BUSINESS WAS COMMENCED DURING THE YEAR ENDING 31 ST MARCH 2007, RELEVANT TO THE ASSESSMENT YEAR 2007- 08; WHICH MEANS THIS IS THE FIRST YEAR OF ITS OPER ATION. 2. IN THE FIRST YEAR I.E., 2005-06, THE PARTNERS IN VESTED RS. 22,50,000/- AND IN THE SECOND YEAR I.E., 2006-07, T HEY HAVE INVESTED RS. 237,46,000/-. 3. OUT OF THE ABOVE, AN AMOUNT OF RS. 9,50,000/- WA S INVESTED BY THREE PARTNERS VIZ., (I) P. SPOORTHI: RS. 2,00,0 00/-, (II) S. SRIKANTH: RS. 4,00,000/- AND (III) V. DEEPTHI: RS. 3,50,000/-, WHO ARE NOW STAYING IN USA. 4. ALL THE REMAINING PARTNERS ARE ASSESSED TO TAX I N THE SAME WARD I.E., ITO, WARD-2, KHAMMAM. THEY ARE ON THE RO LLS OF INCOME TAX FOR MORE THAN FIVE YEARS, WITH VALID PAN AND 4 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES ADDRESSES. THEY HAVE BEEN FILING IT RETURNS BY DECL ARING CLEAR SOURCES OF INCOME AND BALANCE SHEETS EVERY YEAR, WH EREIN THE CAPITAL INVESTMENTS AND CASH BALANCES OF EVERY YEAR WERE CLEARLY REFLECTED. 5. IT RETURN COPIES OF FIVE PARTNERS VIZ., (I) V. K RANTHI KIRAN (II) N. MANIKYAMMA (III) N. VENKATESWARLU (IV) S. VASANT HA AND (V) P. NARENDAR; FOR THE AY 2007-08 ARE HEREWITH ENCLOS ED FOR YOUR KIND PERUSAL. ALL THESE STATEMENTS WERE FILED WITH IT OFFICE, WAR D-2, KHAMMAN AND THESE RETURNS WERE ACCEPTED BY THE DEPA RTMENT IN THE CONCERNED YEAR. 6. WHILE COMPLETING THE SCRUTINY ASSESSMENT U/S 143 (3) OF THE IT ACT, IN CONSEQUENCE WITH REVISIONAL PROCEEDINGS U/S 263 OF THE IT ACT, THE ITO HAS NOT VERIFIED ANY OF THE ASS ESSMENT RECORDS OF THE PARTNERS OF THE FIRM; BUT SIMPLY ADD ED ENTIRE CAPITAL INVESTMENT OF THE PARTNERS DURING THE RELEV ANT YEAR, WHICH IS AGAINST THE NATURAL PRINCIPLES OF JUSTICE AND AGAINST THE LAW. THE ASSESSEE SUBMITTED THE ABSENCE OF ANYTHING TO ESTABLISH THAT THE SOURCES OF THE CREDITORS DEPOSIT S FLEW FROM THE ASSESSEE ITSELF. 8. THE LEARNED CIT(A) AFTER CONSIDERING FACTS AND T HE CASE LAW RELIED UPON BY ASSESSEE, DELETED THE ADDITION BY S TATING AS UNDER: 5. I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMIS SIONS OF THE APPELLANT AND PERUSED EVERY OTHER MATERIAL A VAILABLE ON RECORD. IT IS THE CASE WHERE THE ASSESSMENT HAS BEE N COMPLETED WITH REFERENCE TO THE DIRECTIONS ISSUED T O THE AO BY THE CIT U/S 263. THE ISSUE BEFORE THE AO WAS CAPITA L CONTRIBUTIONS OF THE PARTNERS DURING THE YEAR UNDER DISPUTE. IT TRANSPIRES FROM RECORDS THAT THERE WERE 8 PARTNERS IN ALL AND EXCEPT THREE PARTNERS ALL OTHERS WERE ASSESSED TO T AX BY THE SAME AO WHO IS ASSESSING THE PARTNERSHIP FIRM. THE ADDITION THAT IS DISPUTED IS THE CAPITAL CONTRIBUTION OF 8 P ARTNERS AMOUNTING TO RS. 37,46,000/-. IT IS EXPLAINED BY TH E AR THAT THE SOURCES WERE EXPLAINED TO THE AO WITH REFERENCE TO IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTION, YE T THE ADDITION WAS MADE IS THE GRIEVANCE. AS SEEN FROM TH E RECORDS, DURING THE YEAR UNDER CONSIDERATION THE APPELLANT G OT THE FACTORY CONSTRUCTED WHERE THE ENTIRE FUNDS OF RS. 3 7,46,000/- WAS SPENT. ALL THE PARTNERS EXCEPT THREE WERE ASSES SED TO TAX IN THE SAME JURISDICTION, WHERE THE AO IS THE ASSESSIN G AUTHORITY. THE REMAINING PERSONS ARE HAVING THE SOURCES FOR IN VESTMENT, THE SAID PERSONS ARE IN EXISTENCE AND TRANSACTIONS WERE GENUINE. HENCE, THE SUBMISSION THAT IDENTITY, SOURC ES AND GENUINENESS OF TRANSACTION BEING PROVED, AS PER THE UMPTEEN NO OF DECISIONS RELIED ON, I AM OF THE FIRM VIEW TH AT THE ADDITION 5 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES MADE BY THE AO IS ILL FOUNDED AND ACCORDINGLY, HE I S DIRECTED TO DELETE THE SAME. 9. BEFORE US, THE LEARNED CIT-DR SUBMITTED THAT THE FINDINGS OF THE CIT(A) ARE NOT CORRECT AS CORRESPONDING EVIDENCES W ITH REFERENCE TO THE CREDITS HAVE NOT BEEN FURNISHED BY ASSESSEE AND SO THE AMOUNTS INTRODUCED BY PARTNERS CANNOT BE ACCEPTED AS GENUIN E. HE REFERRED TO THE ORDER OF AO AND PARTICULARLY REFERRED TO PARA 4 OF ASSESSMENT ORDER WHEREIN THE AO HAS RELIED ON THE DECISION OF THE HONBLE P&H HIGH COURT IN THE CASE OF CIT VS. DEEPAK IRON & STE EL ROLLING MILLS, [2011] 336 ITR 307 TO CONSIDER THE CREDIT ENTRY IN THE CAPITAL ACCOUNT OF PARTNERS CAN ALSO BE EXAMINED THE IN THE HANDS O F THE FIRM. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED CIT-DR AND THE SUBMISSIONS OF ASSESSEE BEFORE THE LEARNED CIT( A). THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ALL THE 8 P ARTNERS HAVE INVESTED THE AMOUNT OF RS. 22.50 LAKHS IN AY 2005-06 AND RS. 37,46,000/- IN THE IMPUGNED ASSESSMENT YEAR. OUT OF THE SAID PARTN ERS, THREE PARTNERS ARE STAYING IN USA WHOSE SOURCE OF FUNDS H AVE BEEN EXPLAINED. THE OTHER 5 PARTNERS ARE ASSESSED TO TAX IN THE SAME JURISDICTION OF AO AND AS SEEN FROM THE RECORD THEY SEEM TO HAVE BEEN FILING RETURNS. ON THE FACTS OF THE CASE, THER E IS NO NEED TO MAKE ADDITION IN THE HANDS OF THE FIRM WHEN ALL THE PART NERS OWN UP THE FUNDS AND EXPLAINED THE CREDITS. AS FAR AS THE FIRM IS CONCERNED, THE CREDITS ARE FROM IDENTIFIED PERSONS, WHO HAVE FILED CONFIRMATION LETTERS AND WHO HAVE SHOWN THEIR INVESTMENTS IN THE FIRM, I N THEIR PERSONAL RETURNS. THEREFORE, TREATING THE INVESTMENT MADE BY THE PARTNERS AS UNEXPLAINED BY THE AO IS NOT PROPER. IF THE AO HAS ANY DOUBT ABOUT THE SOURCE OF THE PARTNERS, HE SHOULD HAVE ENQUIRED THE SAME IN THE HANDS OF THE INDIVIDUAL PARTNERS. AS FAR AS THE FI RM IS CONCERNED, THE CREDITS IN THE ACCOUNTS STAND EXPLAINED AS THE AMOU NTS ARE INVESTED BY PARTNERS, WHO ACCEPTED THE INVESTMENTS. THEREFOR E, SOURCE OF SOURCE CANNOT BE CONSIDERED IN THE HANDS OF THE ASS ESSEE FIRM. 6 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES EVENTHOUH THERE IS NO NECESSITY TO GIVE A FINDING B Y CIT(A) ABOUT GENUINENESS, WE AGREE WITH THE ULTIMATE CONCLUSION OF THE CIT(A) THAT ADDITION MADE BY THE AO IS ILL FOUNDED. THEREFORE, WE ARE OF THE OPINION THAT REVENUE HAS NO MERIT IN THE GROUNDS RA ISED TO CONSIDER THE AMOUNTS AS UNEXPLAINED CREDITS IN THE HANDS OF THE FIRM AS SUCH. 11. AS FAR AS THE DECISION RELIED UPON BY THE AO IN CASE OF CIT VS. DEEPAK IRON & STEEL ROLLING MILLS, [2011] 336 ITR 3 07 IN COMING TO A CONCLUSION THAT ADDITION CAN ALSO BE MADE IN THE HA NDS OF THE FIRM, THE FACTS IN THE ABOVE SAID CASE ARE THAT THERE WER E GIFTS RECEIVED FROM NRIS, WHICH WERE DEPOSITED IN THE CAPITAL ACCO UNTS OF PARTNERS AND THE AO NOTICED THAT THERE WAS FALL OF GP AND TH E AMOUNTS OF GIFTS RECEIVED ALMOST EQUAL TO THE DIFFERENCE IN THE GROS S PROFIT DECLARED. ACCORDINGLY, GIFTS RECEIVED BY THE PARTNERS WERE TR EATED AS UNDISCLOSED INCOME OF ASSESSEE. THE LEARNED CIT(A) HELD THAT IRRESPECTIVE OF GENUINENESS OR OTHERWISE OF THE GIF TS, PARTNERS BEING SEPARATE ASSESSEES DEPOSITS IN THEIR CAPITAL ACCOUN TS WERE LIABLE TO BE TREATED AS THEIR INCOME AND NOT INCOME OF ASSESS EE. ON THESE FACTS, IT WAS HELD AS FOLLOWS: HELD, ALLOWING THE APPEAL, THAT IT COULD NOT ALWAYS BE HELD THAT MERELY BECAUSE THE ENTRY IN THE CAPITAL ACCOUNT OF THE PARTNER WAS IDENTIFIED AS A SOURCE OF UNDISCLOSED INCOME, T HE FIRM WAS IMMUNE FROM BEING TAXED, EVEN WHERE A COLOURABLE DE VICE WAS USED BY THE FIRM BY INTRODUCING ITS UNDISCLOSED INC OME BY WAY OF DEPOSIT BY A PARTNER. NO PLAUSIBLE EXPLANATION H AD BEEN FURNISHED BY THE ASSESSEE FOR THE LOWER GROSS PROFI T IN THE CURRENT YEAR AND THE AMOUNT OF GIFTS AMOUNTING TO R S. 22,01,000 WAS ALMOST EQUAL TO LESSER GROSS PROFIT DECLARED. T HE TRADING RESULTS OF THE ASSESSEE WERE, THUS, REJECTED AND TH E ADDITION OF RS. 22,01,000 WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. THIS FINDING HAD NOT BEEN SET ASIDE BY TH E CIT(A) OR THE TRIBUNAL. THEREFORE, THE GIFTS RECEIVED FROM NR IS BY THE PARTNERS WERE THE UNDISCLOSED INCOME OF THE ASSESSE E IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE FINDING TO THE CONTRARY BY THE CIT(A) AND THE TRIBUNAL WAS LEGALLY UNSUSTAI NABLE AND WAS TO BE SET ASIDE. 7 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES AS CAN BE SEEN FROM THE ABOVE, THIS JUDGMENT WAS GI VEN ON PECULIAR SET OF FACTS. NO SUCH LINKING OF CASH CREDITS OF TH E PARTNERS TO THE FIRMS INCOME WAS DONE BY THE AO IN THIS CASE. ACCO RDINGLY, THE JUDGMENT CANNOT BE APPLIED TO THE FACTS OF THE CASE OF ASSESSEE, AND THEREFORE, THE ORDER OF CIT(A) STANDS CONFIRMED AND REVENUE APPEAL IS DISMISSED. 12. SINCE APPEAL OF REVENUE IS DISMISSED, CO NO. 19 /HYD/2013 FILED BY ASSESSEE BECOMES ACADEMIC IN NATURE AS THE CO RAISED IS IN SUPPORT OF CIT(A)S ORDER. THEREFORE, THE CO STANDS DISMISSED. 13. COMING TO THE APPEAL IN ITA NO. 377/HYD/2012, A S SEEN FROM THE ORDER OF CIT, ASSESSEE HAS ACCEPTED THE REDUCTI ON OF DEPRECIATION FROM 10% TO 5% IN THE PROCEEDINGS U/S 263 AND ACCOR DINGLY, WE DO NOT SEE ANY MERIT IN ASSESSEES CONTENTION THAT ORD ER OF CIT LACKS JURISDICTION. 14. WITH REFERENCE TO THE OTHER TWO ISSUES, WHICH W ERE SET ASIDE TO THE FILE OF AO FOR EXAMINATION, THE ORDER OF CIT IS WITH A DIRECTION TO MAKE ENQUIRIES AND EXAMINE THE ISSUE AFRESH. AS ALR EADY STATED ABOVE, THESE WERE EXAMINED BY THE AO AND ULTIMATELY ASSESSEES STAND STOOD APPROVED. THE CAPITAL INTRODUCED IN TH E FIRM STANDS EXAMINED AND ACCEPTED, THEREFORE, EVEN THOUGH THE O RDER OF CIT IS CONTESTED, ULTIMATELY, THERE IS NO GRIEVANCE TO ASS ESSEE IN CONSEQUENTIAL PROCEEDINGS. KEEPING IN MIND THE FACT THAT ASSESSEE ITSELF HAS ACCEPTED THE REDUCTION OF DEPRECIATION, ON WHICH ADDITIONAL INCOME OF RS. 21,745/- HAS BEEN ADDED TO ASSESSEES INCOME, WHICH WAS ALSO NOT CONTESTED BY ASSESSEE, WE CONFIRM THE ORDER OF CIT. IN VIEW OF THE ABOVE, THE ORDER OF CIT U/S 263 STANDS CONFIRMED AND ASSESSEES APPEAL IN ITA NO. 377/HYD/2012 STANDS DI SMISSED. 8 ITA NO. 377/H/12 & 227/H/13 AND CO NO. 19/H/13 M/S SRIMANTHA GRANITES 15. IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 377 /HYD/12, REVENUE APPEAL IN ITA NO. 227/HYD/2013 AND C.O. NO. 19/HYD/2013 BY ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2014 SD/- SD/- (SAKTIJIT DEY) (B. RAMAK OTAIAH) JUDICIAL MEMBER ACCOUNTANT M EMBER HYDERABAD, DATED: 3 RD JANUARY, 2014. KV COPY TO:- 1) M/S SRIMANTHA GRANITES, C/O M/S ANJANEYULU & CO. , CAS., 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABA D 500 080. 2) ITO, WARD 2, KHAMMAM 3) CIT(A), VIJAYAWADA 4) CIT, VIJAYAWADA 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.