Shri Pratapbhai Virjibhai Patel, Surat V. The Income tax Officer,(OSD)Range-9, Surat

ITA 3770/AHD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0285 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 19-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI
• Assessee Lawyers: S KABRA
• Keywords: Depreciation; Income from undisclosed sources; Additional evidence; Onus to prove; Set aside
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND A.N. PAHUJA , ACCOUNTANT MEMBER) ITA NO.3770/AHD/2008 [ASSTT.YEAR : 2005-2006] PRATAPBHAI VIRJIBHAI PATEL 128-129, SHRI SHILPSHRI CO-OP. SOCIETY KAPODRA CHAR RASTA VARACHHA ROAD, SURAT. VS. ITO (OSD) RANGE-9 SURAT. ASSESSEE BY : SHRI S.KABRA REVENUE BY : SHRI S.C.TIWARI O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT RELATES TO THE ASSESSMENT YEAR 2005 -2006. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF WEAVING AND S ELLING CLOTH IN THE NAME AND STYLE OF CREATIVE FABRICS. 2. THE FIRST GROUND WHICH IS AGAINST THE REJECTION OF THE BOOKS OF ACCOUNT WAS NOT ARGUED AND THE SAME IS ACCORDINGLY DISMISSE D. 3. THE SECOND GROUND IS AGAINST THE ADDITION OF RS. 13,69,700/- UNDER SECTION 68 OF THE INCOME TAX ACT. THE MAIN GRIEVAN CE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN NOT CONSIDERING THE EVIDENCE AD DUCED BEFORE HIM BY INVOKING RULE 46A OF THE I.T.RULES. A GROUND HAS A LSO BEEN TAKEN THAT THE CONFIRMATION OF THE ADDITION IS NOT JUSTIFIED EVEN ON MERITS. IN THE COURSE OF THE HEARING BEFORE US, THE LEARNED REPRESENTATIVE FOR T HE ASSESSEE DREW OUR ATTENTION TO THE MATERIAL PRODUCED BEFORE THE CIT(A) UNDER RU LE 46A. IT IS WITH REFERENCE TO M/S.VARDHMAN SYNTHETICS FROM WHOM THE ASSESSEE HAS SHOWN A LOAN OF RS.4,67,000/-. IN RESPECT OF THIS CREDITOR , THE ASSESSEE PRODUCED XEROX COPIES OF BANK STATEMENT, CONFIRMATION OF THE CREDI TOR, HIS PAN NUMBER AND COPY OF THE INCOME TAX RETURN FILED BY THE CREDITOR . EVIDENCE WAS ALSO SUBMITTED TO SHOW THAT THE AMOUNT WAS RECEIVED THRO UGH BANKING CHANNELS. PAGE - 2 ITA NO.3770/AHD/2008 -2- THIS EVIDENCE WAS NOT ADMITTED BY THE CIT(A) ON THE GROUND THAT THE ASSESSEE FAILED TO EXPLAIN WHY HE COULD NOT PRODUCE THE SAME BEFORE THE ASSESSING OFFICER. AS REGARDS THE MERITS OF THE ADDITION IT IS SEEN THAT THERE ARE FOURTEEN PARTIES INCLUDING VARDHMAN SYNTHETICS FROM WHOM THE ASSESSEE HAS TAKEN THE LOANS AGGREGATING TO RS.13,69,700/-. THE DEPARTME NTAL AUTHORITIES HAVE ADDED THE AMOUNT UNDER SECTION 68 FOR THE FOLLOWING REASO NS: A) THE PARTIES TO WHOM NOTICES HAVE BEEN ISSUED WERE E ITHER NOT SERVED OR DID NOT COMPLY WITH THEM. B) MOST OF THE CREDITORS ARE AGRICULTURISTS AND HAVE N O BANK ACCOUNTS. C) MERE FILING OF 7/12 EXTRACTS OF THE CREDITORS DOES NOT ABSOLVE THE ASSESSEE OF THE BURDEN TO PROVE THE GENUINENESS OF THE CREDITS. D) THE CREDITORS WERE NOT PRODUCED FOR VERIFICATION NO R DID THE ASSESSEE SUBMIT DETAILS CALLED FOR BY THE AO. E) SOME OF THE PARTIES HAVE GIVEN LOANS OF ODD AMOUNTS BY DRAFTS, SUCH AS, RS.48,800/-, RS.49,600/-, RS.49,750/- ETC. 4. BEFORE US IT WAS SUBMITTED WITH REGARD TO THE CR EDIT IN THE NAME OF VARDHMAN SYNTHETICS (WRONGLY MENTIONED IN THE ORDER OF THE CIT(A) AS VARDHMAN TEXTILES) THAT THE CIT(A) WAS NOT JUSTIFIE D IN REFUSING TO ADMIT THE ADDITIONAL EVIDENCE. WITH REGARD TO THE MERITS OF THE ADDITION UNDER SECTION 68, IT WAS SUBMITTED THAT ALL THE CREDITORS HAVE GI VEN CONFIRMATION THUS PROVING THEIR IDENTITY, THAT THEY ARE ALL VILLAGE AGRICULTU RISTS AND THE LOANS TAKEN HAVE ALSO BEEN REPAID FULLY. OUR ATTENTION WAS DRAWN T O THE LETTER DATED 6-11-2007 WRITTEN TO THE AO (PAGES 1 TO 5 OF THE PAPER BOOK A ND THE DETAILS FURNISHED AT PAGES 6 AND 7 OF THE PAPER BOOK). IT IS CONTENDED ON THE BASIS OF THIS DOCUMENT THAT IT WAS FOR THE AO TO CONDUCT NECESSARY INQUIRE S FROM THE CREDITORS AND THE ASSESSEE CANNOT BE HELD RESPONSIBLE IF THEY DID NOT COMPLY WITH THE NOTICES PAGE - 3 ITA NO.3770/AHD/2008 -3- ISSUED BY THE AO. IT IS POINTED OUT THAT NONE OF T HE LETTERS ISSUED BY THE AO TO THE CREDITORS HAD COME BACK UNSERVED. 5. ON THE OTHER HAND, THE LEARNED SR.DR POINTED OUT THAT IT WAS NOT POSSIBLE FOR THE AO TO KNOW THE FINANCIAL CAPACITY OF THE CR EDITORS FROM 7/12 EXTRACTS, AND THAT MOST OF THE LETTERS WRITTEN BY THE AO CAME BACK UNSERVED. HE ALSO SUBMITTED THAT RECEIVING THE CREDITS BY DEMAND DRAF TS IS NOT EQUIVALENT TO RECEIVING THEM BY ACCOUNT PAYEE CHEQUES. IT WAS SUB MITTED THAT THE ASSESSEE HAD FAILED TO PROVE THE IDENTITY AND CREDITWORTHINE SS OF THE CREDITORS AND THE GENUINENESS OF THE TRANSACTIONS. ACCORDINGLY IT WA S PLEADED THAT THE ADDITION SHOULD BE CONFIRMED. 6. WE HAVE CONSIDERED THE FACTS AND RIVAL SUBMISSIO NS. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THOUGH NOTICES WERE ISS UED TO 17 CREDITORS, ONLY IN THE CASE OF TWO PARTIES THEY CAME BACK UNSERVED AND IN THE 10 CASES NO REPLY WAS RECEIVED TILL DATE. THE ASSESSEE HAS ALSO FILE D 7/12 EXTRACTS BUT THIS HAS NOT BEEN CONSIDERED TO BE SUFFICIENT BY THE AO. ACCOR DING TO THE AO THESE EXTRACTS DO NOT SHOW THE CROP GROWN IN THE LAND, TH E INCOME DERIVED THEREFROM ETC. THE CIT(A) HAS AGREED WITH THIS VIEW. WE AR E HOWEVER OF THE OPINION, ON A CAREFUL CONSIDERATION OF THE MATTER, THAT THE SAME SHOULD RECEIVE FRESH CONSIDERATION IN THE HANDS OF THE CIT(A) WHO HAS ME RELY STATED THAT HE FOUND NO MERIT IN THE ASSESSEES CASE. HE HAS ALSO STATE D THAT HE WAS UNABLE TO UNDERSTAND WHY THE PARTIES SHOULD GIVEN ODD AMOUNTS . THIS MAY BE A STARTING POINT FOR FURTHER INQUIRY, BUT ON THAT BASIS ALONE THE LOANS CANNOT BE TREATED AS NON-GENUINE. IT WAS FOR THE CIT(A) TO EXAMINE ALL THE EVIDENCE ADDUCED BY THE ASSESSEE IN PROPER PERSPECTIVE. HE WAS ALSO NOT JU STIFIED IN REFUSING TO ADMIT THE ADDITIONAL EVIDENCE MERELY BECAUSE IT WAS NOT A DDUCED BEFORE THE AO. THE EVIDENCE SEEMS TO US TO BE RELEVANT TO THE ASSESSEE S PLEA THAT THE LOANS FROM VARDHMAN SYNTHETICS WAS GENUINE AND THEREFORE OUGHT TO HAVE BEEN ADMITTED BY THE CIT(A). IN ORDER TO ENABLE THE CIT(A) TO E XAMINE THE EVIDENCE PAGE - 4 ITA NO.3770/AHD/2008 -4- ADDUCED BY THE ASSESSEE, INCLUDING THE ADDITIONAL E VIDENCE, IN PROPER PERSPECTIVE AND TO TAKE A DECISION IN ACCORDANCE WI TH LAW, WE SET ASIDE HIS FINDING AND RESTORE THIS ISSUE TO HIS FILE FOR FRES H CONSIDERATION AND DECISION. THE GROUND IS DISPOSED OF ACCORDINGLY. 7. THE THIRD GROUND IS AGAINST THE TREATMENT GIVEN TO THE AGRICULTURAL INCOME OF RS.67,255/-. THE AO HAS CONSIDERED THE S AME TO BE THE ASSESSEES INCOME FROM UNDISCLOSED SOURCES. WHILE COMPLETING THE ASSESSMENT HE FOUND THAT THE AFORESAID AMOUNT WAS CREDITED IN THE BOOKS OF ACCOUNT ON A SINGLE DAY AS NET AGRICULTURAL INCOME. THERE WERE NO BOOKS OF ACCOUNT MAINTAINED FOR GROSS AGRICULTURAL INCOME, EXPENSES ETC. HE THEREFO RE ASKED THE ASSESSEE TO SHOW CAUSE WHY 40% OF THE AGRICULTURAL EXPENDITURE WHICH THE ASSESSEE OUGHT TO HAVE INCURRED, BUT NOT REFLECTED IN THE BOOKS, S HOULD NOT BE ADDED AS HIS UNDISCLOSED INCOME. ON THE GROUND THAT THE ASSESS EE DID NOT PRODUCE ANY DETAILS, INCLUDING PROOF OF OWNERSHIP OF THE LAND, PROOF FOR HAVING SOLD THE CROPS ETC. THE AMOUNT WAS TAKEN AS INCOME FROM UNDI SCLOSED SOURCE. THE CIT(A) HAVING CONFIRMED THE SAME, THE ASSESSEE IS I N FURTHER APPEAL BEFORE THE TRIBUNAL. 8. IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT T HE AMOUNT WAS RECEIVED FROM THE ASSESSEES FATHER ON DIWALI AS AGRICULTURAL INCOME IN ACCORDANCE WITH THE PAST PRACTICE. HOWEVER, THIS CLAIM HAS NOT BEE N ESTABLISHED BEFORE US. THE 7/12 EXTRACTS AT PAGE 20 AND 21 OF THE PAPER BOOK W ERE FILED BEFORE THE AO AFTER THE ASSESSMENT ORDER WAS PASSED. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AGRICULTURAL ACTIVITY WAS CARRIE D ON AT THE ASSESSEES NATIVE VILLAGE JIRA IN SAVAKUNTALA TALUKA, AMRELI DISTRICT AND THAT THE NET INCOME WAS RECEIVED BY HIM ON 15-11-2004 ON A SINGLE DAY FROM HIS FATHER. HOWEVER WE ARE UNABLE TO ACCEPT THIS AS EVIDENCE OF THE ASSESS EES AGRICULTURAL INCOME. HOWEVER, WE FIND THAT THE 7/12 EXTRACT WAS FURNISHE D BEFORE THE AO AFTER THE ASSESSMENT WAS COMPLETED BUT IT WAS OPEN TO THE CIT (A) TO EXAMINE THEM AND PAGE - 5 ITA NO.3770/AHD/2008 -5- FIND OUT WHETHER THE ASSESSEES CLAIM THAT COTTON W AS GROWN ON THE LAND IS PROVED AND IF SO WHAT WAS THE ANNUAL INCOME ENJOYED BY HIM ETC. IN OUR OPINION THE CIT(A) HAS TO PASS FRESH ORDERS ON THE ASSESSEES CONTENTION IN THE LIGHT OF THE EVIDENCE ADDUCED BY THE ASSESSEE BEFOR E HIM. WE SET ASIDE HIS FINDING ON THIS ISSUE AND RESTORE THE SAME TO HIS F ILE FOR FRESH DISPOSAL IN ACCORDANCE WITH LAW. 9. THE FOURTH GROUND IS AGAINST THE DISALLOWANCE OF PURCHASES OF RS.7,78,428/- AS UNVERIFIABLE. HERE ALSO THE ASSES SEE HAS TAKEN A GROUND THAT THE CIT(A) OUGHT TO HAVE ADMITTED THE ADDITIONAL EV IDENCE ADDUCED BEFORE HIM UNDER RULE 46A. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE PURCHASES WERE MADE FROM FOUR PARTIES AS FOLLOWS: I) M/S.ALOK INDUSTRIES RS.5,12,534/- II) M/S.GOKULCHAND TEXTURISERS RS.1,53,730/- III) M/S.SHILPA POLYFILS PVT. LTD. RS. 45,364/- IV) M/S.SIDHARTH CORPORATION RS. 66,800/- THE AO WANTED TO VERIFY THE PURCHASES. THE NOTICE ISSUED TO ALOK INDUSTRIES CAME BACK UNSERVED. THE ASSESSEE HOWEVER STATED TH AT AS PER THE INSTRUCTIONS OF THE PARTY, PAYMENT WAS MADE TO ONE RAJ SYNTHETIC S BY CHEQUE AND XEROX COPIES OF THE BILLS ISSUED BY ALOK INDUSTRIES ALONG WITH A NOTE ASKING THE ASSESSEE TO PAY RAJ SYNTHETICS WAS PRODUCED BEFORE THE AO. THE AO DID NOT ACCEPT THE EXPLANATION BECAUSE THERE WERE CORRECTIO NS IN THE XEROX COPIES OF THE BILL REGARDING THE DATE AND THE NAME OF RAJ SYNTHET ICS WAS ALSO NOT MENTIONED. THE PAYMENT STAMP DID NOT CONTAIN DETAILS OF THE CH EQUES, DATES ETC. THE ASSESSEE WAS ASKED TO ADDUCE EVIDENCE TO SHOW THAT THE CHEQUES WERE ISSUED TO RAJ SYNTHETICS FOR PURCHASES MADE FROM ALOK INDUSTR IES. THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE. IN RESPECT OF THE OTHER T HREE PARTIES, THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE DESPITE BEING DIRECTE D TO DO SO BY THE AO. THE PAGE - 6 ITA NO.3770/AHD/2008 -6- ENTIRE PURCHASES OF RS.7,78,428/- WAS THEREFORE DIS ALLOWED AS NOT PROVED TO BE GENUINE. 10. BEFORE THE CIT(A) THE ASSESSEE MADE DETAILED SU BMISSIONS. ALL THE SUPPLIERS SUPPLIED YARN WHICH IS THE RAW MATERIAL F OR THE ASSESSEE. THE ASSESSEE SUBMITTED CONFIRMATION AND CONTRA ACCOUNTS FROM THE SUPPLIERS, COPIES OF ACCOUNTS ETC. BEFORE THE CIT(A) WHO REFUSED TO A DMIT THEM UNDER RULE 46A ON THE GROUND THAT THEY WERE NOT ADDUCED BEFORE THE AO. ON A CAREFUL CONSIDERATION OF THE MATTER, WE ARE OF THE VIEW THA T THE MATTER SHOULD RECEIVE FRESH CONSIDERATION IN THE HANDS OF THE CIT(A). HE WAS NOT JUSTIFIED IN REFUSING TO ADMIT THE ADDITIONAL EVIDENCE MERELY BECAUSE THE SAME WAS NOT ADDUCED BEFORE THE AO. THE ADDITIONAL EVIDENCE WAS RELEVAN T FOR THE PURPOSE OF DISPOSING OF THE APPEAL AND THE CIT(A) COULD HAVE A DMITTED THE SAME FOR DISPOSAL OF THE GROUND BEFORE HIM ON MERITS. WE A CCORDINGLY ADMIT THE ADDITIONAL EVIDENCE AND RESTORE THE MATTER TO THE F ILE OF THE CIT(A) WITH THE DIRECTION TO HIM TO CONSIDER THE ISSUE AFRESH IN AC CORDANCE WITH LAW. 11. THE FIFTH AND LAST GROUND IS AGAINST THE DISALL OWANCE OF DEPRECIATION ON POWER LOOMS. THE AMOUNT OF DEPRECIATION DISALLOWE D IS RS.75,600/-. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE ASSESSEE MA DE CASH PAYMENT OF RS.3,02,400/- TO M/S.DYNA TEX ENTERPRISES FOR PURCH ASE OF 8 POWER LOOMS. DEPRECIATION WAS CLAIMED THEREON AT THE RATE OF 25% . IN ORDER TO VERIFY THE CLAIM, THE AO CALLED UPON THE ASSESSEE TO ADDUCE PR OOF OF PURCHASE OF THE POWER LOOMS. THE AO ALSO ISSUED NOTICE UNDER SECTI ON 133(6) TO THE SELLER OF THE POWER LOOMS BUT NO REPLY WAS RECEIVED. THERE WAS ALSO NO EVIDENCE TO SHOW THAT LOOMS WERE INSTALLED IN THE FACTORY DURIN G THE RELEVANT YEAR. THE CLAIM OF DEPRECIATION WAS THEREFORE DISALLOWED. 12. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE PRODU CED THE INSTALLATION CERTIFICATE AS ALSO THE CERTIFICATE FROM DYNA TEX F OR HAVING SUPPLIED THE POWER LOOMS TO THE ASSESSEE. THE ACCOUNT COPY OF THE ASS ESSEE IN THE BOOKS OF DYNA PAGE - 7 ITA NO.3770/AHD/2008 -7- TEX WAS ALSO FILED. THESE PAPERS WERE FILED AS ADD ITIONAL EVIDENCE UNDER RULE 46A AND ARE COMPILED AT PAGES 23 AND 24 OF THE PAPE R BOOK. THE CIT(A) REFUSED TO ADMIT THE ADDITIONAL GROUND ON THE GROUN D THAT IT WAS NOT PRODUCED BEFORE THE AO. AS ALREADY SEEN, THIS IS NOT A VALI D REASON. THE EVIDENCE IS RELEVANT TO THE GROUND OF THE APPEAL AND IT SHOULD HAVE BEEN ADMITTED BY THE CIT(A). WE DIRECT HIM TO ADMIT THE SAME AND TAKE A FRESH DECISION ON THE ALLOWABILITY OF DEPRECIATION IN ACCORDANCE WITH LAW . 13. IN RESPECT OF ALL THE GROUNDS IT IS NEEDLESS TO ADD THAT THE CIT(A) SHALL GIVE ADEQUATE OPPORTUNITY TO BOTH SIDES BEFORE TAKI NG ANY DECISION. 14. GROUND NO.6 AND 7 ARE GENERAL AND REQUIRE NO DE CISION. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED, BUT ONLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT 16 TH OCTOBER, 2009. SD/- SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 16-10-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD