GOLD STAR METALS LTD, MUMBAI V. ACIT 9(1), MUMBAI

ITA 3500/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8701 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: K K LALKAKA
• Keywords: Unexplained cash credit; Source of fund; Additional evidence
• Section: 143(3); 115JB; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER.. I.T.A. NO.3500 & 3501/MUM/2010. ASSESSMENT YEARS : 2005-06 & 2006-07. M/S GOLD STAR METALS LTD., ASSTT. COMMISSIONER OF 1, ANANDI CO-OP. HSG. SOC. LTD., VS. INCOME-TAX-9(1), NADIADWALA COLONY NO.2, MUMBAI. S.V. ROAD, MALAD (W), MUMBAI 400 064. PAN AABCG 0330M APPELLANT. RESPONDENT . APPELLANT BY : SHRI K.K.LALKAKA. RESPONDENT BY : SHRI AMAR DEEP. DATE OF HEARING : 25-09-2012 DATE OF PRONOUNCEMENT : 12-10-2012. O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-19, MUMBA I DATED 05-02-2010 AND 05- 03-2010 FOR ASSESSMENT YEARS 2005-06 AND 2006-07 RE SPECTIVELY AND SINCE ONE OF THE ISSUES RAISED THEREIN IS INTERLINKED, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE COMPOSITE ORDER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR ASSESSMENT YEAR 2005-06 BEING ITA NO. 3500/MUM/2010 WHICH INVOLVES A SOLITA RY ISSUE RELATING TO ADDITION 2 ITA NO.3500&3501/MUM/2010 OF RS.32,02,302/- MADE BY THE AO U/S 68 AND CONFIRM ED BY THE LEARNED CIT(APPEALS). 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COPPER AND COPPER ALLO YS EXTRUSION. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 06-10-2005 DECLARING TOTAL INCOME AT NIL AND BOOK PROFIT U/S 115JB AT RS .1,44,10,897/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS TAKEN LOANS AND DEPOSITS FROM CERTAIN PARTIES. ALTH OUGH THE ASSESSEE FILED THE CONFIRMATIONS OF THE SAID PARTIES, IT COULD NOT FUR NISH THE OTHER DETAILS REQUIRED BY THE AO IN RESPECT OF THE FOLLOWING THREE CREDITORS : PALLAVI D. SHAH RS.5,37,151/- CHAYA H. SHAH RS.5,37,151/- B. ASHOK KUMAR RS.21,28,000/- - ------------------- TOTAL : RS.3 2,02,302/- - ------------------ KEEPING IN VIEW THE FAILURE OF THE ASSESSEE TO FURN ISH THE DETAILS REQUIRED BY HIM INSPITE OF SUFFICIENT OPPORTUNITY GIVEN IN THIS REG ARD, THE AO TREATED THE LOANS /DEPOSITS SHOWN TO BE RECEIVED BY THE ASSESSEE FROM THE ABOVE THREE PARTIES AS UNEXPLAINED CASH CREDITS AND THE AMOUNT OF SUCH LOA NS/DEPOSITS AGGREGATING TO RS.32,02,302/- WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 04-12-2007. 4. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING, INTER ALIA, THE ADDITION MADE BY THE AO U/S 68. DURING THE COURSE OF APPELLA TE PROCEEDINGS, ADDITIONAL EVIDENCE WAS FILED BY THE ASSESSEE IN THE FORM OF C OPIES OF CONFIRMATION LETTERS AS WELL AS BANK STATEMENTS OF THE CONCERNED THREE CRED ITORS WITH REQUEST FOR SEEKING 3 ITA NO.3500&3501/MUM/2010 ADMISSION THEREOF AS PER RULE 46A OF INCOME-TAX RUL ES. THE LEARNED CIT(APPEALS) ADMITTED THE SAID ADDITIONAL EVIDENCE AND FORWARDED THE SAME TO THE AO FOR HIS EXAMINATION AND COMMENTS. ACCORDINGLY, A REMAND REP ORT WAS SUBMITTED BY THE AO TO THE LEARNED CIT(APPEALS) OFFERING HIS COMMEN TS ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AS UNDER : IN RESPECT OF LOAN OBTAINED FROM (I) PALLAVI D. SH AH, THE ASSESSEE HAS GIVEN THE BANK STATEMENT OF MS. PALLAVI D. SHAH. ON PERUS AL OF THE BANK STATEMENT, IT IS SEEN THAT THE AMOUNT OF RS. 5 LAKHS HAD BEEN CREDITED TO THE ACCOUNT OF MS. PALLAVI D. SHAH ON 18 TH AUGUST 2004 AND THE SAID AMOUNT HAS BEEN GIVEN AS LOAN / DEPOSIT TO M/S GOLD STAR METALS LTD . ON 19 TH AUGUST 2004. THE ASSESSEE HAS NOT SUBMITTED THE RETURN OF INCOME , PROOF OF CREDITWORTHINESS ETC. FURTHER THE SOURCE OF DEPOSIT OF THE AMOUNT WHICH IS THE IMMEDIATE SOURCE OF ADVANCE GIVEN TO THE ASSESS EE COULD NOT BE EXPLAINED BY THE ASSESSEE. AS REGARDS CHHAYA H. SHAH, THE BANK STATEMENT OF MS . CHHAYA H. SHAH HAS BEEN FILED. ON PERUSAL OF THE SAME, IT IS OBSERVED THAT THE AMOUNT OF RS.2,03,000/- AND RS.2,65,000/- HAD BEEN CREDITED T O THE ACCOUNT OF MS. CHHAYA SHAH ON 4 TH AUGUST 2004 AND 18 TH AUGUST 2004 RESPECTIVELY AND THE SAID AMOUNT WAS GIVEN TO THE ASSESSEE COMPANY ON 19 TH AUGUST 2004. NO OTHER DETAILS APART FROM THE BANK STATEMENT HAS BEE N FILED BY THE ASSESSEE. HERE ALSO THE ASSESSEE COULD NOT ESTABLISH THE SOUR CE OF DEPOSIT. FURTHER, WITH RESPECT TO THE LOAN /DEPOSIT OBTAINED FROM B. ASHOK KUMAR & CO., IT IS SEEN THAT AMOUNT OF RS.20,00,000/- HAD B EEN CREDITED ON 21 ST AUGUST, 2004 AND THE LOAN HAD BEEN GIVEN TO THE ASS ESSEE IMMEDIATELY AFTER THE SAID DEPOSITS HAVE BEEN MADE. THE SOURCE OF DEP OSIT OF THE AMOUNT COULD NOT BE ESTABLISHED BY THE ASSESSEE. THE ASSESSEE SU BMITTED THE COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOME WHEREIN THE INC OME IS SHOWN AT RS.2,26,960/-. THE BALANCE SHEET AND OTHER ANNEXURE S ACCOMPANYING THE RETURN HAS NOT BEEN FILED BY THE ASSESSEE. IN ALL THE ABOVE THREE INSTANCES, THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF FUNDS OF THE ABOVE MENTIONED PARTIES. HOWEVER, T HE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY DOCUMENTARY EVIDENCE FOR ESTABL ISHING CREDITWORTHINESS OF MS. PALLAVI D. SHAH AND CHHAYA D. SHAH INCLUDING THE SOURCE OF DEPOSIT. SIMILARLY IN RESPECT OF B. ASHOKKUMAR & CO., THE AS SESSEE HAS FILED ONLY THE COPY OF ACKNOWLEDGEMENT OF THE RETURN OF INCOME. TH E SOURCE OF THE DEPOSIT 4 ITA NO.3500&3501/MUM/2010 WHICH THE IMMEDIATE SOURCE OF THE ADVANCE GIVEN TO THE ASSESSEE I.E. M/S. GOLD STAR METALS LTD. COULD NOT BE EXPLAINED BY THE ASSESSEE. HENCE, THE CREDITWORTHINESS OF THE PARTIES COULD NOT BE ESTABL ISHED BY THE ASSESSEE AND THE ASSESSEE HAS STATED THAT HE IS UNABLE TO PROVE THE SOURCE OF THE FUNDS OBTAINED BY THE ABOVE SAID THREE PARTIES. 5. THE REMAND REPORT RECEIVED FROM THE AO WAS CONFR ONTED BY THE AO TO THE ASSESSEE COMPANY WHICH FILED ITS REPLY MAKING THE F OLLOWING SUBMISSIONS ON THE COMMENTS MADE BY THE AO: A. LOAN FROM PALLAVI D. SHAH RS 5 LACS AND CHHAYA D. SHAH. THE APPELLANT HAS SUBMITTED THE CONFIRMATION MENTIO NING THE PAN, THE ADDRESS AND THE DATEWISE DETAILS OF THE LOAN RECEIV ED. IT ALSO SUBMITTED THE COPY OF BANK STATEMENT OF THE LOANEE WHEREIN THE DE TAILS OF THE LOAN RECEIVED WAS DEPICTED. AS PER THE AO AN AMOUNT OF RS 5 LACS WAS DEPOSITED BY THE LOANEE IN HIS ACCOUNT WHICH WAS BY ACCOUNT PAYEE CH EQUE AS CAN BE SEEN FROM THE BANK STATEMENT. THIS AMOUNT WAS DEPOSITED BEFORE THE DATE OF TRANSFER OF LOAN BY THE LOANEE TO THE APPELLANT. IT IS ON THIS PREMISE THAT THE AO HAS OPTED TO DISALLOW THE LOAN BEING UNPROVED CA SH CREDIT. BUT THE LAW REQUIRES THE APPELLANT TO PROVE THE SOURCE AND NOT THE SOURCE OF THE SOURCE. ONCE THE APPELLANT HAS PROVED THE IDENTITY, THE SOU RCE AND THE GENUINENESS, HE IS NOT REQUIRED TO GO ANY FURTHER. IN BOTH THE C ASES OF LOANS, THE APPELLANT HAS SUBMITTED THE DETAILS AS REQUIRED TO PROVE THE GENUINENESS, IDENTITY AND SOURCE OF THE LOAN. THE APPELLANT HAS SUBMITTED THE COPIES OF THE PAN WHICH PROVES THE IDENTITY OF THE PARTIES, THE BANK STATEM ENT FROM WHICH THE LOAN AMOUNT HAS BEEN ADVANCED WHICH PROVES THE SOURCE AN D GENUINENESS OF THE TRANSACTIONS. THE AO HAS DISALLOWED THE LOANS ONLY ON THE GROUND THAT THE APPELLANT HAS NOT PROVED THE SOURCE OF THE SOURCE O F THE LOAN. THE APPELLANT AS SUCH IS NOT REQUIRED TO PROVE THE SOURCE OF THE SOURCE AND AS SUCH. B. B. ASHOKKUMAR & CO. IN RESPECT OF THIS THE APPELLANT HAS SUBMITTED THE SIMILAR DOCUMENT FROM THE LOANEE. IN ADDITION THE LOANEE HAS SUBMITTED THE CO PY OF THE RETURN OF INCOME OF THE LOANEE. IN THE CASE OF THE PRESENT LOANEE TH E AO HAS REFERRED ONLY TO THE ONE ENTRY OF THE LOANEE OF R 20 LACS WHICH WAS DEPOSITED BEFORE THE TRANSFER OF AMOUNT TO THE APPELLANT. BUT THE AO HAS NOT REFERRED TO VARIOUS ENTRIES IN THE BANK ACCOUNT OF THE LOANEE WHERE THE RE ARE VARIOUS DEPOSITS AND WITHDRAWALS IN THE ACCOUNT. THE AO HAS REFERRED TO THE TOTAL INCOME OF 5 ITA NO.3500&3501/MUM/2010 THE LOANEE WHICH IS R 2.27 LACS AS PER ITS RETURN O F INCOME. THE BASE OF THE AO THAT SINCE THE INCOME OF ANY PERSON IS A PARTICU LAR AMOUNT THEN THAT PERSON CANNOT OR DO NOT HAVE THE CAPACITY TO GIVEN LOAN OF A HIGHER AMOUNT. IT IS QUITE POSSIBLE THAT THE PERSON HAD ACCUMULATE D FUNDS AND CAPITAL WHICH HE IS UTILIZING FOR EARNING ADDITIONAL INCOME BY WA Y OF INTEREST ON LOANS. THE PRESENT INCOME OF THE PERSON IS NOT THE BASE TO DEC IDE THE CAPACITY OF THE LOANEE TO GIVE LOANS. IN CASE OF THE LOANEES THE AO HAS INSISTED ON THE B ALANCE SHEET OF THE LOANEES. HERE WE WOULD LIKE TO DRAW THE KIND ATTENT ION OF YOUR HONOUR THAT IT IS NOT POSSIBLE TO OBTAIN THE BALANCE SHEET OF VARI OUS PARTIES AS IT IS A PRIVY DOCUMENT AND NOT ALL PERSONS ARE WILLING TO PROVIDE THE SAME TO THIRD PARTIES. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E AS WELL AS MATERIAL AVAILABLE ON RECORD INCLUDING THE ADDITIONAL EVIDEN CE FILED BY THE ASSESSEE, REMAND REPORT SUBMITTED BY THE AO AS WELL AS REPLY OF THE ASSESSEE ON THE SAID REMAND REPORT, THE LEARNED CIT(APPEALS) DECIDED THE ISSUE RELATING TO ADDITION MADE U/S 68 IN PARAGRAPH NO. 8.6 OF HIS IMPUGNED ORDER WHICH RE ADS AS UNDER : I HAVE CONSIDERED THE FACTS OF THE CASE, REMAND R EPORT OF THE AO AND THE REPLY OF THE APPELLANT TO THE REMAND REPORT. TH ERE WERE CREDITS IN THE NAMES OF THREE PARTIES IN THE BOOKS OF THE APPELLAN T VIZ., PALLAVI D. SHAH (RS 5,37,51) CHHAYA D. SHAH (RS 5,37,151) (B. ASHOK KU MAR (RS 21,28,000/-). IN RESPECT OF THESE THREE CREDITS, THE REQUISITE DE TAILS IN ORDER TO PROVE THE GENUINENESS OF THE TRANSACTIONS WERE NOT FURNISHED BEFORE THE AO DURING THE TIME OF ASSESSMENT PROCEEDINGS. THEY WERE LATER PRO DUCED BEFORE THE CIT(A) AS ADDITIONAL EVIDENCE. COPIES OF BANK STATE MENTS OF THE PARTIES WERE REQUISITIONED. IT WAS NOTICED BY THE AO THAT AS PER THE BANK STATEMENT OF PALLAVI D. SHAH, THERE WAS A DEPOSIT OF 5 LAKHS ON 18.8.2004, AND THE VERY ENXT DAY, I.E.19.8.2004, THERE HAS BEEN WITHDRAWAL OF THE SAME, FAVOURING M/S GOLD STAR LTD. I.E. THE APPELLANT. AS REGARDS C HHAYA H. SHAH, IT WAS NOTICED BY THE AO FROM THE STATEMENT AS FILED THAT THERE WERE DEPOSITS OF RS.2,03,000/- AND RS.2,65,000/- ON 4 AND 18 AUGUST, 2004 RESPECTIVELY AND ON 19.8.2004, THERE HAS BEEN WITHDRAWAL OF RS.5 LAK HS, FAVOURING GOLD STAR LTD. THUS THE AMOUNTS HAVE BEEN DEPOSITED JUST PRIO R TO THE DATE OF TRANSFER OF LOAN. AS REGARDS, LOAN OF RS.20 LAKHS FROM B. AS HOK KUMAR, THE AO NOTICED THAT THERE WERE CREDITS IN THE BANK A/C OF B. ASHOK KUMAR ON 6 ITA NO.3500&3501/MUM/2010 21.8.2004 AND IMMEDIATELY THEREAFTER, AMOUNTS WERE ADVANCED TO THE ASSESSEE. THE AO HAS POINTED OUT THAT THE INCOME AS RETURNED BY THE SAID CREDITOR FOR THE YEAR IS ONLY RS.2,26,960/- WHEREBY THER IS A MISMATCH AND MOREOVER, IT HAS ALSO BEEN POINTED OUT BY THE AO TH AT THE BALANCE SHEET AND OTHER ANNEXURES WERE NOT PRODUCED BEFORE THE AO. WI TH REFERENCE TO THE AMOUNTS AVAILED OF FROM MS. PALLAVI SHAH AND CHAYYA SHAH, IT IS THE CLAIM OF THE APPELLANT THAT ONCE IT HAS PROVED THE IDENTI TY, THE SOURCE AND GENUINENESS, THE LOANS HAVE TO BE TREATED AS EXPLAI NED. THOUGH IT IS TO BE AGREED THAT WITH REFERENCE TO A CREDIT IN THE BOOKS , IF THE IDENTITY, THE CREDIT WORTHINESS AND THE GENUINENESS OF THE TRANSACTION H AS BEEN EXPLAINED, THE SAME WILL BE OUTSIDE THE AMBIT OF S. 68, BUT IN THI S CASE, THE PECULIAR FACT POINTED OUT BY THE AO IS THE DEPOSITS OF THE MONEY IN THE RESPECTIVE BANK ACCOUNTS JUST PRIOR TO THE DATE OF THE LOANS HAVING BEEN ADVANCED TO THE APPELLANT. THIS CASTS SUSPICION AND VERY RIGHTLY SO , ON THE CREDIT WORTHINESS OF THE ACCOUNT HOLDER. THE BANK STATEMENTS BY THEMS ELVES DO NOT PROVE ANYTHING OTHER THAN THE MOVEMENT OF THE FUNDS. IT H AS TO BE STATED THAT MERE IDENTIFICATION OF THE DONOR AND THE MOVEMENT OF FUN DS THROUGH BANKING CHANNELS DOES NOT BY ITSELF PROVE THE GENUINENESS O F THE TRANSACTION OR THE CREDIT WORTHINESS OF THE LENDER ON ACCOUNT OF THE P ECULIAR FEATURE OF FUNDS HAVING BEEN DEPOSITED INTO THE BANK ACCOUNT JUST PR IOR TO THE DATE OF ADVANCE. NO OTHER CORROBORATIVE EVIDENCE HAS BEEN F URNISHED BY THE APPELLANT TO EVIDENCE THE CREDIT WORTHINESS OF THE LENDERS. IN SUCH CASES, UNLESS THE BANK STATEMENTS ARE SUPPORTED BY OTHER C ORROBORATIVE EVIDENCES THERE IS EVERY REASON TO HOLD THE VIEW THAT THE FIN ANCIAL CAPACITY OF THE LENDERS OR THE GENUINENESS OF THE TRANSACTIONS HAVE NOT BEEN PROVED. AS HELD BY THE HON. SUPREME COURT IN THE CASE OF DURGA PRAS AD MORE [82 ITR 540] THE TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO TH E SURROUNDING CIRCUMSTANCES WHEN THERE ARE ENOUGH REASONS TO BELIEVE THAT THE A PPARENT IS NOT REAL. SINCE THE CLAIM OF CREDIT HAS BEEN MADE BY THE APPELLANT, IT IS FOR THE APPELLANT TO ESTABLISH NOT ONLY THE IDENTITY OF PERSONS GIVING T HE CREDIT BUT ALSO THEIR CAPACITY AND THE GENUINENESS OF THE TRANSACTIONS AS WELL. ON THE FACTS OF HIS CASE, SINCE THERE WAS DEPOSIT OF FUNDS PRIOR TO THE DATE OF ADVANCE THE ONUS WHICH LAY ON THE ASSESSEE TO PROVE THE TRANSACTIONS HAS NOT BEEN DISCHARGED. THE MERE ISSUANCE OF A CHEQUE DOES NOT ESTABLISH TH E CREDIT WORTHINESS OF THE LENDERS. THE APPELLANT HAS FAILED TO ESTABLISH THE CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTIONS TO THE SATISFACTION OF THE AO. AS HELD BY THE HON. HIGH COURT OF DELHI IN ASHOK MAHINDRU & SONS ( HUF) VS. CIT (2008) 9 DTR (DEL) 222, EVEN THOUGH THE DOCUMENTATI ON MAY BE IN ORDER, IF THERE IS ENOUGH MATERIAL TO RAISE A VERY STRONG SUS PICION THAT THERE IS SOMETIME NOT QUITE RIGHT WITH THE NATURE OF THE TRA NSACTION, THE AUTHORITIES 7 ITA NO.3500&3501/MUM/2010 UNDER THE ACT MAY REJECT DOCUMENTS AND REQUIRE THE ASSESSEE TO SHOW THAT TRANSACTION IS A REAL ONE WHICH IS ABOVE BOARD. IT IS TO BE MENTIONED HERE THAT THE AO HAS PERTINENTLY POINTED OUT IN THE REMAND RE PORT THAT AS PER THE COPY OF ACKNOWLEDGEMENT OF RETURN OF ASHOK KUMAR & CO., THE RETURNED INCOME IS ONLY RS.2,26,960/-. IT HAS BEEN FURTHER POINTED OUT BY THE AO THAT THE BALANCE SHEET AND OTHER ANNEXURES ACCOMPANYING THE RETURN WERE NOT FURNISHED BY THE ASSESSEE. THE SUBMISSION OF THE AP PELLANT IN THIS REGARD THAT IT IS NOT POSSIBLE TO OBTAIN THE BALANCE SHEET SINC E IT IS A PRIVY DOCUMENT IS NOT ACCEPTABLE SINCE THE SAID PARTIES ARE KNOWN TO THE APPELLANT. IN THE INSTANT CASE, THE LENDERS ARE INTERESTED PARTIES AN D THEREFORE, THE CONTENTION THAT IT IS NOT POSSIBLE TO OBTAIN SUCH DOCUMENTS OF THE LOANEES IS WITHOUT MERITS AND HENCE REJECTED. THE LEARNED CIT(APPEALS) THUS CONFIRMED THE ADDITIO N OF RS.32,02,203/- MADE BY THE AO U/S 68 TREATING THE LOANS/DEPOSITS RECEIVED BY THE ASSESSEE FROM THREE PARTIES AS UNEXPLAINED CASH CREDIT. AGGRIEVED BY TH E ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THESE APPE ALS BEFORE THE TRIBUNAL. 7. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E THE TRIBUNAL, THE ASSESSEE HAS FILED A PAPER BOOK WHICH CONTAINS THE FOLLOWING DOCUMENTS WHICH ARE BEING FILED FOR THE FIRST TIME BEFORE THE TRIBUNAL AS FRE SH EVIDENCE : 1) COPY OF TRADING AND PROFIT & LOSS ACCOUNT OF B. ASHOK KUMAR & CO. AND COPY OF SCHEDULE OF LOANS ANNEXED TO BALANCE-SH EET. 2) COPY OF INCOME-TAX RETURNS OF PALLAVI D. SHAH. 3) COPY OF CONFIRMATION LETTER OF PALLAVI D. SHAH. 4) COPY OF BANK ACCOUNT OF PALLAVI D. SHAH WITH UN ION BANK OF INDIA. 5) COPY OF CONFIRMATION LETTER OF CHHAYA B. SHAH. 6) COPY OF BANK STATEMENT OF CHHAYA B. SHAH WITH U NION BANK OF INDIA. 7) COPY OF INCOME-TAX RETURN OF CHHAYA B. SHAH. 8. THE ASSESSEE HAS ALSO FILED AN APPLICATION SEEKI NG ADMISSION OF THE ADDITIONAL EVIDENCE ON THE FOLLOWING GROUNDS : 8 ITA NO.3500&3501/MUM/2010 IN THIS CASE, THE ASSESSING OFFICER HAD MADE AN AD DITION U/S. 68 IN RESPECT OF THE FOLLOWING LOANS RECEIVED FROM THE PARTIES AS UNEXPLAINED CREDIT SINCE REASONABLE OPPORTUNITY WAS NOT GIVEN TO PRODUCE DOC UMENTARY EVIDENCE IN SUPPORT OF THE GENUINENESS OF THE LOANS :- (I) PALLAVI D. SHAH RS. 5,37,151 (II) CHHAYA H. SHAH RS. 5,37,151 (III) B. ASHOK KUMAR RS.21,28,000 RS.32,02,302 ========== AN APPLICATION U/S. 46A WAS MADE BEFORE THE CIT(A) WHEN CERTAIN ADDITIONAL DOCUMENTS WERE SUBMITTED AND TAKEN ON RE CORDS BY CIT(A). HOWEVER, THE PROFIT & LOSS ACCOUNT AND BALANCE SHEE T OF B. ASHOKKUMAR & CO. WAS NOT AVAILABLE SINCE BEING A SENSITIVE ISS UE, THE PARTY WAS NOT WILLING TO PART WITH IT. HOWEVER, WITH GREAT DIFFIC ULTY TH PROFIT AND LOSS ACCOUNT ALONG WITH STATEMENT OF LOANS GIVEN, HAVE B EEN OBTAINED AND ARE BEING FILED AS ADDITIONAL EVIDENCE BEING ITEM NO. 7 OF PAPER BOOK SINCE DESPITE BEST EFFORTS THE APPELLANT COULD NOT OBTAIN EARLIER THE SAME FROM THE B. ASHOKKUMAR & CO. THE COPY OF I.T. RETURNS OF PALLAVI SHAH AND CHHAYA SHAH COULD NOT BE OBTAINED FOR SIMILAR REASONS AT THE TIME OF ASSESSM ENT PROCEEDINS ALTHOUGH THEIR PAN WERE FURNISHED TO THE A.O. AT THE TIME OF REMAND PROCEEDING AND WERE ALSO MENTIONED IN THE TAX AUDIT REPORT. HOWEVE R, ON OBTAINING THE SME FROM THE PARTIES, IT IS SUBMITTED BY WAY OF ADDITIO NAL EVIDENCE AS ITEM NO. 8 AND 13 IN THE PAPER BOOK. IT IS RESPECTFULLY SUBMITTED THAT THE ABOVE SAID DO CUMENTS MAY BE ADMITTED AS THEY DO NOT CAUSE ANY PREJUDICE TO THE REVENUE B UT AT THE SAME TIME IT ADDS STRENGTH TO THE GENUINENESS OF LOAN GIVEN BY THE AB OVE THREE PARTIS. IN THE CIRCUMSTANCES WE INDEED BY GRATEFUL IF YOU K INDLY PERMIT THE SAME ADDITIONAL EVIDENCE TO BE ADMITTED TO MEET THE ENDS OF JUSTICE. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THE ISSUE OF ADMISSION OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. ALTHOUGH THE LEARNED DR HAS RAISED A STRONG OBJECTION FOR ADMITTING THE ADDITIONAL EVIDE NCE FILED BY THE ASSESSEE ON THE GROUND THAT SUFFICIENT OPPORTUNITY WAS AFFORDED BY THE AO AS WELL AS BY THE 9 ITA NO.3500&3501/MUM/2010 LEARNED CIT(APPEALS) TO THE ASSESSEE TO PRODUCE SUC H EVIDENCE, IT IS OBSERVED THAT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE GOES TO THE ROOT OF THE MATTER AND THE SAME IS RELEVANT FOR THE PURPOSE OF DECIDING THE IS SUE INVOLVED IN THE CASE OF THE ASSESSEE RELATING TO ADDITIONS MADE U/S 68. AS A MA TTER OF FACT, A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) SHOWS TH AT THE ADDITION MADE BY THE AO U/S 68 HAS BEEN CONFIRMED BY HIM FOR WANT OF SUC H EVIDENCE TO CORROBORATE THE CASE OF THE ASSESSEE RELATING TO CREDIT WORTHINESS OF THE CONCERNED CREDITORS. KEEPING IN VIEW THE RELEVANCE OF THE ADDITIONAL EVI DENCE FILED BY THE ASSESSEE FOR DECIDING THE ISSUE UNDER CONSIDERATION, WE ARE OF T HE VIEW THAT THE SAME IS REQUIRED TO BE ADMITTED IN THE INTEREST OF JUSTICE. ACCORDIN GLY, WE ADMIT THE SAID ADDITIONAL EVIDENCE AND RESTORE THE ISSUE RELATING TO ADDITION U/S 68 TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFTER EXAMINING/VERIFYING THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. THE APPEAL OF THE ASSESSEE FOR ASSESS MENT YEAR 2005-06 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 10. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 BEING ITA NO. 3501/MUM/2010. 11. THE ISSUE RAISED IN GROUND NO.1 OF THIS APPEAL RELATES TO THE ADDITION OF RS.6,84,000/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF DISALLOWANCE OF DIRECTORS REMUNERATION. 12. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH I TS RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07, A SUM OF RS.27,90,000/- WA S DEBITED BY THE ASSESSEE ON ACCOUNT OF DIRECTORS REMUNERATION. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE REMUNERATION OF R S.18 LAKHS ONLY WAS PAID BY THE ASSESSEE TO ITS DIRECTORS IN THE IMMEDIATELY PRECE DING YEAR I.E. ASSESSMENT YEAR 2005-06. HE, THEREFORE, REQUIRED THE ASSESSEE TO JU STIFY THE SUBSTANTIAL INCREASE 10 ITA NO.3500&3501/MUM/2010 MADE IN THE YEAR UNDER CONSIDERATION IN THE REMUNER ATION PAID TO THE DIRECTORS. IN REPLY, A COPY OF RESOLUTION DATED 05-04-2005 PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY WAS FILED BY THE ASSESSEE. AS NOTED BY THE AO FROM THE SAID RESOLUTION, REMUNERATION OF RS.18 LAKHS PER ANNUM W AS APPROVED BY THE BOARD OF DIRECTORS FOR THE PERIOD 01-04-2004 TO 31-03-2005. AS THERE WAS NO MENTION OF ANY INCREASE IN THE DIRECTORS REMUNERATION TO RS.2 7,90,000/- FOR THE YEAR UNDER CONSIDERATION IN THE SAID RESOLUTION, THE AO DISALL OWED THE ADDITIONAL REMUNERATION OF RS.9,90,000/- PAID BY THE ASSESSEE COMPANY TO IT S DIRECTORS FOR THE YEAR UNDER CONSIDERATION. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCE AFTER REFUSING TO ENTERTAIN THE PLEA O F THE ASSESSEE THAT RESOLUTION FOR THE EARLIER YEAR WAS WRONGLY FILED BEFORE THE AO IN STEAD OF THE RESOLUTION AUTHORIZING THE DIRECTORS REMUNERATION FOR THE YEA R UNDER CONSIDERATION. HE HELD THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO SUPPORT AND SUBSTANTIATE ITS CLAIM FOR ADDITIONAL REMUNERATION PAID TO ITS DIREC TORS ON EVIDENCE AND ACCORDINGLY THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE WAS C ONFIRMED BY HIM. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED ON BEHALF OF THE A SSESSEE BEFORE THE LEARNED CIT(APPEALS) AS WELL AS BEFORE US, THE BOARD RESOLU TION FOR THE EARLIER YEAR WAS WRONGLY FILED BY IT BEFORE THE AO INSTEAD OF THE BO ARD RESOLUTION AUTHORIZING THE DIRECTORS REMUNERATION FOR THE YEAR UNDER CONSIDER ATION. KEEPING IN VIEW THIS SPECIFIC PLEA TAKEN BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) OUGHT TO HAVE CONSIDERED THE SAME ON M ERIT AFTER CALLING FOR THE REMAND REPORT FROM THE AO, IF REQUIRED. WE, THEREFO RE, SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) AND RESTORE THE M ATTER TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER EXAMIN ING/VERIFYING THE PLEA OF THE ASSESSEE THAT THE INCREASE IN DIRECTORS REMUNERAT ION FOR THE YEAR UNDER 11 ITA NO.3500&3501/MUM/2010 CONSIDERATION WAS DULY AUTHORIZED BY THE BOARD OF D IRECTORS AND THE RESOLUTION TO THIS EFFECT WAS NOT FILED BY MISTAKE AND WHAT WAS F ILED WAS THE RESOLUTION RELATING TO THE EARLIER YEAR. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 14. THE ISSUE RAISED IN GROUND NO.2 OF THE APPEAL O F THE ASSESSEE RELATING TO DISALLOWANCE OF INTEREST OF RS.1,67,561/- CLAIMED T O BE PAID ON LOANS/DEPOSITS WHICH WERE TREATED AS UNEXPLAINED CASH CREDITS IN A SSESSMENT YEAR 2006-07 IS CONSEQUENTIAL TO THE ISSUE INVOLVED IN ASSESSMENT Y EAR 2005-06 RELATING TO ADDITION MADE U/S 68. AS WE HAVE ALREADY RESTORED THE MAIN I SSUE RELATING TO THE ADDITION U/S 68 TO THE FILE OF THE AO WHILE DISPOSING OF THE APP EAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06, WE RESTORE THIS CONSEQUENT IAL ISSUE ALSO TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH DEPENDING UPON HIS DECISION ON THE ISSUE OF ADDITION U/S 68 IN ASSESSMENT YEAR 2005-06. GROUND NO.2 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 12 TH DAY OF OCT. , 2012. SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 12 TH OCT., 2012. 12 ITA NO.3500&3501/MUM/2010 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE.