The ITO, Ward-6(1), Surat V. M/s. Adinath Textiles, Surat

ITA 3694/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9872 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 14-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Unexplained cash credit; Assessment record
• Section: 143(3); 194C; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER DATE OF HEARING : 27/09/2010 DRAFTED ON: 2 7/09/2010 ITA NO.3694/AHD/2008 ASSESSMENT YEAR : 2005-06 THE INCOME TAX OFFICER WARD-6(1) SURAT VS. M/S.ADINATH TEXTILES 18, SHREE SHANTINATH ASSOCIATES AT AND POST BHESTAN DIST. SURAT PAN/GIR NO. : AAEFA 2317 G ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI K.M. MAHESH, SR. D.R. RESPONDENT BY: -NONE- O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-IV, SURAT D ATED 12/08/2008 AND THE GROUNDS ARE AS UNDER:- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.12,06,880/-, MADE BY THE ASSESSING OFFICER BEING DISALLOWANCE MADE U/S.40(A)(IA) OF THE I.T. ACT, 19 61. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDI TION OF RS.26,000/-, MADE BY THE ASSESSING OFFICER ON ACCOU NT OF UNEXPLAINED CASH CREDIT U/S.68 OF THE I.T. ACT, 196 1. ITA NO. 3694/AHD/2008 ITO VS. M/S.ADINATH TEXTILES ASST.YEAR - 2005-06 - 2 - [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.36,980/-, MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF CAPITAL INTRODUCED TREATED AS UNEXPLAINE D CASH CREDIT U/S.68 OF THE I.T. ACT, 1961. 2. APROPOS GROUND NO.1 FACTS IN BRIEF AS EMERGED FR OM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143(3) O F THE I.T. ACT, 1961 THE I.T. ACT, 1961 DATED 31/12/2007 WERE THAT TH E ASSESSEE-FIRM IS IN THE BUSINESS OF MANUFACTURING AND SALE OF SILK CLO TH. 3. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED WEAVING JOB WORK EXPENSES AT RS.12,06,880/- . IT HAS ALSO BEEN NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HA S ASSIGNED WEAVING JOB-WORK OF CLOTH TO ITS SISTER-CONCERNS. REFERRIN G SECTION 194C OF THE I.T. ACT, 1961, IT WAS COMMENTED BY THE ASSESSING O FFICER THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDE NT FOR CARRYING OUT ANY WORK IN PURSUANCE TO CONTRACT SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT, WHICHEVER IS EARLIER SHOULD DEDUCT AN AMOUNT EQUAL TO THE RATES PRESCRIBED. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE HAS FAILED TO D EDUCT THE TAX AT SOURCE ON THE PAYMENT OF JOB-WORK. BY ATTRACTING THE PROVI SIONS OF SECTION 40(A)(IA) OF THE I.T. ACT, 1961, THE IMPUGNED AMOU NT OF RS.12,06,880/- WAS DISALLOWED. 4. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE TH E FIRST APPELLATE AUTHORITY. THE FIRST CONTENTION OF THE ASSESSEE BE FORE THE LEARNED CIT(APPEALS) WAS THAT THE JOB-WORK WAS DONE BY THE SISTER-CONCERNS. ITA NO. 3694/AHD/2008 ITO VS. M/S.ADINATH TEXTILES ASST.YEAR - 2005-06 - 3 - NEXT CONTENTION WAS THAT NONE OF THE PAYMENT HAS EX CEEDED RS.20,000/- IN A SINGLE TRANSACTION. AN IMPORTANT ASPECT HAS A LSO BEEN BROUGHT TO THE NOTICE OF THE LEARNED CIT(APPEALS) THAT THE IMPUGNE D JOB-WORK TRANSACTIONS WERE MADE BEFORE 30/09/2004, HOWEVER, THE AMENDMENT U/S.194C TOOK WITH EFFECT FROM 01/10/2004. DUE TO THAT REASON, NO TAX WAS DEDUCTED ON SUCH PAYMENTS. 5. THE LEARNED CIT(APPEALS) HAS EXAMINED THE FACTS AND DELETED THE ADDITION AS PER THE FOLLOWING OBSERVATIONS:- BEFORE ME, THE LD.AR SUBMITTED THAT DURING ASSESSM ENT PROCEEDINGS THE APPELLANT HAD FILED COPIES OF CONTR A ACCOUNT OF THE TWO SISTER CONCERNS AND THE SALES BOOKS OF THE CONT RACTORS AND NONE OF THE BILL EXCEEDED RS.20,000/- AT A TIME. ALL PAYMENTS WERE MADE THROUGH BANKING CHANNELS. NO BILL WAS RAISED AFTER THE MONTH OF SEPT., 2004 SINCE MACHINES WERE TAKEN BY T HE APPELLANT ON FIXED RENT FOR THE REMAINING PART OF THE YEAR AN D IN VIEW OF AMENDMENT OF SECTION 194C OF THE ACT W.E.F. 1.10.20 04, NO TDS WAS REQUIRED TO BE MADE IN RESPECT OF PAYMENTS MADE TO SISTER CONCERNS BEFORE THAT DATE. THE COPIES OF CONTRA AC COUNTS OF THE SISTER CONCERNS WERE ALSO FURNISHED TO THE AO. THE TWO CONCERNS WERE ASSESSED TO TAX AND HAD DULY SHOWN THE LABOR I NCOME AND THE MACHINE RENT INCOME RECEIVED FROM THE APPELLANT IN THEIR RETURNS. I HAVE GONE THROUGH THE DETAILS AND THE ASSESSMENT RECORD. THE COPIES OF CONTRA ACCOUNTS OF THE SISTER CONCERNS AR E ON RECORD AND THE AO HAS NOT FOUND ANY DEFECTS OR DISCREPANCY IN THE SAME. THEREFORE, THE ASSESSING OFFICERS INSISTENCE ON PR ODUCING THE BOOKS OF ACCOUNT OF THE TWO SISTER CONCERNS DOES NO T APPEAR TO BE PROPER. IT IS FURTHER SEEN THAT NO PAYMENTS OF JO B WORK CHARGES HAVE BEEN MADE TO THE SISTER CONCERNS AFTER SEPT., 2004 AND NONE OF THE PAYMENTS EXCEED RS.20,000/-. THEREFORE, T HE DISALLOWANCE MADE BY THE AO U/S.40(A)(IA) OF THE IT ACT IS NOT SUSTAINABLE AND IS DIRECTED TO BE DELETED. ITA NO. 3694/AHD/2008 ITO VS. M/S.ADINATH TEXTILES ASST.YEAR - 2005-06 - 4 - 6. WE FIND NO FALLACY IN THE VIEW TAKEN BY THE LEAR NED CIT(APPEALS) BECAUSE SECTION 40(A)(IA) OF THE I.T. ACT, 1961 PRE SCRIBES THAT AN EXPENDITURE IN THE NATURE OF INTEREST, COMMISSION, BROKERAGE, PAYMENT TO CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT ANY W ORK ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER-XVII-B OF THE I. T. ACT, 1961. HOWEVER, IF SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID, THEN NOT ALLOWABLE IN COMPUTING THE INCO ME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSIO N. SECTION 194C OF THE I.T. ACT, 1961 WHICH IS THE OPERATIVE SECTION A S PER CHAPTER XIVB OF THE I.T. ACT, 1961 PRESCRIBES THE PROVISIONS IN RES PECT OF PAYMENTS TO CONTRACTORS. SUB-SECTION(5) OF SECTION 194C PRESCR IBES THAT NO DEDUCTION SHALL BE MADE FROM THE AMOUNT OF ANY SUM CREDITED O R PAID OR LIKELY TO BE CREDITED OR PAID TO THE ACCOUNT OF THE CONTRACTOR, IF SUCH SUM DOES NOT EXCEED RS.20,000/-. SINCE THE UNDISPUTED FACT IS THAT NONE OF THE PAYMENT HAD EXCEEDED THE PRESCRIBED LIMIT, THEREFOR E, WE HEREBY UPHOLD THE VERDICT OF THE LEARNED CIT(APPEALS). THIS GROU ND OF THE REVENUE IS DISMISSED. 7. APROPOS GROUND NO.2, THE ASSESSEE HAD TAKEN A L OAN OF RS.26,000/- FROM ONE ANJALI C.SHAH WHO IS STATED TO BE A MINOR OF ONE OF THE PARTNERS. IN COMPLIANCE OF QUERIES, THE ASSESS EE HAS FURNISHED A BANK STATEMENT OF ANJALI C.SHAH. BY INVOKING THE PROVISI ONS OF SECTION 68 OF THE I.T. ACT, 1961, THE SAID AMOUNT WAS TAXED AS UN EXPLAINED CASH CREDIT. WHEN THE MATTER HAD REACHED BEFORE THE FIRST APPELL ATE AUTHORITY, IT WAS EXPLAINED THAT THE MINORS INCOME HAD ALWAYS BEEN C LUBBED IN THE HANDS OF THE PARTNER. IT WAS, FURTHER, EXPLAINED THAT A SUM OF RS.30,000/- WAS CREDITED IN HER BANK ACCOUNT ON MATURITY OF ONE FDR . IT WAS EXPLAINED ITA NO. 3694/AHD/2008 ITO VS. M/S.ADINATH TEXTILES ASST.YEAR - 2005-06 - 5 - THAT THE SOURCE WAS ALSO EXPLAINABLE. CONSIDERING THOSE EVIDENCES, THE LEARNED CIT(APPEALS) HAS HELD THAT THE SOURCE OF TH E INVESTMENT WAS FULLY ESTABLISHED. HE HAS ALSO MENTIONED THAT THE IDENTITY OF THE CREDITOR WAS ALSO NOT DOUBTED AND FINALLY HE HAS HELD THAT T HE INCOME OF THE MINOR HAD ALWAYS BEEN CLUBBED IN THE HANDS OF THE FATHER, THEREFORE, THERE WAS NO LOGIC FOR THE IMPUGNED ADDITION IN THE HANDS OF THE ASSESSEE-FIRM. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE HEREBY AFFIRM THE FINDINGS OF THE LEARNED CIT(APPEA LS) ON FACTS. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED. 8. APROPOS GROUND NO.3, A SUM OF RS.36,980/- WAS FO UND DEPOSITED IN THE BALANCE-SHEET AND ON EXAMINATION, THE ASSESS ING OFFICER HAS NOTED THAT ONE OF THE PARTNERS OF THE FIRM, NAMELY SHRI J ATINBHAI N.SHAH HAS INTORUDCED THE SAID SUM. THE ASSESSEE HAS FURNISHE D THE COPY OF ACKNOWLEDGEMENT OF THE RETURN OF THE SAID PARTNER I N SUPPORT OF THE CONTENTION THAT THE PARTNER BEING SEPARATELY ASSESS ED TO TAX, HENCE, NO NECESSITY OF ANY ADDITION IN THE HANDS OF THE FIRM. A BACKGROUND OF SHRI JATINBHAI SHAH, PARTNER HAS ALSO BEEN FURNISHED THR OUGH WHICH THE CHEQUE WAS ISSUED IN FAVOUR OF THE FIRM OF RS.34,000/-. I N THAT ACCOUNT, IT WAS NOTICED BY THE ASSESSING OFFICER THAT A CASH WAS DE POSITED ON A DATE AND THE VERY NEXT DAY, THE CHEQUE WAS ISSUED TO THE FIR M. THE ASSESSING OFFICER HAS HELD THAT THIS AMOUNT IN QUESTION, AN U NEXPLAINED CASH CREDIT AND, ACCORDINGLY, TAXED IN THE HANDS OF THE FIRM. WHEN THE MATTER WAS REACHED TO THE FIRST APPELLATE AUTHORITY, IT WAS HE LD THAT THE IDENTITY OF THE PARTNER SHOULD NOT HAVE BEEN DOUBTED BECAUSE THE NE CESSARY INFORMATION SHOULD HAVE ALREADY BEEN ON REVENUE RECORD. HIS CONFIRMATION SHOULD ALSO NOT BE DOUBTED BECAUSE HE HAS AFFIRMED THAT HE HAS INTRODUCED THE ITA NO. 3694/AHD/2008 ITO VS. M/S.ADINATH TEXTILES ASST.YEAR - 2005-06 - 6 - SAID AMOUNT WITH THE FIRM. IT HAS ALSO BEEN NOTED THAT HIS CREDITWORTHINESS SHOULD ALSO NOT BEEN CHALLENGED BE CAUSE IN HIS CAPITAL ACCOUNT, THERE WAS APPROXIMATELY RS.4 LACS STANDING . BY RELYING UPON THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT I N THE CASE OF METACHEM INDUSTRIES REPORTED AS 161 CTR 444(M.P.). IT WAS DECIDED BY THE LEARNED CIT(APPEALS) THAT ONCE THE FIRM HAS EXP LAINED THE CREDIT ENTRIES IN THE NAMES OF ITS PARTNERS, THE AMOUNT MU ST NOT BE TREATED AS AN UNEXPLAINED INCOME U/S.68 OF THE I.T. ACT, 1961. THE ACTION OF THE ASSESSING OFFICER WAS REVERSED. THE FACTS WHICH H AVE BEEN NARRATED BY THE LEARNED CIT(APPEALS) HAVE NOT BEEN CONTROVERTED BEFORE US AND IN THE ABSENCE OF ANY CONTRARY EVIDENCE, WE FIND NO FA LLACY IN THE JUDGEMENT OF LEARNED CIT(APPEALS), THE SAME IS HEREBY CONFIRM ED. THUS, REVENUES THIS GROUND IS ALSO DISMISSED. IN THIS M ANNER, ALL THE GROUNDS OF THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/ 09 /2010. SD/- SD/- ( A.N. PAHUJA ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 30 / 09 /2010 T.C. NAIR, SR. PS ITA NO. 3694/AHD/2008 ITO VS. M/S.ADINATH TEXTILES ASST.YEAR - 2005-06 - 7 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION 27/09/2010. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28/09/2010 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S30/09/2010 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30/09/2010 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER