SHIRM CAPITAL MANGAEMENT, MUMBAI V. ITO WD 20(3)(3), MUMBAI

ITA 2876/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49334 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 01-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 12-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Unexplained cash credit; Deemed to accrue or arise in india; Additional evidence
• Section: 143(3); 68

Judgement Text

1 ITA NO.2876/MUM/2010 ASSTT. YEAR : 2001-02. IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 2876/MUM/2010 (ASSESSMENT YEAR: 2001-02) M/S. SHIRM CAPITAL MANAGEMENT VS. INCOME TAX OFFICER - 20(3)(3) 2/3/4, MANISH GARDEN PIRAMAL CHAMBERS ANDHERI (W), MUMBAI 400058 MUMBAI PAN - AAKFS 7374 R APPELLANT RESPONDENT APPELLANT BY: SHRI M. SUBRAMANIAN RESPONDENT BY: SHRI G.P. TRIVEDI O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LEARNED CIT(A) XXX1, MUMBAI DATED 26.02.2010 WHEREBY HE CONFIRMED THE PE NALTY OF 11,03,715/- IMPOSED BY THE A.O. UNDER SECTION 271(1)(C). 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP F IRM WHICH IS CARRYING ON THE BUSINESS AS SHARE AND STOCK SUB-BROKER. THE RET URN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30.10.2001 DECLARI NG TOTAL INCOME OF 39,826/-. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 25.03.2004, THE TOTAL INCOME OF ASSESSEE WAS DETERMINED BY THE A.O. AT 56,39,598/- AFTER MAKING ADDITION INTER ALIA UNDER SECTION 68 TREATING THE U NSECURED LOAN OF 49,00,000/- RECEIVED BY ASSESSEE AS UNEXPLAINED CASH CREDIT DUE TO THE FAILURE OF ASSESSEE TO FILE THE CONFIRMATION LETTERS OF THE CONCERNED CREDITORS FURNISHING THE RELATED DETAILS. HE ALSO DISALLOWED INTEREST EXPENDITURE OF 6,63,106/- CLAIMED TO BE INCURRED BY ASSESSEE IN RESPECT OF THE SAME LOAN. ON APPEAL, TH E LEARNED CIT(A) DELETED THE ADDITION OF 49,00,000/- MADE BY THE A.O. UNDER SECTION 68 TO TH E EXTENT OF 34.50 LAKHS RELYING ON THE CONFIRMATIONS OF SEVEN CREDITO RS FILED BY THE ASSESSEE BEFORE HIM 2 ITA NO.2876/MUM/2010 ASSTT. YEAR : 2001-02. AS ADDITIONAL EVIDENCE. HE ALSO DELETED THE ADDITIO N OF 6,63,106/- MADE BY THE A.O. ON ACCOUNT OF INTEREST EXPENDITURE TO THE EXTENT OF 3,34,172/-, WHICH WAS ATTRIBUTABLE TO THE LOANS TREATED BY THE LEARNED CI T(A) AS EXPLAINED. THE LEARNED CIT(A) THUS SUSTAINED THE ADDITION MADE BY THE A.O. UNDER SECTION 68 TO THE EXTENT OF 14.50 LAKHS AND ALSO RESTRICTED THE DISALLOWANCE MA DE ON ACCOUNT OF INTEREST TO 3,28,934/- IN THE QUANTUM PROCEEDINGS. CONSEQUENT T O THE ORDER PASSED BY THE LEARNED CIT(A) IN THE QUANTUM PROCEEDINGS SUSTAININ G THE ADDITION TO THAT EXTENT, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WERE IN ITIATED BY THE A.O. AND SINCE THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED DURING THE COURSE OF THE SAID PROCEEDINGS WAS NOT F OUND ACCEPTABLE BY HIM, PENALTY OF 11,03,715/- WAS IMPOSED BY THE A.O. UNDER SECTION 2 71(1)(C) BEING 100% OF THE TAX SOUGHT TO BE EVADED IN RESPECT OF ADDITION MADE TO THE TOTAL INCOME TO THE EXTENT IT WAS SUSTAINED BY THE LEARNED CIT(A) IN THE QUANTUM PROCEEDINGS. 3. THE PENALTY IMPOSED BY THE A.O. WAS CHALLENGED BY T HE ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED ON BEHA LF OF THE ASSESSEE THAT IN THE APPEAL FILED IN THE QUANTUM PROCEEDINGS AGAINST THE ORDER OF THE LEARNED CIT(A), THE TRIBUNAL HAS GIVEN FURTHER RELIEF OF 8,00,000/- ON THE ISSUE OF ADDITION MADE UNDER SECT ION 68 AND EVEN THE PROPORTIONATE DISALLOWANCE MADE OUT OF INTEREST HAS BEEN DELETED BY THE TRIBUNAL. IT WAS CONTENDED THAT THE ADDITION MA DE BY THE A.O. UNDER SECTION 68 THUS HAS BEEN FINALLY SUSTAINED ONLY TO THE EXTENT OF 6.50 LAKHS AND THAT TOO MAINLY BECAUSE THE ASSESSEE COULD NOT DISCHARGE THE ONUS T HAT LAY ON IT TO EXPLAIN THE RELEVANT CASH CREDIT IN TERMS OF SECTION 68. IT WAS CONTENDED THAT THERE WAS NO ALLEGATION AGAINST THE ASSESSEE OF HAVING CONCEALED ANY PARTICULARS OF ITS INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME . THE ADDITION WAS FINALLY SUSTAINED TO THE EXTENT OF 6.50 LAKHS ONLY UNDER THE DEEMING PROVISION OF SECT ION 68 AS A RESULT OF FAILURE OF ASSESSEE TO DISCHARGE ITS ONUS IN TERMS OF THAT PROVISION. RELYING INTER ALIA ON THE DECISION OF THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. BHIMJI BHANJEE & CO 146 ITR 145, IT WAS CONTEND ED THAT THE CASE OF THE ASSESSEE 3 ITA NO.2876/MUM/2010 ASSTT. YEAR : 2001-02. IS NOT A FIT CASE TO IMPOSE PENALTY UNDER SECTION 2 71(1)(C) AND THERE WAS NO JUSTIFICATION FOR THE A.O. TO IMPOSE THE SAID PENAL TY. 4. THE LEARNED CIT(A) DID NOT FIND MERIT IN THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE. ACCORDING TO HIM, IN THE ABSENCE OF R ELEVANT EVIDENCE FILED BY THE ASSESSEE, THE EXPLANATION OFFERED IN RESPECT OF UNS ECURED LOANS TREATED AS UNEXPLAINED CASH CREDIT WAS NOT SUPPORTED AND SUBSTANTIATED BY THE ASSESSEE AND THIS FAILURE ON THE PART OF THE ASSESSEE TO SUPPORT AND SUBSTANTIAT E ITS EXPLANATION WAS SUFFICIENT TO ATTRACT PENAL PROVISIONS OF SECTION 271(1)(C). RELY ING ON EXPLANATION 1 TO SECTION 271(1)(C), HE HELD THAT ASSESSEE HAS FURNISHED INAC CURATE PARTICULARS OF ITS INCOME MAKING IT LIABLE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) AND THE PENALTY SO IMPOSED BY THE A.O. WAS CONFIRMED BY HIM. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBU NAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E ADDITION MADE UNDER SECTION 68 ORIGINALLY AT 49,00,000/- BY THE A.O. TREATING RELEVANT UNSECURED LOANS AS UNEXPLAINED CASH CREDIT WAS REDUCED BY THE LEARNED CIT(A) TO 15.50 LAKHS AND FURTHER BY THE TRIBUNAL TO 6.50 LAKHS ONLY AFTER HAVING FOUND THAT SUFFICIENT DOCUMENTARY EVIDENCE WAS PRODUCED BY THE ASSESSEE T O EXPLAIN THE RELEVANT CASH CREDITS TO THE EXTENT OF 42.50 LAKHS IN TERMS OF SECTION 68. THE BALANCE ADD ITION MADE UNDER SECTION 68 TO THE EXTENT OF 6.50 LAKHS, HOWEVER, WAS SUSTAINED BY THE TRIBUNAL MAINLY BECAUSE THERE WAS FAILURE ON THE PA RT OF ASSESSEE TO SATISFACTORILY EXPLAIN THE UNSECURED LOANS TO THE EXTENT OF 6.50 LAKHS IN TERMS OF SECTION 68. THERE WAS, HOWEVER, NOTHING BROUGHT ON RECORD DURIN G THE COURSE OF QUANTUM PROCEEDINGS TO SHOW THAT THE SAID AMOUNT REPRESENTE D ASSESSEES OWN INCOME/MONEY WHICH WAS INTRODUCED IN THE FORM OF UNSECURED LOANS . ON THE CONTRARY, THE SAID AMOUNT WAS TREATED AS DEEMED INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 68 MAINLY BECAUSE ASSESSEE FAILED TO SATISF ACTORILY EXPLAIN THE RELEVANT UNSECURED LOANS IN TERMS OF SECTION 68. AS HELD BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF ADDL. CIT VS. RAWALPINDI FLOOR MILLS P. LTD. 125 ITR 243, IF THE ASSESSEE FAILS TO PROVE THE GENUINENESS OF LOANS IN THE ASSE SSMENT PROCEEDINGS, THE ADDITION 4 ITA NO.2876/MUM/2010 ASSTT. YEAR : 2001-02. TOWARDS TOTAL INCOME CAN BE SAID TO BE JUSTIFIED BU T ON THAT GROUND ALONE PENALTY UNDER SECTION 271(1)(C) CAN NOT BE IMPOSED. 6. IN THE CASE OF CIT VS. BHIMJI BHANJEE & CO. (SUPRA) CITED BY ASSESSEE BEFORE THE LEARNED CIT(A), CASH CREDITS WERE FOUND IN THE BOOKS OF ASSESSEE. IN THE ASSESSMENT PROCEEDINGS, ASSESSEE FIRM ADMITTED THE EXISTENCE OF CREDITS AND STATED THAT IT WAS NOT IN A POSITION TO PRODUCE THE PARTIE S IN WHOSE FAVOUR THE CASH CREDITS APPEARED. THE ITO WORKED OUT THE AMOUNT OF SUCH PEA K CREDITS AND ASSESSED THE SAID AMOUNT AS INCOME OF THE ASSESSEE. HE ALSO IMPOSED P ENALTY UNDER SECTION 271(1)(C), WHICH WAS CANCELLED BY THE TRIBUNAL. ON A REFERENCE , THE HON'BLE BOMBAY HIGH COURT UPHELD THE DECISION OF THE TRIBUNAL HOLDING THAT TH ERE WAS NOTHING ON RECORD TO SHOW THAT THE AMOUNT OF CASH CREDITS ADDED TO THE TOTAL INCOME OF THE ASSESSEE WAS THE CONCEALED INCOME OF THE ASSESSEE FROM UNDISCLOSED S OURCE. IN OUR OPINION, THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF BHIMJI BHANJEE & CO (SUPRA) AS WELL AS THAT OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF RAWALPINDI FLOOR MILLS P. LTD. (SUPRA) ARE SQUARELY APPLICABLE TO TH E FACTS OF THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT IT IS NOT A FIT CASE TO IMPOSE PENALTY UNDER SECTION 271(1)(C) . THE PENALTY IMPOSED BY TH E A.O. AND CONFIRMED BY THE LEARNED CIT(A) IS THEREFORE DELETED AND THE APPEAL FILED BY ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE 2011. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH JUNE 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXX1, MUMBAI 4. THE CIT XX, MUMBAI CITY 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.