ACIT, New Delhi V. M/s Repro Auto Pvt. Ltd., New Delhi

ITA 2799/DEL/2011

• Counselvise Citation: 279920114 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV RANKA
• Keywords: Business income; Income from undisclosed sources; Tax effect
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2799/DEL/2011 ASSESSMENT YEAR : 2008-09 ACIT, M/S REPRO AUTO PVT. LTD., CIRCLE-15 (1), 177-SAINIK VIHAR, W-7, LANE, NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV RANKA, SR. DR. RESPONDENT BY : SHRI ASHOK KUMAR, FCA. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE OR DER OF LD CIT(A) DATED 25.2.2011. THE GROUNDS RAISED BY THE REVENUE A RE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` .24,23,862/- MADE BY THE ASSESSING OFFICER AS UNEXPLAINED INCOME OF T HE ASSESSEE. THESE WERE UNEXPLAINED CASH DEPOSITS IN THE BANK ACCOUNTS OF THE ASSESSEE WHICH THE LD CIT(A) ERRONEOUSLY TREATED AS EXPLAINED. 2. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH G ROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT RETURN DECLAR ING A LOSS OF ` .1,08,01,120/- WAS FILED ON 29.9.2008. THE COMPANY IS ENGAGED IN ITA NO2799/DEL/2011 2 THE BUSINESS OF MANUFACTURING AND TRADING OF SHEET META L COMPONENTS/AUTO PARTS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS. DURING ASSESSMENT PROCEEDINGS THE A SSESSING OFFICER OBSERVED THAT THERE WAS CASH DEPOSIT IN THE BA NK ACCOUNT OF ASSESSEE ON VARIOUS DATES STARTING FROM 30.4.2007 TO 31.3. 2008 AND THE AMOUNTS WERE DEPOSITED BY ONE SHRI SURESH KUMAR. T HE ASSESSING OFFICER WANTED TO EXAMINE SHRI SURESH KUMAR. THEREFO RE, HE REQUESTED THE AR OF ASSESSEE VIDE ORDER SHEET ENTRY DATED 29.11.20 10 TO PRODUCE SHRI SURESH KUMAR FROM WHOM CASH HAS BEEN RECEIVED AS C LAIMED BY THE ASSESSEE. THE LD AR VIDE LETTER DATED 6.12.2010 R EPLIED THAT THE ASSESSEE HAD TRIED TO ESTABLISH CONTRACT WITH SHRI SURESH KUMAR BUT HIS FAMILY HAS INFORMED THAT HE WAS OUT OF TOWN IN CONNE CTION WITH SOME BUSINESS AND WHENEVER HE COMES BACK THEY WILL ASK HIM TO APPEAR BEFORE YOU. HOWEVER, THE ASSESSEE EXPLAINED THAT CASH D EPOSITS WERE ON ACCOUNT OF SALE OF SCRAP MADE TO SHRI SURESH KUMAR. THE ASSESSING OFFICER OBSERVED THAT DURING PREVIOUS YEAR NO SUCH SALES OF SCRAP WAS MADE AND ALSO QUANTITATIVE DETAILS IN RESPECT OF RAW M ATERIAL AND FINISHED GOODS WERE NOT PROVIDED IN FORM NO.3CD OF AU DIT REPORT, THEREFORE, ASSESSING OFFICER DID NOT BUY THE ARGUMENT O F LD AR THAT CASH DEPOSITS MADE BY SHRI SURESH KUMAR WAS ON ACCOUNT OF RECEIPT OF SCRAP SALE MADE TO HIM. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAD MADE CASH DEPOSITS IN THE BANK ACCOUNT AND WH EN QUESTIONED THE ASSESSEE CLAIMED THESE TO BE ON ACCOUNT O F SCRAP SALE. THE ASSESSING OFFICERS OBSERVATION WAS BASED UPON THE FACT THAT ASSESSEE HAD FAILED TO PRODUCE THE PARTY TO WHOM SALE WA S MADE AND NOR THE ASSESSEE HAS JUSTIFIED THE QUANTITY OF SCRAP PRODU CED IN ASSESSEES BUSINESS. MOREOVER, HE HELD THAT THERE IS NO PAST PRECEDENT OF SUCH KIND OF SALE OF SCRAP AND THE VOLUME OF CASH DE POSIT WAS NOT COMMENSURATE WITH ASSESSEES ROUTINE BUSINESS. THE ASSESSING OF FICER ALSO OBSERVED THAT THERE WAS ENOUGH UNUTILIZED MODVAT CREDIT AVAILABLE ITA NO2799/DEL/2011 3 WITH THE ASSESSEE TO COVER THE EXCISE ON SCRAP SALE BILLS. THEREFORE, HE ARRIVED AT THE CONCLUSION THAT ASSESSEE HAD INTRODUCED I NCOME FROM UN-ACCOUNTED SOURCES AND HAS SHOWN IT AS ITS BUSINESS INCOM E TO AVOID THE TAX LIABILITY AND ALSO THE ASSESSEE HAD FAILED TO PR OVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTION. TH EREFORE, HE TREATED THE CASH DEPOSITS IN THE BANK AS UNEXPLAINED CA SH CREDIT U/S 68 OF THE ACT AND MADE THE ADDITION ACCORDINGLY. 3. DISSATISFIED WITH THE ORDER OF ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE LD CIT(A) AND SUBMITTED AS UNDER:- 1. THAT THE AMOUNT IN QUESTION DOES NOT FALL WITHIN T HE CONNOTATION OF CRASH CREDITS U/S 68 AS THIS IS ONLY A BU SINESS RECEIPT AGAINST SALE PROCEEDS AND CREDITED TO PROFIT A ND LOSS ACCOUNT AND NOT CLAIMED AS A CREDIT OF LIABILITY IN THE BALANCE SHEET AND THEREFORE CANNOT BE COVERED U/S 68. IN OTHE R WORDS, UNEXPLAINED AMOUNTS NOT ADMITTED AS INCOME BUT INTROD UCED IN THE BOOKS OF ACCOUNTS AS CREDITS OR LOANS OR DEPOSITS OR L IABILITIES AS OPPOSED TO INCOME ONLY ARE COVERED U/S 68. RELIANCE WAS PLACED ON HARSHILA CHORADIA V. ITO 208 CTR 218 (RA J.), TULIP FINANCE 15 DTR 185 (DEL.) CIT V. CHEMI KLEEN INDIA (P) LTD. 1990 181 ITR 198 (DEL.). 2. THAT THESE TRANSACTIONS OF SALE HAVE SUFFERED A HUGE LIABILITY BY WAY OF INDIRECT TAXES WHICH HAS BEEN INCURRED AND DISCHARGED BY THE ASSESSEE. THE OBSERVATION OF THE ASSESSING OFFICER TH AT MODVAT CREDIT WAS AVAILABLE DOES NOT HOLD ANY WATER A S EXCISE DUTY TO THE EXTENT OF ` .20,81,900/- AND EDUCATION CESS THEREON TO THE EXTENT OF ` .89,674/- HAS BEEN DISCHARGED BY WAY OF CASH PAYMENT AS THE MODVAT CREDIT WAS NOT SUFFICIENT TO M EET THE ITA NO2799/DEL/2011 4 WHOLE EXCISE DUTY LIABILITY. HAD THERE NOT BEEN ANY SCRAP SALE, EXCISE DUTY PAYMENT WOULD HAVE BEEN LESSER BY ` .5,74,121/- AND EDUCATION CESS BY ` .17,219/-. THAT COPIES OF EXCISE DUTY RETURNS WERE FILED DURING THE ASSESSMENT PROCEEDINGS AND HAVE A GAIN BEEN SUBMITTED. EXCISE DUTY RETURNS FOR THE IMMEDIATEL Y PRECEDING YEAR HAVE ALSO BEEN FILED TO PROVE THE FAC T OF SCRAP SALE IN THE IMMEDIATELY PRECEDING YEAR. NO PRUDENT P ERSON WILL COLOUR A TRANSACTION (AS SURMISED BY THE LD ASSESSING OFFI CER) RESULTING INTO FASTENING ITSELF WITH TAX LIABILITIES PA RTICULARLY WHEN NO BENEFIT OF ANY KIND IS DERIVED BY HIM OUT OF SUCH ACTION. 3. THAT THE ASSESSEE HAS NO CONTROL OVER ITS CUSTOMERS. IT IS NOT REQUIRED OF THE ASSESSEE TO PROVE THE CREDITWORTHINESS OF ITS CUSTOMERS OR PRACTICAL TO KEEP TRACK OF THEIR ANTECED ENTS OR WHEREABOUTS. IT IS NOT UNCOMMON FOR SCRAP DEALERS TO DE AL IN CASH TRANSACTIONS. TO TREAT THE BUSINESS INCOME OF THE A SSESSEE AS INCOME FROM UNDISCLOSED SOURCES MERELY FOR NON PRODUC TIONS IS NOT JUSTIFIED IN LAW. RELIANCE WAS PLACED ON THE JU DGMENT OF AMRITSAR BENCH OF ITAT IN ACIT V. CITIZEN URBAN COOP ERATIVE BANK LTD. 120 TTJ 178 WHEREIN IT HAS BEEN HELD THAT PROVI SIONS OF SEC. 68 CANNOT BE APPLIED IN RESPECT OF RECEIPT OF DEPOSIT S FROM VARIOUS CUSTOMERS AND THAT NO ADDITION U/S 68 COULD BE MADE IN THE CASE OF A BANK ON THE GROUND THAT ADDRESSES WERE INCOMPLETE. 4. THAT THERE ARE VARIOUS CASES IN RESPECT OF UNEXPLAIN ED CASH CREDIT WHEREIN IT HAS BEEN HELD THAT THE INCOME MAY BE ASSESSED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES DEPENDING ON THE FACTS OF THE CASE. ITA NO2799/DEL/2011 5 5. THAT THE FINDING VIDE PARA 6.6. OF THE ORDER THA T THE ASSESSEE HAS INTRODUCED INCOME FROM UNDISCLOSED SOURCES AND HAS SHO WN IT AS HIS BUSINESS INCOME TO AVOID TAX LIABILITY AND TH E SUBSEQUENT ACTION OF NOT ALLOWING THE SETTING OFF OF C URRENT BUSINESS LOSS AGAINST INCOME FROM OTHER SOURCES IS BASED ON MISPLACED UNDERSTANDING OF THE LAW. THE ASSESSEE IN THIS C ASE IS AN INCORPOREAL PERSON AND CANNOT HAVE SOURCES OF INCO ME AS ARE AVAILABLE TO A NATURAL PERSON. IN ANY CASE THE CURREN T BUSINESS LOSSES HAVE TO BE SET OFF AGAINST ANY OTHER INCOME U/S 71 AND ONLY THE BALANCE COULD BE CARRIED FORWARD U/S 72. SO THERE IS IN FACT NO SUCH MOTIVE TO AVOID THE TAX LIABILITY AS IS A SCRIBED TO THE ASSESSEE. 4. THE LD CIT(A) AFTER HEARING THE SUBMISSIONS OF LD A R ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PARA OF LD CIT(A) S ORDER IS REPRODUCED BELOW:- ON CAREFUL EXAMINATION OF THE MATTER, I FIND THAT THE IMPUGNED AMOUNT CREDITED TO THE APPELLANTS BOOKS ON ACCOUNT O F SCRAP SALES AND SHOWN AS PART OF BUSINESS INCOME BY THE APPELLAN T CANNOT BE ARBITRARILY CLASSIFIED AS UNEXPLAINED CASH C REDIT AND TAXED U/S 68 MERELY FOR THE REASON THAT THE SALE PROCE EDS WERE RECEIVED IN CASH AND THE APPELLANT WAS UNABLE TO PROD UCE THE BUYER. AS PER THE INDUSTRY PRACTICE, IT IS NOT UNCOM MON FOR SCRAP SALES TO THE DONE IN CASH. THE APPELLANT HAS ALSO PAID E XCISE DUTY AND EDUCATION CESS ON THE SAID SCRAP SALES. FURTHER BY M ERELY CHANGING THE HEAD OF INCOME FROM BUSINESS TO INCOME FR OM OTHER SOURCES AS DONE BY THE ASSESSING OFFICER, THERE IS NO ADDIT IONAL GAIN TO REVENUE. THE ASSESSING OFFICER HAS POSSIBLY DONE I T UNDER THE IMPRESSION THAT INCOME U/S 68 CANNOT BE SET OFF AGA INST ITA NO2799/DEL/2011 6 CURRENT YEARS BUSINESS LOSS. HOWEVER, THIS IS A WRONG NOTI ON AS CURRENT YEARS BUSINESS LOSS IS REQUIRED TO BE SET OFF AGAI NST THE OTHER INCOME AS PER THE PROVISION OF SECTION 71 OF THE ACT. IN VIEW OF THE ABOVE, THE IMPUGNED ACTION OF THE ASSESSING OFFICER IN CHANGING THE HEAD OF INCOME IS FOUND TO BE NOT SUST AINABLE. 5. AGGRIEVED THE REVENUE HAS FILED APPEAL BEFORE US. 6. AT THE OUTSET, THE LD DR ARGUED THAT THERE WAS NO QUANTITATIVE DATA AVAILABLE AS PER FORM 3CD OF AUDIT REPORT AND T HEREFORE IT CANNOT BE CONCLUDED THAT ASSESSEE HAD PRODUCED SCRAP. HE FURTH ER ARGUED THAT THERE WAS NO SALE OF SCRAP IN THE IMMEDIATE PREVI OUS YEAR AND ALSO THERE WAS NO CLOSING STOCK AS ON 31.3.2007 WHEREAS T HE FIRST CASH DEPOSIT WAS ON 30.4.2007. THEREFORE, IN VIEW OF THE ABOVE, THE LD DR ARGUED THAT IT IS A COOKED STORY. HE ALSO ARGUED THAT CASH DEPOSITS ARE ROUND FIGURES AND GENERALLY IT IS NOT POSSIBLE THAT ALL SALE BILLS WERE IN ROUND FIGURES. IN VIEW OF THE ABOVE, HE ARGUED THAT LD CIT(A) HAD WRONGLY DELETED THE ADDITION. 7. ON THE OTHER HAND, THE LD AR ARGUED THAT WHETHER A PERSON SHOWS HIS INCOME FROM ONE SOURCE OR THE OTHER SOURCE TH ERE IS NO DIFFERENCE AS FAR AS TAXATION OF TOTAL INCOME IN TH AT PARTICULAR YEAR IS CONCERNED. HE FURTHER ARGUED THAT IN FACT THE ASSESSIN G OFFICER HAD NOT MADE ANY ADDITION, HE HAD JUST TAKEN OUT INCOME FROM BUSINESS INCOME AND ASSESSED THE INCOME AS INCOME FROM OTHER SOURC E. HE, THEREFORE, ARGUED THAT IN ANY CASE THERE WOULD NOT B E ANY TAX EFFECT AS MANDATORY SET OFF WAS TO BE DONE. HE FURTHER ARGUED THAT THE ASSESSEE IS NOT A TRADER BUT IS A MANUFACTURER AND IS MANA GING PROPER EXCISE RECORD AND TURNOVER IS DULY REFLECTED IN THE V AT RETURN AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY THING ADVERSE I N SUCH RETURNS ITA NO2799/DEL/2011 7 AND EXCISE DUTY RECORDS. THEREFORE, HE ARGUED THAT T HE TURNOVER WAS GENUINE AND DEPOSIT OF CASH PROCEEDS ON ACCOUNT OF S ALE CANNOT BE ASSESSED AS UNEXPLAINED INCOME U/S 68 OF THE ACT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTED THAT THOUGH CASH DEPOSITS WERE INITIALLY IN ROUND FIGU RES BUT THAT CANNOT BE THE BASIS OF ESTABLISHING THAT THESE COULD NOT FORM PART OF SALE. A REGULAR CUSTOMER GENERALLY MAKES PAYMENT AGAI NST REGULAR SUPPLY IN ROUND FIGURES AND AT THE END OF FINANCIAL Y EAR THE NET AMOUNT IS PAID. ALSO IT IS NOT DENIED THAT THE SALE WAS DULY R EFLECTED IN THE EXCISE RECORD AND VAT RETURNS OF THE ASSESSEE AND ASSESSING O FFICER HAS NOT COMMENTED ABOUT ANY DEFECT IN SUCH RECORDS. TH E ASSESSING OFFICER HAD MADE THE ADDITION SIMPLY BECAUSE DEPOSITOR COULD NOT BE PRODUCED BEFORE HIM, WHICH IS NOT JUSTIFIED AS ALL OTH ER DOCUMENTS AND BOOKS OF ACCOUNTS AND EXCISE RECORDS AND VAT RETURNS PRO VED THAT SALES WAS ACTUALLY MADE. MOREOVER, CATEGORIZATION OF I NCOME UNDER ONE HEAD OR THE OTHER DOES NOT MAKE ANY DIFFERENCE I N TAX LIABILITY IN THE SAME YEAR AS THESE ARE TO BE SET OFF AGAINST EACH O THER AS PER SECTION 71 OF THE INCOME TAX ACT, 1961 . IN VIEW OF THE ABOVE FACTS, LD CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY ASSESSI NG OFFICER. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE IN T HE ORDER OF LD CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH DAY O F SEPTEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT.07.09.2012. HMS ITA NO2799/DEL/2011 8 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 25.7.2012 DATE OF DICTATION 4.9.2012 DATE OF TYPING 4.9.2012 DATE OF ORDER SIGNED BY 7.9.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 7.9.2012 & SENT TO THE BENCH CONCERNED.