M/S R.J. Fouzdar Bus Service, Hoshagabad V. THE ADDL. CIT RANGE-1, Bhopal

ITA 377/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6010 (ITAT-INDORE)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S SOLANKI
• Keywords: Unexplained cash credit; Commercial expediency
• Section: 68; 69; 37

Judgement Text

R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE SMC BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER ITA NO. 377/IND/2016 A.Y. 2010-11 R.J. FOUZDAR BUS SERVICES, HOSANGABAD PAN AABFR 4140 F :: APPELLANT VS ADDL. CIT, RANGE-I, INDORE :: RESPONDENT ASSESSEE BY SHRI S.S. SOLANKI RESPONDENT BY SHRI R.A. VERMA DATE OF HEARING 09.6.2016 DATE OF PRONOUNCEMENT 09.6.2016 O R D E R THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING TH E ORDER OF LD. CIT(A)-BHOPAL, DATED 19.1.2016. 2. FIRST ISSUE IS WITH REGARD TO CONFIRMATION OF RS .5 LACS ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S 68 OF THE I.T. ACT. SHO RT FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER APPEAL, SMT. RASSA FAUZDAR, A PARTNER IN THE FIRM, DEPOSITE D RS.8,82,736/-. OUT OF THIS AMOUNT, RS.3,82,736/- BEING DEPOSITED THROU GH CHEQUE WAS R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 2 ACCEPTED BY THE ASSESSING OFFICER. HOWEVER, THE REM AINING AMOUNT I.E. RS.5 LACS DEPOSITED IN CASH IN TEN EQUAL INSTALLMEN TS OF RS.50,000/- EACH WAS HELD AS UNEXPLAINED BY THE ASSESSING OFFICER. L D. CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER NOTED THAT THE OPENING BALANCE AS CLAIMED BY PARTNER APPEARS DOUBTFUL. LD. CIT(A) HEL D THAT THE ASSESSEE HAS ESTABLISHED THE IDENTITY OF THE CREDITOR, BUT H ER CREDIT WORTHINESS OR THE GENUINENESS OF THE TRANSACTION HAS NOT BEEN EST ABLISHED. BEING AGGRIEVED, THE ASSESSEE IS BEFORE THIS TRIBUNAL. 2.1 BEFORE ME, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APPROACH OF THE ASSESSING OFFICER WAS NOT CORRE CT. THE PARTNER SMT. FOUZDAR IS 82 YEARS OLD FILING HER RETURNS SINCE MO RE THAN 30 YEARS. SHE WAS HAVING SUFFICIENT FUNDS TO ADVANCE THE ASSESSEE IN FORM OF AGRICULTURAL INCOME AND OPENING CASH BALANCE. SHE I S HAVING 14.95 ACRES OF LAND, WHICH WAS GIVEN ON RENT TO SHRI MANO HAR SINGH CHOUHAN FOR A SUM OF RS.1.5 LACS PER ANNUM. SHE IS ALSO HAV ING OTHER INCOME FROM FIRM, INTEREST FROM BANK & RD ETC. COMPUTATION OF INCOME AND RETURNS PROVE THE CASH BALANCE WITH SMT. FOUZDAR. T HE ASSESSEE HAD FILED COPY OF CONFIRMATION LETTER, COPY OF INCOME T AX RETURN AND BANK ACCOUNT, THEREFORE, THE ASSESSEE HAS PROPERLY DISCH ARGED PRIMARY ONUS LYING ON IT. THEREFORE, TRANSACTION WAS GENUINE AND CREDIT WORTHINESS IS R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 3 ALSO PROVED. ON THE OTHER HAND, LD. DR RELIED ON TH E ORDERS OF THE REVENUE AUTHORITIES. 2.2 I HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. I FIND THAT THE ASSES SEE DURING THE COURSE OF ASSESSMENT PROCEEDING HAD FILED RELEVANT DOCUMEN TS. THE ASSESSEE HAD FILED COPY OF CONFIRMATION LETTER, COPY OF INCO ME TAX RETURN AND BANK ACCOUNT. I FIND THAT THE ASSESSEE HAS FILED COPY OF RETURN ALONG WITH FUND FLOW STATEMENT (PAPER BOOK PAGES 1 TO 3) WHEREIN TH E CASH BALANCE AS ON 1.4.2009 WAS RS.7,70,998/-. FURTHER, THE ASSESSE E HAS FILED COPY OF LEASE AGREEMENT OF AGRICULTURAL LAND AT PAGE NOS.7 & 8 OF THE PAPER BOOK WHICH PROVES THAT THE LAND WAS GIVEN ON RENT FOR A SUM OF RS.1.5 LACS PER ANNUM. IT IS ALSO NOT IN DISPUTE THAT CREDITOR HAS BEEN FILING RETURNS FOR MANY YEARS. THE ASSESSEE HAS OFFERED EXPLANATIO N ABOUT THE SOURCE OF AMOUNT AS FOUND CREDITED IN THE CASH BOOK IS ON ACCOUNT OF LOAN TAKEN FROM THE CREDITOR AND THE CREDITOR ALSO ACCEPTED AB OUT THE LOAN GIVEN BY HER TO THE ASSESSEE IN THE CONFIRMATION LETTER. THE ASSESSING OFFICER DOUBTED THE GENUINENESS AND CREDITWORTHINESS OF THE LOAN CREDITORS WITHOUT BRINGING ANY EVIDENCE ON RECORD AND IN CASE OF NON-ACCEPTANCE OF EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFIC ER SHOULD BRING CONTRARY MATERIAL ON RECORD TO SUPPORT HIS CASE. IN CASE OF ANY DOUBT ABOUT THE CREDITWORTHINESS OF THE LOAN CREDITOR, TH E BEST RECOURSE AS R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 4 AVAILABLE WITH THE AO IS TO REFER THE INFOMATION TO THE CONCERNED AO WHERE THESE LOAN CREDITORS ARE REGULARLY ASSESSED T O TAX. I FIND THAT THIS VIEW IS COVERED BY RATIO LAID DOWN IN THE CASE OF C IT VS. METACHEM INDUSTRIES, 245 ITR 160 (MP) WHEREIN HON'BLE HIGH C OURT HAS HELD AS UNDER: 3. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES. SEC. 68 OF THE ACT OF 1961 SAYS THAT WHERE ANY SUM IS FOUND CREDITED IN T HE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE, THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ITO, S ATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THEREFORE, ACCORDING TO S. 68, THE FIRST BURDEN IS ON THE ASSESSEE TO SATISFACTORILY EXPLAIN THE CREDIT E NTRY IN THE BOOKS OF ACCOUNT OF THE PREVIOUS YEAR. IF THE EXPLANATION GI VEN BY THE ASSESSEE IS SATISFACTORY, THEN THAT ENTRY WILL NOT BE CHARGED W ITH THE INCOME OF THE PREVIOUS YEAR OF THE ASSESSEE. IN CASE THE EXPLANAT ION OFFERED BY THE ASSESSEE IS NOT SATISFACTORY OR THE SOURCE OFFERED BY THE ASSESSEE-FIRM IS NOT SATISFACTORY, THEN IN THAT CASE, THE AMOUNT SHO ULD BE TAKEN TO BE THE INCOME OF THE ASSESSEE. IN THE PRESENT CASE, THE AO DID NOT FEEL SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND ACCO RDINGLY ASSESSED ALL THE THREE CREDIT ENTRIES TO THE ACCOUNT OF THE ASSE SSEE AS THE INCOME. 4. ON APPEAL, THE CIT(A) EXAMINED THE MATTER IN DET AIL AND FOUND THAT SHRI S.K. GUPTA WAS THE REAL OWNER OF THE BUSINESS. THE EXPLANATION GIVEN BY THE ASSESSEE WAS FOUND TO BE SATISFACTORY AND HE DELETED THE AFORESAID THREE ENTRIES. THE SAME FINDING OF FACT H AS BEEN AFFIRMED BY THE TRIBUNAL. ONCE IT IS ESTABLISHED THAT THE AMOUNT HA S BEEN INVESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN INDIVIDUAL , THEN THE RESPONSIBILITY OF THE ASSESSEE-FIRM IS OVER. THE AS SESSEE-FIRM CANNOT ASK THAT PERSON WHO MAKES INVESTMENT WHETHER THE MONEY INVESTED IS PROPERLY TAXED OR NOT. THE ASSESSEE IS ONLY TO EXPL AIN THAT THIS R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 5 INVESTMENT HAS BEEN MADE BY THE PARTICULAR INDIVIDU AL AND IT IS RESPONSIBILITY OF THAT INDIVIDUAL TO ACCOUNT FOR TH E INVESTMENT MADE BY HIM. IF THAT PERSON OWNS THAT ENTRY, THEN, THE BURD EN OF THE ASSESSEE- FIRM IS DISCHARGED. IT IS OPEN FOR THE AO TO UNDERT AKE FURTHER INVESTIGATION WITH REGARD TO THAT INDIVIDUAL WHO HA S DEPOSITED THIS AMOUNT. 5. SO FAR AS THE RESPONSIBILITY OF THE ASSESSEE IS CONCERNED, IT IS SATISFACTORILY DISCHARGED. WHETHER THAT PERSON IS I NCOME-TAX PAYER OR NOT OR FROM WHERE HE HAS BROUGHT THIS MONEY IS NOT THE RESPONSIBILITY OF THE FIRM. THE MOMENT THE FIRM GIVES SATISFACTORY EXPLAN ATION AND PRODUCES THE PERSON WHO HAS DEPOSITED THE AMOUNT, THEN THE B URDEN OF THE FIRM IS DISCHARGED AND IN THAT CASE THAT CREDIT ENTRY CANNO T BE TREATED TO BE INCOME OF THE FIRM FOR THE PURPOSES OF INCOME-TAX. IT IS OPEN FOR THE AO TO TAKE APPROPRIATE ACTION UNDER S. 69 OF THE ACT A GAINST THE PERSON WHO HAS NOT BEEN ABLE TO EXPLAIN THE INVESTMENT. IN THE PRESENT CASE, THERE IS THE CONCURRENT FINDING OF BOTH THE CIT(A) AS WELL A S OF THE TRIBUNAL THAT THE FIRM HAS SATISFACTORILY EXPLAINED THE AFORESAID ENTRIES. 6. WE ARE, THEREFORE, OF THE OPINION THAT THE VIEW TAKEN BY THE TRIBUNAL IS CORRECT AND THE AFORESAID QUESTION IS ANSWERED AGAI NST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. IN THE ABOVE CASE, THE HON'BLE HIGH COURT HAS OBSER VED THAT THE MOMENT THE FIRM GIVES SATISFACTORY EXPLANATION AND PRODUCES THE PERSON WHO HAS DEPOSITED THE AMOUNT, THEN THE BURDEN OF TH E FIRM IS DISCHARGED AND IN THAT CASE THAT CREDIT ENTRY CANNOT BE TREATE D TO BE INCOME OF THE FIRM FOR THE PURPOSES OF INCOME-TAX. IT IS OPEN FOR THE AO TO TAKE APPROPRIATE ACTION UNDER S. 69 OF THE ACT AGAINST T HE PERSON WHO HAS NOT BEEN ABLE TO EXPLAIN THE INVESTMENT. IN VIEW OF THE FACTS/SUBMISSIONS IN THE LIGHT OF DECISION OF HON'BLE JURISDICTIONAL HIG H COURT, I DELETE THE R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 6 ADDITION AT RS.5 LACS IN THE PRESENT CASE. HOWEVER, THE ASSESSING OFFICER MAY, AS PER LAW, PROCEED IN VIEW OF THE OBS ERVATIONS MADE BY THE HON'BLE HIGH COURT. 3. THE LAST ISSUE RELATES TO DISALLOWANCE OF INTERE ST OF RS.1,85,770/- U/S 36(1)(III) OF THE I.T. ACT. SHORT FACTS ARE THA T THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ADVANCED RS.13,89,23 0/- AND RS.19,05,635/-, RESPECTIVELY, IN BALANCE-SHEET FILE D ALONG WITH RETURN OF INCOME. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE STATUS OF INTEREST FREE LOANS AND ADVANCES GIVEN BY THE AS SESSEE. THE ASSESSEE FURNISHED THE REPLY STATING THAT THE INTER EST FREE FUNDS WITH FIRM ARE ALMOST TWICE THE INTEREST FREE FUNDS GIVEN BY T HE FIRM, THEREFORE, THERE IS NO TAX AVOIDANCE MOTIVE IN LENDING INTEREST FREE FUNDS. HOWEVER, THE ASSESSING OFFICER DISALLOWED INTEREST EXPENSES OF R S.1,85,770/- U/S 36(1)(III) OF THE I.T. ACT. THE LD. CIT(A) CONFIRME D THE ACTION OF THE ASSESSING OFFICER. BEING AGGRIEVED, THE ASSESSEE IS BEFORE THIS TRIBUNAL. 3.1 BEFORE ME, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ADVANCED RS.28,82,297/- AS INTERES T FREE AS AGAINST WHICH IT WAS HAVING SURPLUS FUNDS IN THE FORM OF PA RTNERS CAPITAL AT RS.37,33,346/- AND FROM FRIENDS AND RELATIVES AT RS .17,04,576/-. THEREFORE, THE ASSESSEES SURPLUS FUNDS OF RS.54,37 ,862/- IS FAR IN EXCESS OF INTEREST FREE FUNDS ADVANCED AT RS.28,82, 297/-. THUS, SURPLUS R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 7 FUNDS AVAILABLE WITH THE ASSESSEE ARE NEARLY DOUBLE THE AMOUNT OF INTEREST FREE LOANS ADVANCED. THEREFORE, NO DISALLO WANCE OUT OF INTEREST CAN BE MADE IF SURPLUS FUNDS ARE IN EXCESS OF INTER EST FREE FUNDS. FURTHER, THE ASSESSING OFFICER WAS UNABLE TO PROVE THAT INTEREST BEARING FUNDS HAVE BEEN UTILISED TO GIVE INTEREST FREE LOAN WHEREAS THE ASSESSEE HAS PROVED THAT IT HAS UTILISED THE BORROWED FUNDS FOR COMMERCIAL EXPEDIENCY. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 3.2 I HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. I FIND FORCE IN T HE CONTENTION OF THE ASSESSEE AS THE ISSUE IN CONTROVERSY IS COVERED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT, 288 ITR 01 (SC), WHEREIN THE HON'BLE SUPREME COURT HAS OBSE RVED AS UNDER: 'TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY TH E ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN (E.G. A S UBSIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961, ONE HAS TO ENQUIRE WHETHE R THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EX PEDIENCY. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS ONE OF WIDE I MPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FO R THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRE D UNDER ANY LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS BUSINESS EXPE NDITURE IF IT WAS INCURRED ON GROUND OF COMMERCIAL EXPEDIENCY. DECISIONS RELATING TO SECTION 37 WILL ALSO BE APPLICABLE TO SECTION 36(1)(III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS 'FOR THE PURPOSE OF THE BUSINESS'. 'FOR THE PURPOSE OF BUSIN ESS' INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXP EDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS WIDER IN SCOPE THAN THE EXP RESSION 'FOR THE PURPOSE OF EARNING PROFITS.' R.J. FOUZDAR BUS SERVICE SMC ITA 377 OF 2016 8 THE RATIO LAID DOWN IN THE FOLLOWING DECISIONS FURT HER SUPPORT THE CASE OF THE ASSESSEE: 1. R.D. JOSHI & CO. VS. CIT, 251 ITR 332 (MP) 2. CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM) 3. CIT VS. RAGHUVIR SYNTHETICS LTD., 354 ITR 222 (G UJ) 4. PASHUPATINATH HINGHAR P. LTD. VS. ACIT (KOLKATA ITAT) (ITA NO.1733/KOL/2012) ON CONSIDERATION OF FACTS AND SUBMISSION IN THE LIG HT OF THE ABOVE JUDICIAL PRONOUNCEMENTS, I DIRECT TO DELETE THE ADD ITION OF RS.1,85,770/-. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS AS INDICATED HEREINABOVE. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 09.6.2016 . SD/- ( D.T. GARASIA) JUDICIAL MEMBER DATED : 09.6.2016 !VYS! COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR, INDORE