Deep Construction Co., Gandhidham V. The Deputy Commissioner of Income Tax, Gandhidham Circle, Gandhidham

ITA 264/RJT/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8534 (ITAT-RAJKOT)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 06-02-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 18-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH KUMAR PANDEY
• Keywords: Unexplained cash credit
• Section: 68; 13

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, राजकोट राजकोटराजकोट राजकोट 瀈यायपीठ, 瀈यायपीठ, 瀈यायपीठ, 瀈यायपीठ, राजकोट राजकोटराजकोट राजकोट IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ITA No.264/RJT/2023 Assessment Year : 2012-13 M/s. Deep Construction Co. Office No.224, Nani Complex Plot No.84, Sector 8 Gandhidham 370 201. PAN : AADFD 5394 D Vs DCIT, Gandhidham Cir. Gandhidham-Kuchchh. (Applicant) (Responent) Assessee by : Shri Vimal Desai, ld.AR Revenue by : Shri Ashish Kumar Pandey, ld.Sr.DR सुनवाई क琉 तारीख/D a t e o f H e a r i n g : 07/02/2024 घोषणा क琉 तारीख /D a t e o f Pr o n o u n c e m e n t: 23/02/2024 आदेश आदेशआदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeal has been filed by the assessee against order passed by the Ld. Commissioner of Income-Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “ld.CIT(A)”) dated 19.6.2023 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2012- 13. 2. Ground no.1 raised in the appeal is as under: “1. The assessment order u/s.143(3) of the Act is bad in law.” ITA No.264/RJT/2023 2 3. No specific arguments with respect to the aforestated ground was made, hence, the same is dismissed. 4. Ground No.2 reads as under: “The ld.AO has erred in law as well as on facts in making the addition of Rs.1,20,00,000/- on account of introduction of fresh capital by the partners and the ld.CIT(A) has also erred in law as well as on facts in confirming the same.” 5. The challenge in the above ground is to the addition made to the income of the assessee, which was confirmed by the ld.CIT(A) of Rs.1,20,00,000/- on account of treating the capital introduced by the partners of the assessee-firm as unexplained cash credit in terms of section 68 of the Act. 6. Assessee is engaged in the business of civil construction work. The amount of Rs.1.20 crores was introduced by the following partners of the firm: i) Smt.Jayaben N. Sorathia : Rs.40,00,000/- ii) Shri Naranbhai D. Sorathia : Rs.25,00,000/- iii) Shri Rameshbhai N. Sorathia : Rs.26,00,000/- iv) Smt. Jayshreeben R. Sorathia : Rs.29,00,000/- Total : Rs.1,20,00,000/- 7. The AO found that the assessee was unable to discharge its onus of proving the genuineness of the amount so received. The ld.CIT(A) also found that the assessee had failed to prove the genuineness and credit worthiness of the transactions, and finding so, he confirmed the addition made by the AO. The order of the ld.CIT(A) reveals that the ld.CIT(A) noted that the identity of the partners was not in doubt. What was doubtful and not established by the assessee was the credit-worthiness and genuineness of the ITA No.264/RJT/2023 3 transactions. This finding is at para 6.3.3 of his order. The basis, we have noted from the order of the ld.CIT(A) for arriving at this finding is that during assessment proceedings the assessee had submitted returns of income along with computation of incomes of the partners to prove their credit-worthiness. The assessee had explained the source of partners, as being out of their agriculture income. During the appellate proceedings, the assessee filed following additional evidence before the ld.CIT(A) to prove the agriculture income earned by the partners: i) Balance sheet of the partners as on 31.3.2012; ii) Capital account for the year iii) Cash book for the year iv) Agriculture income and expenditure for the year; v) Agriculture land holding proof. 8. The Ld.CIT(A) sought a remand report from the AO on the same, who stated that no evidence of earning of agriculture income was filed by the assessee, and further he noted disparity in agriculture income earned by various partners on the same land holdings. The finding of the AO at page no.13 of the order is as under: “From the above it is noticed that the Smt. Jamnaben M Sorathia and Smt. Jayshree R Sorathia are holding the same agriculture land and earning Agricultural Income of Rs.24,78,910/- and Rs.37,23,570/- respectively. Further, Shri Naranbhai Do Sorathia and Rameshbhai N Sorathia are holding same land along with three others and earning agriculture income to the tune of Rs.50,61,400/- and Rs.50,91,720/- respectively. However, by no stretch of imagination, it seems that from this such land area, such a huge amount of agriculture income can be earned. Further, the assesses had not submitted any details of Production Return of Agriculture Produce which is to be filed with the appropriate land authority." ITA No.264/RJT/2023 4 9. The ld.CIT(A) accordingly agreed with the AO that the agriculture income shown by the partners was highly inflated and actually there was not enough income to justify the capital introduction. He rejected the assessee’s contention of the agriculture income having been returned by the partners and accepted by the Department in preceding and succeeding assessment years including the impugned assessment year finding that the AO had not accepted the quantum of agricultural income returned by them. His finding in this regard are at para 6.3.5 of his order as under: ITA No.264/RJT/2023 5 10. Thus, what emanates from the above is that, the ld.CIT(A) confirmed the addition, finding that the credit-worthiness of the partners was not proved for infusing the amount of capital during the year. ITA No.264/RJT/2023 6 11. Before us, during the course of hearing, the ld. Counsel for the assessee contended that the assessee had furnished all possible evidences to prove genuineness of the transactions, and in this regard, he drew our attention to PB Page no.60 listing all the documents filed relating to the partners to prove their genuineness as under: ITA No.264/RJT/2023 7 12. He further contended that the identity of the partners are not doubted and partners have confirmed to have introduced capital in the firm, and that the addition, if any, on account of credit-worthiness of the partners not being proven, could have been made only in the hands of the partners and not the assessee firm. He pointed out that the Hon’ble Gujarat High Court held so in the case of CIT Vs. Pankaj Dyestuff Industries, in Income Tax Reference No.241 of 1993 dated 6.7.2005. Copy of the order was placed before us, and the ld.counsel for the assessee drew our attention to the relevant finding of the Hon’ble High Court on this issue at para 13 to 15 of the judgment as under: "13. Applying the aforesaid principles to the facts of the present case, it is apparent that the assessee had furnished the details which would discharge the onus which lay on the assessee. It is not the case of the revenue that the partners of the assessee firm are fictitious. The Income Tax Officer has not disputed that the credits in the accounts of the partners were not deposits from the partners. Moreover, it is an admitted position that this was the second year of the firm, and that it was running in loss. It is true that the Income Tax Officer did not accept the explanation given on behalf of the assessee in respect of the new deposits or cash credits in the accounts of the partners. The mere non-acceptance of that explanation does not, however, provide material for finding that the said sum represented income of the assessee firm. As held by the Allahabad High Court in case of Commissioner of Income Tax, Allahabad v. Jaiswal Motor Finance (supra), in the absence of any material to indicate that there were profits of the firm, the amount credited to the partners' accounts could not be assessed in the hands of the firm. Once the partners have owned that the monies deposited in their accounts are their own, the Income Tax Officer is entitled to and may proceed against the partners and assess the same in their hands, if their explanation is not found satisfactory. 14. In the facts and circumstances of the present case, both the Deputy CIT (Appeals) and the Tribunal have found that the assessee had discharged the primary onus which was on it by offering explanation, which has not been found to be incorrect or false in any manner. The interest of the revenue is also safeguarded as the Income Tax Officer has been given the liberty to consider the said credits in the hands of the partners if he is not satisfied with the sources of investment of cash credits in the accounts of the partners. 15. In these circumstances, it is not possible to find that the order of the Tribunal suffers from any infirmity which would require interference at the hands of this Court. Accordingly, it is held that the Tribunal was right in law and on facts in deleting the addition of Rs.87,250/- being deposits in the accounts of the partners. The question referred to this Court is, accordingly, ITA No.264/RJT/2023 8 answered in the affirmative i.e. in favour of the assessee and against the revenue.” 13. He further pointed out that even on merits, considering all the documents filed by the assessee, credit-worthiness of the partners could not be stated to be in doubt, and the assessee could be held to have not discharged its onus of proving so. He contended that the partners had returned identical agriculture income in the preceding and succeeding years, and though it was not accepted completely, but the balance was treated as income of the partners from other sources. Therefore, as far as the credit-worthiness of the partners are concerned, whether from agriculture income or from other sources, the same stood accepted by the Department in the assessment of the partners. Therefore, the onus on the assessee to prove credit- worthiness stood completely discharged. The ld.DR in counter, however, relied on the order of the ld.CIT(A). 14. Having carefully considered the contention of both the parties, we find, in the present case, the addition of the capital introduced by partners in the partnership firm has been made solely for the reason that their credit-worthiness was not proved. The identity of the partners was not doubted. We have also noted the fact that these partners have confirmed having introduced aforestated capital in the assessee-firm. In view of these facts, where the identity of the partners was not doubted and partners had confirmed introduction of capital in the assessee-firm during the year, the issue stands covered by the decision of the Hon’ble jurisdictional High Court in the case of Pankaj Dyestuff Industries (supra) wherein in the backdrop of identical facts and circumstances, the Hon’ble High Court held that addition, if any, in such circumstances ought to have been made in ITA No.264/RJT/2023 9 the hands of the partners alone who had owned up the money introduced as capital as belonging to them but failed to prove their creditworthiness. Even otherwise we find that the returns filed by these partners prove their creditworthiness since the income though returned as agricultural income was not accepted by the department in toto but the portion not accepted was treated as income from other sources of these partners. Thus the quantum of income returned by these partners was accepted by the Revenue albeit under different head of income. Thus there can be no case of the Revenue now to hold that creditworthiness of the partners is not proved on account of their agricultural income not being accepted by the Revenue. 15. The decision relied on by the Ld.CIT(A) of the Delhi High Court in the case of NRA Iron & Steel P. Ltd., we find has been rendered in different set of facts, more particularly, the fact that it was rendered in the context of share capital received by a company-assessee. The decision in the said case, therefore, is not applicable to the facts and circumstances of the present case. In view of the same, we hold that the addition made to the income of the assessee as unexplained capital of partners, is not sustainable and the same is therefore directed to be deleted. The ground no.2 is allowed. 16. Ground No.3 reads as under: 3. The ld.AO has erred in law as well as on facts in a making ad-hoc disallowance of Rs.1,00,00,000/- out of various expenses claimed and the Ld.CIT(A) has also erred in law as well as on facts in confirming the same to the extent of Rs.50,00,000/-.” 17. The issue relates to adhoc disallowance of expenditure incurred by the assessee. ITA No.264/RJT/2023 10 18. The facts which emerge from the order of the authorities below is that the assessee had incurred total expenses of Rs.6,88,73,704/- which was not verifiable by the AO. Therefore, an adhoc disallowance of Rs.1,00,00,000/- was made out of the same, which was reduced by the Ld.CIT(A) to Rs.50,00,000/-. 19. The ld.counsel for the assessee contended before us that in the preceding year in the case of the assessee, the disallowance had been restricted to Rs.1,50,000/-, and he pleaded for relief accordingly in the present case also. The ld.DR was unable to controvert the above contention of the Ld.CIT(A). 20. In view of the same, we direct the AO to restrict the expenditure to Rs.1,50,000/-. This ground of appeal of the assessee is partly allowed. 21. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 23 rd February, 2024 at Ahmedabad. Sd/- Sd/- (MS. MADHUMITA ROY ) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 23/02/2024 vk* आदेश क琉 灹ितिलिप अ灡ेिषत आदेश क琉 灹ितिलिप अ灡ेिषतआदेश क琉 灹ितिलिप अ灡ेिषत आदेश क琉 灹ितिलिप अ灡ेिषत/Copy of the Order forwarded to : 1. अपीलाथ牸 / The Appellant 2. 灹瀄यथ牸 / The Respondent. 3. संबंिधत आयकर आयु猴 / Concerned CIT 4. आयकर आयु猴(अपील) / The CIT(A) 5. िवभागीय 灹ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड榁 फाईल / Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/BY ORDER, True Copy उप उपउप उप/सहायक पंजीकार सहायक पंजीकारसहायक पंजीकार सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद / ITAT, Ahmedabad