M/s Janak Restaurant, Bhubaneswar V. ACIT, Bhubaneswar

ITA 373/CTK/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0822 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 20-10-2010
• Court: TRIBUNAL
• Department Lawyers: A K GAUTAM
• Assessee Lawyers: G NAYAK; RAJAT KAR ARS
• Keywords: Opportunity of being heard; Additional evidence; Capital expenditure
• Section: 69

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK () BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 373 & 374/CTK/2010 / ASSESSMENT YEAR S 2004 - 05 AND 2005 - 06 M/S.JANAK RESTAURANT, 29, JANPATH, AT/P.O. BAPUJI NAGAR, BHUBANESWAR, PAN: AADFJ9519L - - - VERSUS - ASST.COMMISSI ONER OF INCOME - TAX, CIRCLE 1(2), BHUBANESWAR ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI G.NAYAK AND RAJAT KAR, ARS / FOR THE RESPONDENT: / SHRI A.K.GAUTAM, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE FOR THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. 2. THE BRIEF FACTS FOR THE IMPUGNED APPEALS ARE THAT ON THE BASIS OF A SURVEY CARRIED OUT AT THE BUSINESS PREMIS ES OF THE ASSESSEE, WHO IS INDULGED IN RUNNING A RESTAURANT, THE ASSESSING OFFICER OBSERVED BANK STATEMENTS IN THE NAME OF THE ASSESSEE - RESTAURANT WHICH REFLECTED HUGE AMOUNTS OF DEBITS AND CREDITS WHICH CREDITS WERE SOUGHT EXPLANATION BY THE ASSESSING OFF ICER ON ISSUE OF NOTICE U/SS.147/148. THE ASSESSEE HAD FILED RETURNS FOR THE INCOME GENERATED FROM THE RESTAURANT BUSINESS U/S.44AF. THE ASSESSING OFFICER OBSERVED THAT THE HUGE DEPOSITS AND WITHDRAWALS IN THE BANK STATEMENTS WERE NOT REFLECTED IN THE BOOK S OF ACCOUNTS THAT STOOD IMPOUNDED BY HIM FOR SEEKING EXPLANATION. MEANWHILE HE PROCEEDED TO BRING TO TAX THE DEPOSITS IN THE BANKS AS INCOME U/S.69 FOR THE AYS 2004 - 05 AT 72,53,463 AND FOR THE ASSESSMENT YEAR 2005 - 06 AT 55,59,919. AGGRIEVED THE ASSESSEE APPEALED / I.T.A.NO. 373 & 374/CTK/2010 2 BEFORE THE FIRST APPELLATE AUTHORITY AGITATING THE AOS HOLDING THE CREDITS SUMMATIONS ONLY AS INCOME OF THE ASSESSEE WITHOUT TAKING COGNIZANCE OF THE EXPLANATION GIVEN AT THE TIME OF ASSESSMENT PROCEEDINGS U/S.143(3) REGARDING LOANS GRANTED BY T HE BANK. 3. THE LEARNED CIT(A) AFTER HEARING THE EXPLANATION OF THE ASSESSEE APPELLANT BEFORE HIM NOTED THAT THE CLARIFICATION OF THE ASSESSEE HAVING OBTAINED LOANS AND REPAYMENTS THEREOF OUGHT TO HAVE BEEN EXPLAINED TO THE ASSESSING OFFICER WAS THEREFORE, REJECTED AS CONTRAVENING THE PROVISIONS OF RULE 46A OF THE INCOME - TAX RULES,1962 BY HIM. HE DID NOT ADMIT THE ADDITIONAL EVIDENCES BY HOLDING A VIEW THAT THE TURNOVER OF THE ASSESSEE - RESTAURANT BUSINESS DID NOT MEET THE REQUIREMENTS JUSTIFYING INCORPORATI ON OF EXPLANATION OF SUCH MAGNITUDE, HE CONFIRMED THE ADDITIONS SO MADE BY THE ASSESSING OFFICER FOR BOTH THE AYS. 4. THE LEARNED COUNSEL BEFORE US HAS SUBMITTED THAT ONLY ONE OPPORTUNITY WAS GIVEN BY THE ASSESSING OFFICER AS MAY BE PERUSED IN HIS ORDER WH EN HE INSISTED ON BRINGING TO TAX THE INCOME UNDER THE PROVISIONS OF SECTION 69 WHICH REQUIRE EXPLANATION OF INFORMATION IN A BANK STATEMENT TO BE ROUTED THROUGH BOOKS OF ACCOUNTS. THE BOOKS OF ACCOUNT HAD ALREADY BEEN IMPOUNDED BY HIM THEREFORE WAS TO BE EXPLAINED BY THE ASSESSING OFFICER AS TO HOW THEY ARE FORMING PART OF THE BOOKS OF ACCOUNT IN SO FAR AS IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) ALSO THAT CASH AND CHEQUES DEPOSITED IN THE LOAN ACCOUNT BEING TERM LOAN AND OVER DRAFT ARE REFLECTED IN THE BOOKS OF ACCOUNT AND IT WAS NOT THE MAGNITUDE OF DEPOSITS AND WITHDRAWALS WHICH SHOULD HAVE RESULTED IN AN ADVERSE VIEW OF THE ASSESSEE. HE SUBMITTED THAT TERM LOAN IS GIVEN AGAINST CAPITAL EXPENDITURE THEREFORE COULD NOT BE HELD AS INCOME OF THE ASSESSEE BEING THE AMOUNT OWED BY THE ASSESSEE AGAINST / I.T.A.NO. 373 & 374/CTK/2010 3 ASSETS WHICH DEFINITELY CANNOT BE PART OF THE INCOME. SIMILARLY THE AMOUNT OF OVERDRAFT WAS TO BE REPAID FROM THE INCOME GENERATED BY THE RESTAURANT WAS A REASON THAT THE BANK HAD CHARGED INTEREST WHICH HAD NOT BEEN CLAIMED IN THE CASE OF THE ASSESSEE RETURNING INCOME UNDER THE PROVISIONS OF SECTION 44AF. IN SUPPORT OF HIS CONTENTION BOTH THE ACCOUNT COPIES, AS WERE RELIED UPON BY THE ASSESSING OFFICER, HAVE BEEN PLACED ON RECORD WHICH INTER ALIA CLEARLY INDICAT E THAT THE AMOUNT AFTER GIVING EFFECT TO THE DEPOSITS AND CREDITS WOULD NOT LEAVE A BALANCE FOR BOTH THE AYS TO BE HELD AS INCOME OF SUCH MAGNITUDE GENERATED IN THE IMPUGNED AYS INASMUCH AS THE OPENING BALANCE HELD IN THE BANK HAS ALSO BEEN CONSIDERED AS D EPOSITS FOR TAXATION IN THE IMPUGNED ASSESSMENT YEAR 2004 - 05. HE SUBMITTED THAT THE LEARNED CIT(A), AFTER HEARING THE APPELLANTS SUBMISSION, AGREED TO THE PROPOSITION THAT THE EXPLANATION NOW GIVEN OUGHT TO HAVE BEEN GIVEN TO THE ASSESSING OFFICER AND CO NTRAVENE THE PROVISIONS OF RULE 46A. HE, THEREFORE, PRAYED THAT THE MATTER BE RE - CONSIDERED BY THE ASSESSING OFFICER IN ITS ENTIRETY FOR WHICH A TIME FRAME MAY BE GIVEN SO AS TO ENABLE THE ASSESSEE TO EXPLAIN THE REQUIREMENTS IN SO FAR AS THE SURVEY PARTY DID INDICATE VERIFYING BANK ACCOUNT BUT THE EXPLANATION GIVEN ON THE NOTICE U/SS.147/148 DID NOT ESTABLISH THE TRUE INCOME IN THE CASE OF THE ASSESSEE FOR THE IMPUGNED AYS AS THE BANK WOULD NOT GRANT LOAN OF SUCH MAGNITUDE TO BE TAXED AS INCOME IN THE HAND S OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 69. 5. THE LEARNED DR OPPOSED THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BY SUPPORTING THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED CIT(A) FOR HIS PART SUBMISSION. HE SUBMITTED THAT CONSEQ UENT TO SURVEY THE ASSESSEE OUGHT TO HAVE FORTIFIED HIMSELF TO EXPLAIN THE ENTRIES OF DEPOSITS OF CASH AND CHEQUES IN THE LOANS ACCOUNT IN THE BANK WHICH COULD ONLY BE ROUTED THROUGH THE BOOKS OF ACCOUNT AGAINST THE LOANS OBTAINED SHOWN AS / I.T.A.NO. 373 & 374/CTK/2010 4 LIABILITY IN THE ASSESSEES BUSINESS. THE LEARNED CIT(A), THEREFORE, RIGHTLY OBSERVED THAT THE INSTANT EXPLANATION BY THE ASSESSEE TO THE ASSESSING OFFICER SHOULD HAVE BEEN TO BRING ON RECORD THE BANK GRANTING SUCH HUGE AMOUNTS OF LOAN TO THE ASSESSEE WHEN THE TURNOVER OF THE ASSESSEES BUSINESS FOR THE TWO AYS DOES NOT JUSTIFY SUCH AVAILMENT OF LOAN AND REPAYMENT THEREOF. EVEN NOW THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM TO THE MAGNITUDE OF TRANSACTIONS CARRIED OUT IN THE BANK IN BOTH THE BANK ACCOUNTS WHE N ONLY PART OF THE BANK ACCOUNT INDICATES THE RESTAURANT BUSINESS CONDUCTED BY THE ASSESSEE TO ENTITLE IT FILING RETURN OF INCOME U/S.44AF. HE OPPOSED THE PRAYER OF THE LEARNED COUNSEL OF THE ASSESSEE FOR AFFORDING ANOTHER CHANCE BEFORE THE ASSESSING OFFIC ER TO EXPLAIN THE SAME. 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) AGREED TO THE PROPOSITION THAT A LOAN CANNO T BE GRANTED TO AN ASSESSEE WHO MAY HAVE FILED INCOME - TAX RETURNS U/S.44AF THEREFORE HAD TO ESTABLISH BEYOND DOUBT THAT THE MAGNITUDE OF ENTRIES IN THE SAID ACCOUNTS OUGHT NOT HAVE FORMED PART OF BOOKS OF ACCOUNTS WHICH BOOKS OF ACCOUNT STOOD IMPOUNDED BY THE ASSESSING OFFICER IN THE FIRST PLACE. HOLDING THE SAME IN VIOLATION TO RULE 46A OF THE I.T.RULES,1962 HE PROCEEDED TO DISMISS THE ASSESSEES CONTENTION AGAINST WHICH THE ASSESSEE APPELLANT IS BEFORE US FOR RESTORATION OF THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE SAME WITH THE BOOKS OF ACCOUNT HELD WITH HIM, IN SO FAR AS THE INCOME GENERATED WHETHER HAD BEEN SUFFICIENTLY SHOWN TO ESTABLISH LOAN REPAYMENT HAS BEEN NOTED BY THE ASSESSING OFFICER AS INCOME OF THE ASSESSEE UNDER THE PROV ISIONS OF SECTION 69. WE ARE INCLINED TO HOLD THAT A LOAN CANNOT BE TAXED AS INCOME IN THE IMPUGNED AYS WHEN THE ASSESSEE HAS OBTAINED THE SAME THROUGH DOCUMENTATION WHICH ARE FOR FURTHERING HIS / I.T.A.NO. 373 & 374/CTK/2010 5 BUSINESS AND WAS ONLY TO BE CONSIDERED FOR TAXATION WHEN THE INVESTMENT/EXPENDITURE HAVE BEEN MADE FROM UNDISCLOSED SOURCES. THE LEARNED CIT(A), THEREFORE, ERRED IN HOLDING THAT IT WAS LOANS WHICH WERE TO BE TAXED AS INCOME WHEN THE ASSESSING OFFICER HAD SPECIFICALLY MENTIONED OF CREDIT SUMMATIONS IN THE BANK ACCOUN T AS INCOME OF THE ASSESSEE. THE EXPLANATION, THEREFORE, OFFERED BY THE ASSESSEE WAS NEITHER APPRECIATED BY THE ASSESSING OFFICER NOR BY THE LEARNED CIT(A). WE FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IT WAS NOT A CASE OF U NEXPLAINED INVESTMENT MADE BY THE ASSESSEE TO BE TAXED IN THE IMPUGNED AYS WHEN BOTH THE AUTHORITIES HAVE NOTED THAT THE TURNOVER OF THE ASSESSEES BUSINESS WAS ONLY PART OF THE TOTAL REPAYMENTS AGAINST LOANS WHICH THE ASSESSEE AS PER THE BANK STATEMENTS O WES TO THE BANK. THE REAL INCOME UNDER THE PROVISIONS OF SECTION 69, THEREFORE, HAS TO BE COMPUTED ON THE BASIS OF ASSESSING OFFICER INDICATING AS TO HOW THE CREDIT SUMMATIONS WERE NOT FOUND IN THE BOOKS ACCOUNT BUT WERE MADE FROM UNDISCLOSED SOURCES FOR R EPAYMENT OF THE LOANS WHICH CONTINUE TO EXIST IN THE IMPUGNED AYS BUT AT MUCH LOWER AMOUNTS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF THE LEARNED CIT(A) IS BOUND TO BE SET ASIDE AND THE ISSUE BE RESTORED TO THE FILE OF THE ASSESSING OFFIC ER FOR VERIFYING THE BANK ACCOUNT AGAINST LOANS WHICH REPAYMENT HAS BEEN ROUTED THROUGH THE BOOKS OF ACCOUNT AS VERIFIED BY HIM ON THE BASIS THAT THE EXCESS ASSETS SHOWN AGAINST THE LIABILITY IS TO BE ONLY CONSIDERED. THE ASSESSING OFFICER IS TO AFFORD A R EASONABLE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE WHICH THE ASSESSEE SHOULD COOPERATE AND FURNISH ALL THE REQUISITE DETAILS TO ESTABLISH BEYOND DOUBT THE FACT OF ASSETS EXCEEDING THE LIABILITY IN THE NAME OF THE ASSESSEES BUSINESS WHICH ALONE COULD BE CONSIDERED FOR TAXATION U/S.69. WE DIRECT THE AO TO COMPUTE SUCH INCOME AND PASS THE ORDER WITHIN THREE MONTHS HENCE. / I.T.A.NO. 373 & 374/CTK/2010 6 7. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 21 ST JANUARY, 2011 S D/ - S D/ - ( . . . ), ( K.S.S.PRASAD RAO), JUDICIAL MEMBER (. . ), , (K.K.GUPTA), ACCOUNTANT MEMBER. () DAT E: 21 ST JANUARY, 2011 - COPY OF THE ORDER FORWARDED TO: 1. / THE APPELLANT : M/S.JANAK RESTAURANT, 29, JANPATH, AT/P.O. BAPUJI NAGAR, BHUBANESWAR, 2 / THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), BHUBANESWAR 3. / THE CIT, 4. ()/ THE CIT(A), 5. / DR, CUTTACK BENCH 6. GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY.