ITO, Ghaziabad V. M/s Shah Associates, Ghaziabad

ITA 36/DEL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6961 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 08-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL SENIOR
• Assessee Lawyers: U S BHARGAVA
• Keywords: Unexplained cash credit; Capital asset; Fair market value
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH G GG G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 36/DEL/2011 36/DEL/2011 36/DEL/2011 36/DEL/2011 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007 - -- - 08 0808 08 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -2(3), 2(3), 2(3), 2(3), GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. VS. VS. VS. VS. M/S SH M/S SH M/S SH M/S SH AH ASSOCIATES, AH ASSOCIATES, AH ASSOCIATES, AH ASSOCIATES, 106, JASSIPURA, 106, JASSIPURA, 106, JASSIPURA, 106, JASSIPURA, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. PAN : AAWFS8451K. PAN : AAWFS8451K. PAN : AAWFS8451K. PAN : AAWFS8451K. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ANIMA BARNWAL, SENIOR DR. RESPONDENT BY : SHRI U.S. BHARGAVA, ADVOCATE. DATE OF HEARING : 08.02.2016 08.02.2016 08.02.2016 08.02.2016 DATE OF PRONOUNCEMENT : 19.02.2016 19.02.2016 19.02.2016 19.02.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), GHAZI ABAD DATED 27 TH OCTOBER, 2010. 2. THE FIRST GROUND OF REVENUES APPEAL READS AS UN DER:- THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS B Y DELETING THE ADDITION OF RS.38.60 LACS MADE U/S 68 OF THE INCOME TAX ACT WITHOUT PROPERLY APPRECIATING THE FA CTS OF THE CASE AS WELL THE REASONS GIVEN BY THE A.O. IN H IS ORDER. 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED DR THAT THERE WAS CREDIT IN THE ACCOUNT OF THE ASSE SSEE FROM LARGE NUMBER OF PERSONS. IN THE BANK ACCOUNT OF THE CRED ITOR, THERE WAS CASH DEPOSIT IMMEDIATELY BEFORE ISSUE OF CHEQUE TO THE ASSESSEE. THAT NO SATISFACTORY EXPLANATION WAS GIVEN BY THE ASSESS EE FOR CASH DEPOSIT ITA-36/DEL/2011 2 IN THE BANK ACCOUNT OF THE CREDITOR AND THE CREDITO R WAS NOT PRODUCED FOR EXAMINATION BEFORE THE ASSESSING OFFICER. THER EFORE, THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN TREATING THE CREDIT TO BE UNEXPLAINED CASH CREDIT U/S 68 OF THE INCOME-TAX ACT, 1961. LEARNED CIT(A) DELETED THE ADDITION WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE. SHE, THEREFORE, SUBMITTED THAT THE ORDER OF LEARNED CIT( A) SHOULD BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE R ESTORED. 4. LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED UPON THE ORDER OF LEARNED CIT(A). HE STATED THAT ALL TH E CREDITORS ARE ASSESSED TO INCOME TAX. THEIR CONFIRMATIONS ALONG WITH THE BALANCE SHEET, STATEMENT OF ACCOUNT AND ACKNOWLEDGEMENT OF FILING OF THE RETURN WERE DULY SUBMITTED. THUS, THE ASSESSEE HAS DULY DISCHARGED THE ONUS WHICH LAY UPON IT TO PROVE THE CASH CREDIT . IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT, ORISSA VS. ORISSA CORPORATION P.LT D. [1986] 159 ITR 78. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND HAVE PERUSED THE RELEVANT MATERIAL PLACED BEFORE US. LE ARNED CIT(A), WHILE DELETING THE ADDITION, HAS RECORDED THE FOLLOWING F INDING:- 5.1 REGARDING GROUND NO.1, I FIND THAT ALL THE PARTNERS/FAMILY MEMBERS, WHO HAVE EITHER CONTRIBUTE D IN THEIR CAPITAL ACCOUNT OR HAVE GIVEN UNSECURED LOANS TO THE ASSESSEE FIRM, ARE NOT ONLY ASSESSED TO TAX AND NOT ONLY THE TRANSACTIONS ARE THROUGH BANKING CHANNELS AND T HUS THESE TRANSACTIONS CAN BE TREATED TO BE GENUINE; BU T ALSO THEY HAVE SUFFICIENT CREDITWORTHINESS IN SO MUCH SO THAT THEY HAVE HUGE CAPITAL BALANCES AND HAVE FURNISHED EXPLANATION REGARDING SOURCES OF FUNDS IN THEIR HAN DS WHILE GIVING THEIR CONFIRMATIONS IN RESPECT OF THE LOAN/C REDIT ENTRIES. VARIOUS CASE LAWS, AS CITED BY THE APPELL ANT, INCLUDING THAT OF BANARSI PRASHAD VS. CIT 304 ITR 2 39 (ALL.) CLEARLY TAKE THE ISSUE IN FAVOUR OF THE APPELLANT. ITA-36/DEL/2011 3 5.1(A) THE AO'S OBJECTIONS AS LISTED ON PAGE 10 & 1 1 OF THE ASSESSMENT ORDER ARE EITHER IRRELEVANT OR VERY WEAK IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. ONCE TH E EVIDENCE OF THEIR BEING ASSESSED TO TAX ALONG WITH COPIES OF I.T. RETURNS AND CONFIRMATIONS ARE FURNISHED; TH E NATURE OF SOURCE OF INCOME IN THEIR HANDS CAN VERY WELL BE ASCERTAINED. SOME LADIES WERE NOT PRODUCED ON RELI GIOUS GROUNDS BUT EVEN THEN THE APPELLANTS COUNSEL HAD O FFERED THAT, IF NECESSARY, THEY WOULD BE PRODUCED AND THAT , PREFERABLY AN INSPECTOR CAN GO TO THEIR RESIDENCE A ND RECORD THEIR STATEMENTS. THE ASSESSING OFFICER COU LD HAVE FAVOURABLY ACCEDED TO ASSESSEES REQUEST TO THAT EX TENT. THE APPELLANT HAS OFFERED TO PRODUCE THESE CREDITOR S BEFORE ME; BUT ON THE FACE OF MORE THAN SATISFACTORY DETAI LS, DOCUMENTS AND EVIDENCE ALREADY ON RECORD, I DO NOT FIND ANY NECESSITY FOR GETTING THEM EXAMINED. I AM OF T HE VIEW THAT THEIR CREDITWORTHINESS IS MORE THAN ESTABLISHE D. 5.1(B) IT IS TRUE THAT SOME OF THE CASH DEPOSITS I N THE BANK ACCOUNTS OF THESE PARTNERS/RELATIVES HAVE ONLY REMO TE NEXUS WITH CASH WITHDRAWALS, AS THOSE WITHDRAWALS W ERE MADE MONTHS EARLIER; BUT THAT OBSERVATION, PER SE, IS NOT STRONG ENOUGH TO HOLD THAT THE APPELLANT FAILED IN ITS DUTY OF MEETING THE REQUIREMENTS AS LAID DOWN IN SECTION 68 OF THE ACT. WHAT THE AO COULD HAVE BEEN DONE OR CAN S TILL DO IS TO TAKE/CAUSE TO TAKE REMEDIAL ACTION IN THE HAN DS OF THOSE PARTNERS/CREDITORS WHERE SOURCE OF CERTAIN DE POSITS MADE IN THEIR BANK ACCOUNT IS, ACCORDING TO THE AO, NOT FREE FROM DOUBT. BUT THE MOOT POINT HERE IS THAT T HE APPELLANT HAS FULLY DISCHARGED ITS ONUS OF FURNISHI NG CONFIRMATIONS, EXPLANATION THAT TRANSACTIONS WERE G ENUINE AND ALSO LAYING DOWN EVIDENCES SO AS TO INDICATE SU FFICIENT CREDITWORTHINESS OF THE CREDITORS. 5.1(C) IN VIEW OF ABOVE DISCUSSION, THE ADDITION O F RS.38,60,000/- IS DELETED. 6. FROM THE ABOVE FINDING OF LEARNED CIT(A), IT IS EVIDENT THAT ALL THE CREDITORS ARE ASSESSED TO TAX AND HAVE GIVEN THE MO NEY TO THE ASSESSEE THROUGH BANKING CHANNEL. AFTER ANALYZING THEIR BALANCE SHEETS, LEARNED CIT(A) HAS ALSO RECORDED THE FINDIN G THAT THEY HAVE SUFFICIENT CREDITWORTHINESS BECAUSE THEY HAVE HUGE CAPITAL BALANCES. ON THE FACTS OF THIS CASE, IN OUR OPINION, THE DECI SION OF HONBLE APEX COURT IN THE CASE OF ORISSA CORPORATION P.LTD. (SUP RA) WOULD BE ITA-36/DEL/2011 4 SQUARELY APPLICABLE. IN THE SAID CASE, THERE WAS C REDIT BALANCE IN THE ACCOUNT OF THE ASSESSEE IN THE NAME OF THREE PARTIE S. THE ASSESSEE GAVE CONFIRMATION OF ALL THE THREE CREDITORS WHO WE RE ASSESSED TO TAX. THEIR GENERAL INDEX NUMBERS WITH THE DEPARTMENT WER E ALSO GIVEN. THE ASSESSING OFFICER ISSUED SUMMONS U/S 131 OF THE ACT TO THE CREDITORS WHICH WERE RETURNED UNSERVED WITH THE REM ARK LEFT. 7. THEREAFTER, THE ASSESSING OFFICER MADE THE ADDIT ION OF `1,50,000/- AS UNEXPLAINED CASH CREDIT. THE ITAT D ELETED THE ADDITION HOLDING THAT MERELY BECAUSE THE ASSESSEE COULD NOT PRODUCE THE PARTIES, AN ADVERSE INFERENCE SHOULD NOT BE DRAWN T HAT THE AMOUNT REPRESENTED UNDISCLOSED INCOME OF THE RESPONDENT-AS SESSEE. ON APPEAL TO THE SUPREME COURT, HONBLE APEX COURT HEL D :- THAT IN THIS CASE THE RESPONDENT HAD GIVEN THE NAM ES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME- TAX ASSESSEES. THEIR INDEX NUMBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE, APART FROM ISSUING NOTICES U NDER SECTION 131 AT THE INSTANCE OF THE RESPONDENT, DID NOT PURSUE THE MATTER FURTHER. THE REVENUE DID NOT EXA MINE THE SOURCE OF INCOME OF THE SAID ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY. THERE WAS NO E FFORT MADE TO PURSUE THE SO-CALLED ALLEGED CREDITORS. IN THOSE CIRCUMSTANCES, THE RESPONDENT COULD NOT DO ANYTHING FURTHER. IN THE PREMISES, IF THE TRIBUNAL CAME TO THE CONCLUSION THAT THE RESPONDENT HAD DISCHARGED THE B URDEN THAT LAY ON IT, THEN IT COULD NOT BE SAID THAT SUCH A CONCLUSION WAS UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE. IF THE CONCLUSION WAS BASED ON SOME EVID ENCE ON WHICH A CONCLUSION COULD BE ARRIVED AT, NO QUEST ION OF LAW AS SUCH AROSE. THE HIGH COURT WAS RIGHT IN REF USING TO STATE A CASE. 8. THAT THE FACTS OF THE ASSESSEES CASE ARE EVEN B ETTER THAN THE FACTS IN THE ABOVE MENTIONED CASE BEFORE HONBLE AP EX COURT. IN THE CASE UNDER APPEAL BEFORE US, THE ASSESSEE NOT ONLY GAVE THE CONFIRMATION BUT ALSO FURNISHED THE BALANCE SHEET O F THE CREDITORS AND ALSO THE ACKNOWLEDGEMENT OF THE FILING OF INCOME TA X RETURN BY THE ITA-36/DEL/2011 5 CREDITORS. THEREFORE, IF THE REVENUE WAS NOT SATIS FIED ABOUT THE CREDITWORTHINESS OF THE CREDITORS, IT COULD HAVE EX AMINED THE CREDITORS AS THEY WERE ASSESSED TO INCOME TAX AND ALL PARTICU LARS RELATING TO THEM WERE WITH THE ASSESSING OFFICER. IN VIEW OF T HE ABOVE, IN OUR OPINION, THE ABOVE DECISION OF HONBLE APEX COURT W OULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND, RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY JUSTIFICATIO N TO INTERFERE WITH THE ORDER OF LEARNED CIT(A). THE SAME IS UPHELD AND GR OUND NO.1 OF THE REVENUES APPEAL IS REJECTED. 9. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER:- THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS B Y DELETING THE ADDITION OF RS.36.93 LACS ON ACCOUNT O F LONG TERM CAPITAL GAIN AND NOT PROPERLY APPRECIATING THE FACTS THAT THE ASSESSEES CASE IS COVERED U/S 45(4) OF TH E IT ACT. 10. THE FACTS RELATING TO THIS GROUND AS RECORDED B Y THE ASSESSING OFFICER AT PAGE 13 PARAGRAPH 7 READ AS UNDER:- DURING THE YEAR, THE FIRM IS RECONSTITUTED ON 01/0 6/2006 WITH THE RETIREMENT OF THREE PARTNERS VIZ. SMT. KHU SHNUMA D/O SHRI MOHD. YAMIN, SMT. NAZRIN W/O SHRI MOHD. YA MIN AND SHRI NOOR MOHAMMAD S/O SHRI MOHD. MUSIFULLAH AN D INDUCTION OF A NEW PARTNER SHRI MOHD. SHAHNAWAZ S/O SHRI MOHD. YAMIN. SINCE THE FIRM STANDS RECONSTITUTED, THE PROVISIONS OF SEC. 45(4) OF THE INCOME TAX ACT, 196 1, ARE APPLICABLE IN ITS CASE. HOWEVER, THE ASSESSEE HAS NOT WORKED OUT THE CAPITAL GAINS ON THE ASSET TRANSFERR ED I.E. LAND SHOWN AT RS.60 LACS IN ITS BALANCE SHEET BY TA KING THE FAIR MARKET VALUE THEREOF AS ON 01.06.2006. 11. FROM THE ABOVE, IT IS EVIDENT THAT DURING THE A CCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, TH ERE WAS CHANGE IN THE CONSTITUTION OF THE PARTNERSHIP FIRM FROM WHICH THREE PARTNERS RETIRED AND ONE NEW PARTNER JOINED. ON THESE FACTS , THE ASSESSING ITA-36/DEL/2011 6 OFFICER IS OF THE OPINION THAT PROVISION OF SECTION 45(4) OF THE ACT IS APPLICABLE. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND HAVE PERUSED RELEVANT MATERIAL PLACED BEFORE US. SECTIO N 45(4) OF THE ACT READS AS UNDER:- 45 (4) THE PROFITS OR GAINS ARISING FROM THE TRANS FER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL A SSETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF P ERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OP ERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABLE TO TAX A S THE INCOME OF THE FIRM, ASSOCIATION OR BODY, OF THE PRE VIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FO R THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. 13. SECTION 45(4) OF THE ACT WOULD BE APPLICABLE IF THERE IS TRANSFER OF CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASS ET ON DISSOLUTION OF FIRM OR OTHERWISE. SUCH PROFIT AND GAIN WOULD BE C HARGEABLE TO TAX AS INCOME OF THE FIRM IN THE PREVIOUS YEAR IN WHICH SA ID TRANSFER TOOK PLACE AND, FOR THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUED AS A RESULT O F SUCH TRANSFER. HOWEVER, THE SINE QUA NON OF THE APPLICABILITY OF T HIS SECTION IS THE TRANSFER OF CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSET. IN THE CASE UNDER APPEAL BEFORE US, IT HAS NOT BEEN POINTE D OUT BY THE ASSESSING OFFICER OR THE LEARNED DR WHETHER THERE W AS ANY DISTRIBUTION OF CAPITAL ASSET. THE ASSESSING OFFICER LEVIED THE CAPITAL GAIN TAX IN RESPECT OF LAND BUT THE LAND WAS OWNED BY THE PARTN ERSHIP FIRM BEFORE AND AFTER THE CHANGE IN THE CONSTITUTION OF THE FIR M. ADMITTEDLY, LAND WAS NOT DISTRIBUTED AMONGST THE THREE PARTNERS WHO RETIRED FROM THE PARTNERSHIP FIRM. WHEN THERE WAS NO DISTRIBUTION O F THE CAPITAL ASSET VIZ., LAND, SECTION 45(4) WOULD NOT BE APPLICABLE. THOUGH BOTH THE ITA-36/DEL/2011 7 PARTIES HAVE RELIED UPON SOME JUDICIAL PRONOUNCEMEN TS IN SUPPORT OF THEIR ARGUMENTS BUT, IN OUR OPINION, WHEN THE BASIC FACTS WITH REGARD TO TRANSFER OF CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSET IS NOT FULFILLED, SECTION 45(4) IS NOT APPLICABLE. IN VIE W OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE OR DER OF LEARNED CIT(A). THE SAME IS SUSTAINED AND GROUND NO.2 OF THE REVENU ES APPEAL IS REJECTED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 19.02.2016 . SD/- SD/- (CHANDRA MOHAN GARG (CHANDRA MOHAN GARG (CHANDRA MOHAN GARG (CHANDRA MOHAN GARG ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -2(3), GHAZIABAD. 2(3), GHAZIABAD. 2(3), GHAZIABAD. 2(3), GHAZIABAD. 2. RESPONDENT : M/S SHAH ASSOCIATES, M/S SHAH ASSOCIATES, M/S SHAH ASSOCIATES, M/S SHAH ASSOCIATES, 10 1010 106, JASSIPURA, GHAZIABAD. 6, JASSIPURA, GHAZIABAD. 6, JASSIPURA, GHAZIABAD. 6, JASSIPURA, GHAZIABAD. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR