SB Steel Industries,Hyd, Hyderabad V. ITO, W-5(1), Hyderabad

ITA 264/HYD/2011

• Counselvise Citation: 26422514 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Keywords: Unexplained cash credit
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 264/HYD/2011 ASSESSMENT YEAR : 2006-07 S.B. STEEL INDUSTRIES, HYDERABAD. PAN: AALFS6575K VS. INCOME-TAX OFFICER, WARD - 5(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A. SRINIVAS REVENUE BY : SHRI B. YADAGIRI DATE OF HEARING : 04-11-2013 DATE OF PRONOUNCEMENT : 13 -11-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS IS AN APPEAL BY ASSESSEE DIRECTED AGAINST THE ORDER OF CIT(A)-V, HYDERABAD, DATED 16-12-2010 ON THE ISSUE OF CONFIRMING THE ADDITION OF RS. 2,75,97,214/- TOWARDS UNEXPLAIN ED CASH CREDIT. 2. BRIEFLY STATED, ASSESSEE FIRM WAS ENGAGED IN BUS INESS OF TRADING AND MANUFACTURE OF STEEL AND FILED RETURN F OR THE YEAR UNDER CONSIDERATION ADMITTING NIL INCOME AND THE RETURN WAS ACCEPTED UNDER THE PROVISIONS OF SECTION 143(1) OF THE ACT. LATER, IN THE COURSE OF SURVEY IN OTHER GROUP CASES, IT WAS FOUND THAT A SSESSEE ADVANCED AN AMOUNT OF RS. 3,13,15,185/- AS UNSECURED LOAN TO M/S 2 ITA NO. 264/HYD/2011 S.B. STEEL INDUSTRIES. RAYALASEEMA STEEL RE-ROLLING MILLS. IN THE PROCEED INGS OF THE SAID FIRM, CREDITWORTHINESS OF ASSESSEE FIRM WAS ENQUIRE D. ASSESSEES STATEMENT OF ACCOUNT WITH PUNJAB NATIONAL BANK ACCO UNT WAS FILED AND CONSEQUENTLY INFORMATION WAS PASSED ON TO THE PRESE NT AO ABOUT INVESTMENTS MADE. ON RECEIPT OF INFORMATION, PROCEE DINGS U/S 148 WERE INITIATED TO BRING THE DEPOSITS MADE IN THE BA NK ACCOUNT TO TAX AS INCOME OF ASSESSEE FIRM. ASSESSEE EXPLAINED, AS EXTRACTED IN PAGE 2 OF THE ASSESSMENT ORDER, THAT THERE ARE VARI OUS CASH DEPOSITS IN THE PUNJAB NATIONAL BANK AND THESE CASH DEPOSITS WERE THE RECEIPTS OF VARIOUS DEBTORS AVAILABLE TO ASSESSEE F ROM EARLIER YEARS. SINCE ASSESSEE IS UNABLE TO CONTINUE ITS BUSINESS A CTIVITY ALL THE DEBTS WERE COLLECTED MOSTLY IN CASH AND THE AMOUNTS WERE MADE INTO PAY ORDERS AND DEPOSITED WITH OTHER FIRM AS INVESTM ENT. ASSESSEE FILED LIST OF DEBTORS REALIZED BY IT ALONG WITH THE AMOUNTS WHICH WERE TRANSFERRED TO M/S RAYALASEEMA STEEL RE-ROLLING MIL LS LTD. AO, HOWEVER, DID NOT ACCEPT THE EXPLANATION OF ASSESSEE ON THE REASON THAT IN THE ABSENCE OF DETAILS LIKE ADDRESS, SOURCE OF PAYMENTS, THE DEPOSITS IN THE BANK ACCOUNT CANNOT BE ACCEPTED. TH E AO ALSO WAS OF THE OPINION THAT ASSESSEE DID NOT EXPLAIN THE REASO NS AS TO WHY SUNDRY DEBTORS PAID SUCH HUGE AMOUNTS IN CASH AND W HY IT DID NOT INSIST UPON RECEIPT OF THIS AMOUNT THROUGH CHEQUES/ DDS. ULTIMATELY, HE HELD THAT ASSESSEE DID NOT FILE ANY INFORMATION SUPPORTING RECEIPT OF THE AMOUNT AND AVAILABILITY OF SUCH AMOUNT FOR P AYMENT TO M/S RAYALASEEMA STEEL RE-ROLLING MILLS LTD. THEREFORE, THE AO HELD THAT THE SAID AMOUNT RECEIVED AND DEPOSITED INTO THE BAN K ACCOUNT WAS NOT PROPERLY EXPLAINED AND HENCE TREATED THE ENTIRE AMOUNT OF RS. 2,75,97,214/- AS INCOME OF ASSESSEE FOR THE YEAR U NDER CONSIDERATION. 3. BEFORE THE LEARNED CIT(A), IT WAS CONTENDED THAT ASSESSEE HAS NOT RECEIVED ANY CASH CREDITS AND THESE AMOUNTS ARE RECOVERIES OF THE EARLIER DEBTS AND THE SAME ARE TRADING RECEIPTS , THEREFORE, THE QUESTION OF INVOKING SECTION 68 DOES NOT ARISE. IT RELIED ON VARIOUS 3 ITA NO. 264/HYD/2011 S.B. STEEL INDUSTRIES. CASE LAW. HOWEVER, THE LEARNED CIT(A) APPLIED THE P RINCIPLES APPLICABLE TO THE CASH CREDITS AND ULTIMATELY HELD THAT ALL THE THREE INGREDIENTS FOR PROVING CASH CREDITS, I.E., IDENTIT Y OF THE PERSON, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION REMAINED UNPROVED. ACCORDINGLY, HE CONFIRMED THE ORDER OF TH E AO. 4. BEFORE US, THE LEARNED COUNSEL PLACED PAPER BOOK AND DETAILS OF SALES AND SUNDRY DEBTORS AVAILABLE IN VARIOUS EARLI ER YEARS AND ALSO SCHEDULES OF BALANCE SHEET FOR THIS YEAR INCLUDING PAPER BOOK FURNISHED BEFORE THE CIT(A) TO SUBMIT THAT ASSESSEE WAS HAVING SUNDRY DEBTORS IN THE BOOKS REGULARLY AND, THEREFOR E, RECEIPT OF MONEY FROM SUNDRY DEBTORS CANNOT BE TREATED AS CASH CREDI TS AND THE REASON FOR RECEIVING AMOUNTS IN CASH IS THAT ASSESSEES BU SINESS HAS STOPPED, THEREFORE, ASSESSEE COLLECTED ALL THE DEBT S AND TRANSFERRED MONIES TO ANOTHER FIRM. IT WAS FURTHER SUBMITTED THAT NOT ONLY THE DEBTS RECEIVED BUT ALSO SOME OF THE DEBTS WERE ALSO TRANSFERRED AS SUCH. AS CAN BE SEEN FROM THE ORDER OF THE AO AND U LTIMATELY INVESTMENT MADE IN M/S RAYALASEEMA STEEL REROLLING MILLS WAS TO THE EXTENT OF RS. 3.33 CRORES OUT OF WHICH THE AMOU NTS PAID BY WAY OF PAY ORDERS AND CHEQUES WERE THE AMOUNTS RECEIVED OU T OF DEBTS. HE REFERRED TO THE ORDER OF THE AO TO SUBMIT THAT ALL THE AMOUNTS WERE RECEIVED IN THE BOOKS OF ACCOUNT AS TRADE RECEIPTS AND SO QUESTION OF TREATING THE SAME AS CASH CREDIT DOES NOT ARISE. IT WAS FURTHER SUBMITTED THAT ALL THE DETAILS AS REQUIRED INCLUDI NG LIST OF DEBTORS WERE FURNISHED TO THE AO AND IT IS NOT CORRECT TO STATE THAT ASSESSEE DID NOT FURNISH ANY DETAILS. 5. THE LEARNED DR, HOWEVER, RELIED ON THE ORDERS OF THE AO AND CIT(A) TO SUBMIT THAT ASSESSEE HAS SHOWN LARGE AMOU NTS OF CASH CREDITS AND THE SAME ARE NOTHING BUT UNEXPLAINED IN COME OF ASSESSEE. HE FURTHER CONTENDED THAT ASSESSEE HELPED IN VIOLATION OF PROVISIONS IN ACCEPTING CASH. ACCORDINGLY, AO WAS C ORRECT IN TREATING THE SAME AS UNEXPLAINED CASH CREDITS. 4 ITA NO. 264/HYD/2011 S.B. STEEL INDUSTRIES. 6. WE HAVE CONSIDERED THE ISSUE, RIVAL CONTENTIONS AND EXAMINED THE FACTS. FIRST OF ALL, WHAT IS NOTICED IN THE ORD ERS IS THAT BOTH THE AO AND CIT(A) TREATED THE AMOUNTS RECEIVED BY ASSESSEE AND DEPOSITED IN THE BANK ACCOUNT AS CASH CREDITS. IT IS ASSESSEE S SUBMISSION THAT THERE ARE OUTSTANDING DEBTORS IN THE BOOKS FROM WHO M ASSESSEE HAS TO COLLECTED MONIES SINCE ASSESSEE WAS OUT OF BUSIN ESS DURING THE YEAR AND ALL THESE OUTSTANDING DEBTORS HAVE BEEN CO LLECTED IN CASH AND, THEREFORE, THESE ARE NOT CASH CREDITS, BUT, AR E TRADE RECEIPTS IN THE FORM OF CASH. IN SUPPORT, ASSESSEE HAS SUBMITTE D BALANCE SHEET, FIGURES IN VARIOUS EARLIER YEARS IN WHICH THERE ARE SUNDRY DEBTORS AND CORRESPONDING SALES, WHICH ARE AS UNDER: ( AMOUNTS IN RS) S.NO. ISSUE ASSESSMENT YEAR 2006-07 2005-06 2004-05 2003-04 2002-03 1 SUNDRY DEBTORS 0 26865713 26670832 37970215 33213302 2 SALES 0 10202684 13720334 14985554 12385924 AS CAN BE SEEN FROM THE ABOVE, ASSESSEE HAS RECOVER ABLES TO THE EXTENT OF RS. 3.32 CRORES IN AY 2002-03, WHICH HAVE COME DOWN TO RS. 2.68 CRORES BY AY 2005-06 AND DURING THE YEAR T HERE WERE NO SALES AND ALL THE OUTSTANDING DEBTORS HAVE BEEN COL LECTED. AS CAN BE SEEN FROM THE ORDERS OF THE AO, ASSESSEE HAS INVEST ED THE AMOUNT OF RS. 3.3 CRORES IN OTHER FIRM NOT ONLY BY RECOVERING THE DEBTORS BUT ALSO BY TRANSFERRING SOME OF THE RECOVERABLES, WHIC H WERE ACCEPTED BY THE AO AS SUCH. THE AO AND CIT(A) WRONGLY WERE O F THE OPINION THAT CASH RECEIPTS CAN BE TREATED AS CASH CREDITS B UT, TRADE RECEIPTS IN CASH IS NOT PROHIBITED UNDER THE LAW AND ONLY WHEN PAYMENTS ARE MADE IN CASH TOWARDS PURCHASE THERE ARE PROVISIONS TO DISALLOW THE AMOUNT. HOWEVER, IN THIS CASE, ASSESSEES SALES HAV E BEEN ACCEPTED AS WELL AS ASSESSEES BOOKS OF ACCOUNT HAVE BEEN AC CEPTED IN EARLIER YEARS AND THERE ARE OUTSTANDING DEBTORS WHICH HAVE TO BE RECOVERED. 5 ITA NO. 264/HYD/2011 S.B. STEEL INDUSTRIES. JUST BECAUSE ASSESSEE HAS RECOVERED THEM IN CASH, I T CAN NOT BE TREATED AS UNEXPLAINED INCOME OF ASSESSEE. WHEN IN THE BOOKS, ASSESSEE HAS MADE DEBTORS NIL AND WHATEVER AMOUNT S IT RECOVERED HAS BEEN DEPOSITED IN BANK ACCOUNT FIRST AND INVEST ED IN THE OTHER FIRM. THERE WAS ALSO TRANSFER OF SOME OF THE DEBTO RS AS SUCH, AS CAN BE SEEN FROM THE ORDER OF THE AO ON WHICH THERE IS NO ADDITION OR THERE IS NO DISPUTE. 7. IT IS AN ESTABLISHED FACT THAT ONLY CASH CREDI TS CAN ONLY BE CONSIDERED U/S 68, BUT, NOT TRADE RECEIPTS. THE COO RDINATE BENCH OF ITAT IN THE CASE OF ITO VAS. RAJENDRA KUMAR TAPARI A, 106 TTJ 712 (JODH.) HAS HELD THAT CASH CREDITS STANDING IN THE NAMES TRADE CREDITORS, ALL INCOME-TAX ASSESSEES, COULD NOT BE T REATED AS NON- GENUINE WHEN THEY HAVE CONFIRMED THE TRANSACTIONS B Y FILING AFFIDAVITS AND DEPOSING BEFORE THE AO, AND THE ADDITION COULD NOT BE MADE IN RESPECT OF CASH CREDITS OR INTEREST PAID THEREON . IN THE PRESENT CASE, THE AMOUNTS RECEIVED BY ASSESSEE ARE NOT CASH CREDI TS BUT THE SAME WERE RECOVERY OF THE DEBTORS, WHICH ARE AVAILABLE I N THE BOOKS OF ACCOUNT. SINCE ASSESSEE FURNISHED DETAILS OF DEBTOR S AND ALSO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT, WE ARE OF THE OPINION THAT BOTH THE AO AND THE CIT(A) HAVE ERRED IN CONSIDERING REC OVERIES FROM DEPOSITS AS CASH CREDITS. THE CORRESPONDING SALES IN EARLIER YEARS HAVE BEEN ACCEPTED, AS THERE IS NO DISPUTE WITH REF ERENCE TO THE ENTRIES IN THE BOOKS OF ACCOUNT IN ANY OF THE EARLI ER YEARS. THEREFORE, WE ARE OF THE VIEW THAT THE PRINCIPLES LAID DOWN FO R INVOKING PROVISIONS OF SECTION 68 CANNOT BE APPLIED TO THE T RADE RECOVERIES MADE BY ASSESSEE DURING THE YEAR. 8. IT IS ALSO NOT THE CASE OF THE AO THAT INVEST MENTS MADE IN SREE RAYALASEEMA STEEL REROLLING MILLS FROM UNEXPLAINED SOURCES. HAVING EXPLAINED THE SOURCE OF INVESTMENT IN THE OTHER FIR M BEING RECOVERIES FROM DEBTORS, THE SAME CANNOT BE DOUBTED JUST BECAU SE ASSESSEE RECOVERED THEM IN CASH. AS SEEN FROM THE LIST FURNI SHED IN THE PAGE 2 OF ASSESSMENT ORDER, THE RECOVERIES WERE DEPOSITED FROM 30-07-2005 TO 28-03-2006 OVER A PERIOD OF TIME IN VARIOUS DENO MINATIONS, 6 ITA NO. 264/HYD/2011 S.B. STEEL INDUSTRIES. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS RECO VERED IN A SINGLE DAY AND INVESTED IN THE OTHER FIRM. THE SALES WERE ALREADY ACCEPTED IN THE EARLIER YEARS AND THE RECOVERY OF THE AMOUNT S HAPPENED TO BE DURING THE YEAR. AS ALREADY STATED THE TRANSFER OF DEBTORS OF THE BALANCE INVESTMENT WAS ACCEPTED. ON THESE FACTS, W E ARE OF THE OPINION THAT PROVISIONS OF SECTION 68 DO NOT APPLY AND ACCORDINGLY THE AMOUNT CANNOT BE TREATED AS INCOME OF THE YEAR. THE REFORE, WE DELETE THE ADDITION MADE. ACCORDINGLY, ASSESSEES GROUNDS ARE ALLOWED. 9. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RA MAKOTAIAH) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 13 TH NOVEMBER, 2013. KV COPY TO:- 1) S.B. STEEL INDUSTRIES, C/O M/S R.B. KABRA & CO., CAS., 1-917, TILAK ROAD, HYDERABAD 001. 2) ITO, WARD - 5(1), HYDERABAD. 3) CIT(A)-V, HYDERABAD. 4) CIT-V, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.