M/s. Patel Beverages, Ahmedabad V. The Income tax Officer,Wad-2(2), Ahmedabad

ITA 3278/AHD/2009

• Counselvise Citation: 327820514 RSA 2009
• Duration Of Justice: 5 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 09-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Keywords: Unexplained cash credit; Depreciation

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO. 3278/AHD/2009 / ASSESSMENT YEAR: 2005-06 M/S. PATEL BEVERAGES, PROP. M/S. NAVNEET B. PATEL HUF 857/3, GIDC, MAKARPURA, BARODA PAN : AAHHP 5307 C VS ITO, WARD-2(2) BARODA / // / (APPELLANT) / // / (RESPONDENT) ASSESSEE(S) BY : SHRI HARDIK VORA, AR REVENUE BY : SHRI ROOP CHAND, SR. DR. ! ' #$% ! ' #$% ! ' #$% ! ' #$% / DATE OF HEARING : 24/04/2015 &' ' #$% / // / DATE OF PRONOUNCEMENT: 15/05/2015 () () () ()/ // / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRE CTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, BARODA DATE D 22.09.2009 PERTAINING TO THE ASSESSMENT YEAR 2005-0 6. 2. GROUND NOS. 1, 2 AND 3 OF THE ASSESSEES APPEAL, WHICH READ AS UNDER, WERE NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSE E AT THE TIME OF HEARING. ACCORDINGLY, THE SAME ARE REJECTED AS NOT PRESSED. 1.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) ERRED IN LAW AND ON FACTS DISMISSING THE GROUND OF APPEAL, CHALLENGI NG THE STATUS OF THE APPELLANT ADOPTED BY THE ID. A.O. AS PARTNERSHIP FIR M INSTEAD OF HUF, ON THE BASIS THAT THE SAME WAS NOT PRESSED. 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) ERRED IN LAW AND ON FACTS IN RECORDING THE FOLLOWING FINDING IN PARA 4.2, PAGE NO. 5 OF HIS ORDER AS BELOW: ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 2 'IN APPEAL THE LEARNED AUTHORIZED REPRESENTATIVE WIT HDREW HIS CLAIM OF BEING A PROPRIETARY CONCERN AND ADMITTED TO BEIN G A PARTNERSHIP FIRM.' 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) ERRED IN LAW AND ON FACTS IN DISMISSING THE GROUND OF APPEAL RELATIN G TO AN ADDITION OF RS.1,00,000/- U/S 68 ON THE BASIS THAT THE SAME WAS NOT PRESSED 3. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS UN DER:- 4.0 THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 8,08,938 /- IN RESPECT OF OPENING CAPITAL BALANCE AS ON 1ST APRIL, 2004. 4. THE FACTS OF THE CASE ARE THAT FOR THE YEAR UNDE R CONSIDERATION I.E. ASSESSMENT YEAR 2005-06, SHRI NAVNITBHAI B PATEL HU F HAS FILED THE RETURN OF INCOME AS PROPRIETOR OF M/S. PATEL BEVERAGES. O N VERIFICATION OF THE RETURN OF INCOME AND ITS ENCLOSURES, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ITS PARTNERS ARE SHRI NAVNITBHAI B PATEL AND SHRI VIRAL N PATEL. IN VIEW OF THESE FACTS, TH E ASSESSING OFFICER ASSESSED THE ASSESSEE NAMELY M/S. PATEL BEVERAGES AS PARTNER SHIP FIRM AND TAX RATE APPLICABLE TO THE FIRM HAVE BEEN CHARGED, THOUGH TH E RETURN HAS BEEN FILED BY THE ASSESSEE AS HUF. THE ASSESSING OFFICER FURTH ER NOTICED THAT IN THE BALANCE-SHEET ENCLOSED ALONGWITH RETURN OF INCOME F OR ASSESSMENT YEAR 2005-06, THE ASSESSEE HAS SHOWN THE OPENING CAPITAL OF BOTH THE PARTNERS ARE AS UNDER:- SHRI NAVNEET B PATEL - RS.4,04,469/- SHRI VIRAL N. PATEL - RS.4,04,469/- ----------------- TOTAL RS.8,08,938/- ========== 5. ON VERIFICATION OF RECORD, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT FILED ITS RETURN OF INCOME FOR ASS ESSMENT YEAR 2004-05. NO ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 3 OTHER DOCUMENTARY EVIDENCE IN SUPPORT OF PARTNERS OPENING CAPITAL WAS FURNISHED. HE, THEREFORE, TREATED THE SUM OF RS.8 ,03,938/- AS UNEXPLAINED CREDIT U/S 68. DURING THE COURSE OF APPEAL BEFORE THE CIT(A), THE ASSESSEE POINTED OUT THAT THE RETURN OF INCOME OF THE PARTNE RS WAS FILED FOR ASSESSMENT YEAR 2004-05; HOWEVER, ON VERIFICATION O F THE RETURN, HE FOUND THAT THE RETURN WAS FILED BY SHRI NAVNITBHAI B PATE L-INDIVIDUAL AND THERE IS NO EVIDENCE OF THESE AMOUNTS SHOWING AS CLOSING BAL ANCE IN THAT YEAR. THE RELEVANT FINDING OF THE CIT(A) READS AS UNDER:- 3.3. TO EXPLAIN THE SOURCE OF THIS CONTRIBUTION, THE APPELLANT SOUGHT TO SHOW THAT A RETURN OF INCOME OF THE PARTNERSHIP WAS FILED FOR ASSESSMENT YEAR 2004-05. ON VERIFICATION OF THE RETURN DATED 02.11 .2004 FILED IN WARD-2(2), BARODA IT IS NOTED THAT THE RETURN HAS BEEN FILED O F SHRI NAVNEETBHAI B PATEL, INDIVIDUAL. THERE IS NO EVIDENCE OF THESE AMOUNTS FORMING THE CLOSING BALANCE OF THE PREVIOUS YEAR. FURTHER SINCE THE PAR TNERSHIP WAS SIGNED ON 15.03.2004, TO EXPLAIN THE SOURCE OF THE ENTRIES IN THE CAPITAL ACCOUNT AS ON 01.04.2004 SHOULD NOT HAVE BEEN AN IMPOSSIBLE TASK. IT IS CLAIMED THAT M/S.PATEL BEVERAGES HAS BEEN RUNNING ITS BUSINESS I N THE STATUS OF A FIRM SINCE THE YEAR 2000. HOWEVER, NO RETURN OF INCOME H AS BEEN FILED BY THE FIRM. IT IS ALSO SEEN THAT NO CONFIRMATION HAS BEEN FILED FORM SHRI VIRAL N. PATEL CLAIMING THE SOURCE OF THE CREDIT ENTRIES IN THE CA PITAL ACCOUNT. IN VIEW OF THE FACT THAT THERE IS NO EVIDENCE ON RECORD TO EXPLAIN THE CREDIT ENTRIES OF RS.8,08,938/-, THE ADDITION MADE BY THE ASSESSING OF FICER IS CONFIRMED. THROUGH THE AMOUNT DISCUSSED IN THE BODY OF THE ORD ER IS RS.8,08,938/- THE ADDITION MADE IS RS.8,03,938/- WHICH IS PATENTLY A TYPING MISTAKE. HENCE THE AMOUNT OF RS.8,08,938/- IS CONFIRMED. 6. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE IS A PARTNERSHIP FIRM A ND THEREFORE, THE CASH CREDIT IN THE ACCOUNT OF PARTNER CANNOT BE ASSESSED AS UNEXPLAINED CASH CREDIT OF THE FIRM. THE ASSESSING OFFICER CAN MAKE NECESSARY INQUIRIES IN THE CASE OF PARTNERS BUT HE CANNOT TREAT THE SAME AS UN EXPLAINED CASH CREDIT OF THE FIRM. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PANKAJ DYESTUFF INDUSTRIES VIDE INCOME TAX REFERENCE NO.241 OF 1993 . HOWEVER, WHEN AT ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 4 THE TIME OF HEARING THE BENCH ASKED THE ASSESSEE TO PROVE THAT THE PARTNERSHIP FIRM FILED THE RETURN OF INCOME FOR ASS ESSMENT YEAR 2004-05 IN WHICH THERE IS A CLOSING BALANCE IN THE ACCOUNT OF BOTH THE PARTNERS AMOUNTING TO RS.4,04,469/- EACH, THE ASSESSEE WAS U NABLE TO PRODUCE ANY SUCH RETURN. THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE RETURN OF PARTNERS FOR ASSESSMENT YEAR 2004-05 SHOWING THE CLOSING BAL ANCE WITH THE PARTNERSHIP FIRM AT RS.4,04,469/-. HOWEVER, THE ASS ESSEE WAS UNABLE TO FURNISH THE SAME ALSO. WE FIND THAT IN THE CASE OF PANKAJ DYESTUFF INDUSTRIES, THE HONBLE JURISDICTIONAL HIGH COURT HELD AS UNDER :- 13. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS APPARENT THAT THE ASSESSEE HAD FURNISHED THE DETAIL S WHICH WOULD DISCHARGE THE ONUS WHICH LAY ON THE ASSESSEE. IT IS NOT THE C ASE OF THE REVENUE THAT THE PARTNERS OF THE ASSESSEE FIRM ARE FICTITIOUS. THE I NCOME-TAX OFFICER HAS NOT DISPUTED THAT THE CREDITS IN THE ACCOUNTS OF THE PA RTNERS WERE NOT DEPOSITS FROM THE PARTNERS. MOREOVER, IT IS AN ADMITTED POSI TION 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 G IVEN ON BEHALF OF THE ASSESSEE IN RESPECT OF THE NEW DEPOSITS OR CASH CRE DITS IN THE ACCOUNTS OF THE PARTNERS. THE MERE NON-ACCEPTANCE OF THAT EXPLANATI ON DOES NOT HOWEVER PROVIDE MATERIAL FOR FINDING THAT THE SAID SUM REPR ESENTED INCOME OF THE ASSESSEE FIRM. AS HELD BY THE ALLAHABAD HIGH COURT I N THE CASE OF CIT, ALLAHABAD VS. JAISWAL MOTOR FINANCE (SUPRA) IN THE AB SENCE OF ANY MATERIAL TO INDICATE THAT THERE WERE PROFITS OF THE FIRM, TH E AMOUNT CREDITED TO THE PARTNERS ACCOUNTS COULD NOT BE ASSESSED IN THE HAN DS OF THE FIRM. ONCE THE PARTNERS HAVE OWNED THAT THE MONIES DEPOSITED IN TH EIR 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 THEI R 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 ASSES SEE HAD DISCHARGED THE PRIMARY ONUS WHICH WAS ON IT BY OFFERING EXPLANATIO N, WHICH HAS NOT BEEN FOUND TO BE INCORRECT OR FALSE IN ANY MANNER. THE I NTEREST 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 PARTN ERS IF HE IS NOT SATISFIED WITH THE SOURCES OF INVESTMENT OF CASH CREDITS IN THE AC COUNTS OF THE PARTNERS. ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 5 7. FROM THE ABOVE, IT IS EVIDENT THAT IN THE ABOVE MENTIONED CASE, THE ASSESSEE HAS FURNISHED THE DETAILS WHICH DISCHARGED THE ONUS WHICH LAY UPON THE ASSESSEE. IN THAT CASE, THE GENUINENESS OF THE FIRM AND THE CREDIT IN THE ACCOUNT OF THE PARTNERS WAS NOT IN DISPUTE. HOW EVER, IN THE CASE OF THE ASSESSEE, THE SERIES OF INCIDENT RAISES SERIOUS DOU BT ABOUT THE GENUINENESS OF THE PARTNERSHIP FIRM AS WELL AS THE CREDIT BALANCE IN THE ACCOUNT OF THE PARTNERS. THE ASSESSEE APPEARS TO BE PARTNERSHIP FI RM AS PER THE BALANCE- SHEET, BUT FILED THE RETURN FOR THE YEAR UNDER CONS IDERATION IN THE STATUS OF HUF. IN THE ACCOUNT OF THE PARTNERS, THERE IS OPEN ING BALANCE BUT THE ASSESSEE DID NOT FILE THE RETURN OF THE PARTNERSHIP FIRM FOR ASSESSMENT YEAR 2004-05, THOUGH THE RETURN WAS FILED BY SHRI NAVNIT BHAI B PATEL, AS PROPRIETOR OF M/S. PATEL BEVERAGES FOR ASSESSMENT Y EAR 2004-05. HOWEVER, THE CIT(A) HAS RECORDED THE FINDING THAT IN SUCH RE TURN THERE IS NO CLOSING BALANCE IN THE ACCOUNT OF PARTNERS AMOUNTING TO RS. 4,04,469/- EACH. ON THESE FACTS, THE ONUS WAS HEAVY UPON THE ASSESSEE T O JUSTIFY HOW HE HAS SHOWN THE OPENING CREDIT BALANCE FOR THE ASSESSMENT YEAR 2005-06 WHEN THERE WAS NO CLOSING BALANCE IN ASSESSMENT YEAR 200 4-05. IN THESE PECULIAR FACTS, THE DECISION OF THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF PANKAJ DYESTUFF INDUSTRIES (SUPRA), WOULD NOT BE AP PLICABLE TO THE CASE OF THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY JUSTIFICATION TO INTERFER E WITH THE ORDER OF THE CIT(A) ON THIS POINT AND THE SAME IS SUSTAINED. ACC ORDINGLY, GROUND NO.4 OF THE ASSESSEES APPEAL IS REJECTED. 8. GROUND NO.5 OF THE ASSESSEES APPEAL READS AS UN DER:- 4.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCES TO THE EXTENT OF RS. 3,24,921/- OUT OF TOTAL DISALLOWANCES OF RS.9,74,514/-. ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 6 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED VARIOUS EXPENSES AMOUNTING TO RS.9,74,514/-; THE DETAILS OF WHICH ARE AS UNDER:- SR. NO. NATURE OF EXPENSES AMOUNT 1 FREIGHT INWARD AND OCTROI 84360 2 TESTING CHARGES 112370 3 CONSULTING EXPENSES 178690 4 LEGAL AND PROFESSIONAL CHARGES 139631 5 FREIGHT OUTWARD EXPENSE 399463 6 SECURITY CHARGES 60000 RS.9,74,514 10. THE ASSESSING OFFICER MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE FAILED TO DEDUCT THE TDS ON THE ABOVE PAYM ENTS AND THEREFORE, APPLYING THE PROVISIONS OF SECTION 40(A)(IA), HE MA DE DISALLOWANCE. ON APPEAL, THE CIT(A) RECORDED THE FINDING THAT, CONSI DERING THE NATURE OF EXPENSES, THERE WAS NO LIABILITY UPON THE ASSESSEE TO DEDUCT TDS AND THEREFORE, PROVISIONS OF SECTION 40(A)(IA) WAS NOT APPLICABLE. THEREAFTER, HE PROCEEDED TO CONSIDER NATURE OF EACH AND EVERY EXPE NDITURE AND ITS ALLOWABILITY OR OTHERWISE; AND AFTER DETAILED DISCU SSION FROM PAGE NO.4 TO 7, HE SUSTAINED THE DISALLOWANCE AT RS.3,24,921/- OUT OF THE TOTAL DISALLOWANCE OF RS.9,74,514/-. 11. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US, INCLUDING TH E ORDER OF THE CIT(A). WE ARE OF THE OPINION THAT THE CIT(A) CONSIDERED EA CH AND EVERY EXPENSES AND HAS SUSTAINED THE DISALLOWANCE ONLY WHEN THE EX PENDITURE WAS NOT ALLOWABLE. THE LD. COUNSEL FOR THE ASSESSEE WAS UNA BLE TO CONTROVERT THE FINDINGS RECORDED BY THE CIT(A). ACCORDINGLY, THE SAME IS SUSTAINED AND GROUND NO.5 OF THE ASSESSEES APPEAL IS REJECTED. ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 7 12. GROUND NO.6 OF THE ASSESSEES APPEAL, WHICH REA DS AS UNDER, WAS NOT PRESSED BY THE LD. COUNSEL AT THE TIME OF HEARING. ACCORDINGLY, THE SAME IS REJECTED AS NOT PRESSED. 6.0 WITHOUT PREJUDICE TO THE GROUND NO. 5, THE LEA RNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ISALLOWING CERTAIN EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40A(3 ) OF THE ACT, WITHOUT ISSUING ANY SHOW CAUSE NOTICE TO THE ASSESSEE. 13. GROUND NO.7 OF THE ASSESSEES APPEAL WHICH READ S AS UNDER:- 7.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITIONS TO THE EXTENT OF RS.15,07,974/- OUT OF TOTAL DISALLOWANCE OF EXPENSES AMOUNTING TO RS.18,84,968/ - 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS DEBITED TOTAL EXPENDITU RE OF RS.92,54,942/- IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HAS DISALLOWED THE SUM OF RS.9,74,514/- SEPARATELY ON ACCOUNT OF FAILURE OF T HE ASSESSEE TO DEDUCT THE TAX. HE REDUCED THE SUM OF RS.7,40,556/- ON ACCOUN T OF DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT. HE, THEREFO RE, WORKED OUT THE BALANCE EXPENDITURE AT RS.75,39,872/- (RS.92,54,942 RS.9, 74,514 RS.7,40,556/-) 15. SINCE THE ASSESSEE DID NOT PRODUCE THE SUPPORTI NG BILLS AND VOUCHERS IN RESPECT OF EXPENSES DEBITED IN THE PROFIT AND LO SS ACCOUNT, HE DISALLOWED 25% OF RS.75,39,872/- I.E. RS.18,84,968/-. ON APPE AL, THE CIT(A) REDUCED THE DISALLOWANCE TO 20%. ACCORDINGLY, THE DISALLOWANCE WAS SUSTAINED AT RS.15,07,974/-. 16. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THE ARGUMENTS OF BOTH THE SIDES. AFTER CONSIDERING THE FACTS OF THE CASE AND THE ITA NO. 3278/AHD/2009 M/S. PATEL BEVERAGES VS. ITO AY: 2005-06 8 ARGUMENTS OF BOTH THE SIDES, IN OUR OPINION, WHEN A LL THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT HAVE BEEN CONSIDERED FOR DISALLOWANCE, THE DISALLOWANCE SUSTAINED AT 20% OF ALL THE EXPENSES I S EXCESSIVE. WE, THEREFORE, REDUCE THE SAME TO 10% AND DIRECT THAT T HE DISALLOWANCE BE RESTRICTED TO RS.7,53,987/-. 17. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 15 TH MAY, 2015 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 15/05/2015 BIJU T., PS () ' #* +(*# () ' #* +(*# () ' #* +(*# () ' #* +(*#/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ,, # - / CONCERNED CIT 4. - ( ) / THE CIT(A) 5. *01 # , , / DR, ITAT, AHMEDABAD 6. 12 3! / GUARD FILE . () () () () / BY ORDER, TRUE COPY 4 44 4/ // / ,5 ,5 ,5 ,5 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD