M/s. Rishyashringa Jewellers Ltd., Coimbatore V. ACIT, CHENNAI

ITA 345/CHNY/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51650 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2011
• Assessment Year: 1995-1996
• Appeal Filed On: 06-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: S SRIDHAR
• Keywords: Income from undisclosed sources; Notional interest; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI BEFORE DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. ITA NO.345/MDS./2006 ASSESSMENT YEAR: 1995-96 RISHYSHRINGA JEWELLERS LTD., 1348, TRICHY ROAD, COIMBATORE 641 001. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I (3), INCOMETAX OFFICE, RACE COURSE, COIMBATORE 641 018. PAN AABCR 0308 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.SRIDHAR DEPARTMENT BY : SHRI ANIRUDH RAI O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER : THIS IS A RECALLED MATTER. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) DATED 14.11.05 FOR ASSESSMENT YEAR 1995-96. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT IS A COMPANY. AS AGAINST THE RETURNED LOSS OF RS.4 ,92,550/-, THE ASSESSING OFFICER HAS COMPUTED TAXABLE INCOME A T RS.24,84,120/- VIDE ORDER DATED 05.03.1998 PASSED PAGE OF 10 ITA. 345/MDS/06 2 U/S.143(3). THE ASSESSING OFFICER HAS ADDED THE FOL LOWING AMOUNTS:- RS. 1. INTEREST RECEIVABLE 17,82,425 2. CESSATION OF LIABILITY 1,10,915 3. UNACCOUNTED PURCHASES 5,42,200 4. EXCESS JEWELLERY 4,10,000 TOTAL 28,48,540 AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE COMMISS IONER OF INCOME TAX(A) WHO HAD ALLOWED A PART RELIEF. BUT T HE ASSESSEE IS FURTHER AGGRIEVED AND HAS DISPUTED THE SUSTAINED ADDITIONS IN THIS SECOND APPEAL. 3. THE FIRST ISSUE OF THIS APPEAL IS REGARDING CHA RGING OF INTEREST NOTIONALLY @ 14% ON THE AMOUNTS ADVANCED B Y THE COMPANY TO ITS MANAGING DIRECTOR OUT OF MONEY RAIS ED IN PUBLIC ISSUE. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMPANY HAS DEBITED A SUM OF RS.8,39,500/- AS INTER EST CHARGES, OUT OF WHICH RS.1,16,963/- HAS BEEN CAPITA LIZED AND THE BALANCE AMOUNT OF RS.7,22,537/- HAS BEEN CLAIM ED AS REVENUE EXPENDITURE. THE COMPANY HAS RAISED MONEY IN PUBLIC ISSUE AND OUT OF THE FUNDS SO COLLECTED, IT HAS ADVANCED A SUM OF RS.98,10,001/- AS BUILDING ADVANCE TO SHRI GOVINDARAJULU, WHO IS THE MANAGING DIRECTOR OF THE COMPANY, AND HAS ALSO ADVANCED A SUM OF RS.40,75,000 TOWARD S PAGE OF 10 ITA. 345/MDS/06 3 STOCK-ADVANCE. LIKEWISE, A SUM OF RS.15,95,000/- H AS BEEN ADVANCED TO SHRI SANTOSH, BUT NO INTEREST HAS BEEN CHARGED FROM THEM. NEITHER THE BUILDING WAS PURCHASED FROM MR.GOVINDARAJULU NOR JEWELS WERE ALSO PURCHASED FRO M HIM. THE STAND OF THE ASSESSEE IS THAT, IT HAS ADVANCED TWO AMOUNTS TO MR.GOVINDARAJULU, WHO HAD GIVEN MATCHING CHEQUES FOR GETTING SHARES OF THE COMPANY, AND TO M R.SANTOSH, IT WAS A CLEAR ADVANCE. IT WAS SUBMITTED THAT NO P ART OF BANK BORROWALS HAD BEEN USED FOR GIVING THESE ADVANCES. IT WAS NOTICED THAT THE ASSESSEE COMPANY HAD CREDIT FACILI TIES WITH THE BANK AND WITH THE PUBLIC MONEY, LOANS WERE PAID WIT H INTEREST TO THE BANK. IT WAS FOUND THAT DIRECTOR MR.GOVINDAR AJULU BECAME SHAREHOLDER TO THE EXTENT OF RS.20,65,760/- BY USING THE PUBLIC MONEY, ALTHOUGH HE HAS NOT PAID A SINGLE PENNY FROM HIS POCKET. HE HAS UTILIZED THE BALANCE AMOUN T FOR CONSTRUCTION OF BUILDING AT TRICHY ROAD, COIMBATORE , SO IT WAS CONCLUDED BY ASSESSING OFFICER THAT BANK FUNDS HAVE BEEN DIVERTED IN THIS WAY. CONSEQUENTLY NOTIONAL INTERE ST @ 14% WAS CHARGED ON THE AMOUNTS ADVANCED TO MR.GOVINDARA JULU AND MR. SANTOSH. LD. COMMISSIONER OF INCOME TAX(A) HAS ALSO CONFIRMED THIS AMOUNT. BEFORE US, BOTH THE PARTIES TOOK THE PAGE OF 10 ITA. 345/MDS/06 4 SIMILAR STAND AS WAS TAKEN BEFORE THE COMMISSIONER OF INCOME TAX(A). 4. AFTER COGITATING THE ENTIRE EVIDENCE AVAILABLE ON RECORD VIS-A VIS ORAL SUBMISSIONS, WE HAVE FOUND THAT THE ASSESSEE COMPANY HAS COLLECTED HUGE-SUMS BY GOING TO PUBLIC, TO THE TUNE OF RS.3.14 CRORES. OUT OF THIS MONEY, FUNDS H AVE BEEN GIVEN TO MANAGING DIRECTOR, WHO HAS GIVEN TOWARDS S HARE APPLICATION MONEY AND AGAINST THE PROMOTERS QUOTA SHARES WERE ALLOTTED TO HIM. IT IS A LEGAL REQUIREMENT TH AT THE PROMOTERS HAVE TO MAKE THEIR CONTRIBUTIONS FIRST AN D THEREAFTER, IT CAN GO TO PUBLIC FOR PUBLIC ISSUE. IT SEEMS THA T THE ASSESSEE HAS VIOLATED RULES OF SEBI IN CONNECTION WITH OBTAI NING REQUISITE PERMISSION. MOREOVER, INSIDIOUSLY, HAS D EPRIVED THE PUBLIC OF THE DIVIDEND AND OTHER BENEFITS LIKE BONU S ETC. WHICH COULD HAVE GENERATED IN THE LONG RUN. IN ANY CASE, THE BANK INTEREST OF RS.7,22,537/- COULD HAVE BEEN SAVED SO THE CHARGING OF NOTIONAL INTEREST @ 14% TO THE TUNE OF RS.17,82,425/- IS QUIET JUSTIFIED. THE AMOUNT OF R S.7,22,537/- WHICH HAS BEEN DEBITED IN THE P&L ACCOUNT, FORMS P ART OF THE BIGGER AMOUNT OF RS.17,82,425/-. HENCE THE ACTION O F THE PAGE OF 10 ITA. 345/MDS/06 5 ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF IN COME TAX(A) IN THIS REGARD ARE CONFIRMED. 5. THE SECOND ISSUE OF THIS APPEAL IS REGARDING CH ARGING INCOME OF RS.48,405/- TO TAX U/S.28(IV). THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.1,10,915/- TO REPRESENT EXCESS SHARE APPLICATION MONEY AS REFUNDABLE TO THE SUBSCRIBERS OF THE PUBLIC ISSUE. WHEN ASKED TO GIVE DETAILS OF THE PERSONS TO WHOM THESE AMOUNT S WAS PAYABLE; NO PROOF WAS PRODUCED, BUT HE HAS REITERAT ED THAT IT HAS BEEN CLAIMING IT AS A CONTINUING LIABILITY. BU T THE ASSESSING OFFICER HAS NOT ACCEPTED THIS STAND AND H AS FOUND THIS LIABILITY NO LONGER EXIST AND HAS CEASED. HE HAS ADDED AN AMOUNT OF RS.1,10,915/- U/S.41(1) OF THE ACT. BEFOR E THE COMMISSIONER OF INCOME TAX(A), IT WAS ARGUED THAT A PART OF THIS LIABILITY HAS BEEN REFUNDED TO VARIOUS SUBSCRI BERS. IT WAS STATED THAT AS ON 31.03.95 THIS LIABILITY HAS REDUC ED TO RS.1,10,915/- ONLY AND IN THE IMMEDIATELY NEXT YEAR , IT WAS REDUCED TO RS.51,905/- AS ON 31.03.96 AND SIMILARLY AS FROM 31.03.97 UNTIL 31.03.01, IT WAS ONLY RS.48,405/-. ACCORDING TO ASSESSEE, EVEN THIS SUM WAS REPAYABLE AND HENCE THI S AMOUNT CAN NOT BE ADDED. AFTER CONSIDERING THE SUB MISSIONS PAGE OF 10 ITA. 345/MDS/06 6 OF THE ASSESSEE, LD. COMMISSIONER OF INCOME TAX(A) HAS HELD THAT SINCE AS ON 31.03.01 A SUM OF RS.48,405/- WAS NOT PAID TO THE SUBSCRIBERS AND WAS WITH THE APPELLANT COMPA NY, IT HAS TO BE TREATED ITS INCOME U/S.28(IV) OF THE ACT BEIN G A BENEFIT ARISING OUT OF THE TRANSACTION IN QUESTION, BUT HAS NOT APPLIED THE PROVISIONS OF SECTION 41(1) OF THE ACT, SINCE T HE ASSESSEE HAS NEVER CLAIMED THIS IN ITS P&L ACCOUNT. NOW, TH E ASSESSEE IS FURTHER AGGRIEVED. AGAIN, IT HAS ARGUED THAT THI S AMOUNT REPRESENTS EXCESS SHARE APPLICATION MONEY TO BE REF UNDED TO SUBSCRIBERS WHICH HAS TO BE COMPULSORILY TRANSFERRE D TO THE INVESTOR/INVESTORS EDUCATION AND PROTECTION FUND UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT HAS BEEN CLAIMED THAT THERE IS NO CESSATION OF LIABILITY. SINCE THE COMMISSIONER OF INCOME TAX(A) HAS ACKNOWLEDGED THE EXISTING LIAB ILITY OF THE ASSESSEE-COMPANY, HE SHOULD NOT HAVE ADDED THE REMA INING AMOUNT EVEN U/S.28(IV). LOGICALLY, THE LIABILITY D OES NOT CEASE TO EXIST. HENCE, WE ORDER TO DELETE THIS ADDITION AND SET ASIDE THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A) ON THIS ISSUE. WE ALLOW THIS GROUND. PAGE OF 10 ITA. 345/MDS/06 7 6. THE NEXT ISSUE OF THIS APPEAL RELATES TO CONFI RMED THE ADDITION OF RS.5,45,200/- BEING PURCHASE OF JEWELLE RY OUT OF UNACCOUNTED INCOME. THE APPELLANT COMPANY RECEIVED 1159.586 GMS JEWELS FROM M/S.MOOLCHAND SHAH ON 02.12.1994. THE CASE OF THE APPELLANT IS THAT BULL ION WAS SENT ON 15.11.94 TO M/S.MOOLCHAND SHAH ON 15.11.94 AND G OLD JEWELLERY WAS RECEIVED LATER. FROM THE RECORDS, AS SESSING OFFICER FOUND THAT BULLION WAS PURCHASED ONLY IN TH E MONTH OF JANUARY, 1995, SO THERE COULD BE NO QUESTION OF SEN DING THE SAME IN THE YEAR 1994 TO THAT PARTY. THE STAND OF THE ASSESSEE IS THAT THE AVAILABLE JEWELLERY WAS MELTE D, CONVERTED INTO BULLION AND SENT TO BOMBAY, SINCE NO RECORDS WERE MAINTAINED REGARDING MELTING OF GOLD JEWELLERY AND GIVING IT TO OUTSIDE PARTIES. ASSESSING OFFICER HAS TREATED THI S JEWELLERY TO HAVE BEEN PURCHASED OUT OF UNACCOUNTED INCOME AND B Y QUANTIFYING ITS VALUE AT RS.5,42,200/- HAS ADDED TH E SAME IN THE HANDS OF ASSESSEE COMPANY. LD. COMMISSIONER OF INCOME TAX(A) HAS ALSO CONFIRMED THIS ADDITION. 7. BEFORE US, BOTH THE PARTIES HAVE MAINTAINED THE IR SAME STANDS. LD. AR ARGUED THAT THE BULLION WAS MADE OUT OF OLD JEWELLERY AND WAS SENT TO M/S.MOOLCHAND SHAH AND, I N TURN, PAGE OF 10 ITA. 345/MDS/06 8 HAD RECEIVED GOLD JEWELLERY WEIGHING 1159.586 GMS F ROM M/S.MOOLCHAND SHAH ON 2 ND DECEMBER, 1994. BUT THE EVIDENCE REGARDING MELTING ETC. COULD NOT BE PRODUC ED BEFORE US ALSO. NO PROOF REGARDING SENDING 1159.586 GMS FO R MELTING WAS PRODUCED. THERE IS NO EVIDENCE REGARDING GIVIN G IT FOR MELTING AND NOTHING HAS BEEN RECORDED IN THE BOOKS. KEEPING IN VIEW THE CLAIM MADE BY THE ASSESSEE AND FEASIBLY OF THE REASON OF THE AUTHORITIES BELOW, WE ARE OF THE CONS IDERED OPINION THAT AMOUNT CANNOT BE ADDED IN THE HANDS OF ASSESSEE-COMPANY, PARTICULARLY WHEN THERE IS NO CON TRARY EVIDENCE AVAILABLE WITH THE ASSESSING OFFICER. 8. THE LAST ISSUE OF THIS APPEAL IS REGARDING CONF IRMING ADDITION OF RS.4,10,000/- ADDED ON ACCOUNT OF UNACC OUNTED VALUE OF 1 KG OF GOLD STOCK. THE FACTS APROPOS THI S ISSUE ARE THAT COMPANY HAS SHOWN RS.21,27,765/- TOWARDS JOB O RDER INCOME. THE ASSESSEE HAS MENTIONED IN EACH BILL SM ALL QUANTITY OF GOLD IN FEW GRAMS TO HAVE BEEN RETURNED TO VARIOUS PARTIES. THE ASSESSING OFFICER HAS TREATED THIS AS A MODUS OF THE ASSESSEE COMPANY TO HIDE INCOME. ACCORDING TO HIM, A SMALL ACCOUNT OF GOLD CAN NOT BE WRITTEN LIKE THIS BECAUSE IN EVERY CASE, ASSESSEE TAKES MAKING CHARGES AND THE S MALL PAGE OF 10 ITA. 345/MDS/06 9 AMOUNT OF GOLD WOULD DEFINITELY BE ADJUSTED TOWARDS MAKING CHARGES ETC. HE HAS FOUND THAT THIS IS A PLOY USED BY THE ASSESSEE. THEREFORE, HE HAS ADDED THE VALUE OF THI S ENTIRE AMOUNT OF GOLD STATED TO HAVE BEEN RETURNED TO THE PARTIES AND ADDED ITS VALUE, WHICH COMES TO RS.4,10,000/- IN AS SESSEES HANDS. AFTER HEARING BOTH SIDES, WE ARE OF THE CON SIDERED OPINION, THIS ADDITION IS BASED SIMPLY ON THE SURMI SES AND THE CONJECTURES OF THE ASSESSING OFFICER. THERE IS NO V ALID BASIS FOR DOING SO. THE EXPLANATION BY THE ASSESSEE SEEMS TO BE QUITE PALPABLE AND REASONABLE. THE ASSESSEE MIGHT HAVE R ETURNED THE SMALL AMOUNT OF GOLD TO KEEP ITS MARKET VALUE U P. THERE IS NO VALID REASON TO DISCORD THE SAME. HENCE, WE DELE TE THIS ENTIRE ADDITION. 9. IN RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED ON 3 RD AUGUST, 2011. SD/- SD/- ( DR.O.K.NARAYANAN ) ( HARI OM MARATHA ) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 3 RD AUGUST, 2011. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE