Sri Gadadhar Nayak, Bhubaneswar V. ITO, Bhubaneswar

ITA 378/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4463 (ITAT-CUTTACK)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 11-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-10-2010
• Court: TRIBUNAL
• Department Lawyers: J KHANRADR
• Assessee Lawyers: M K KARNAAR
• Keywords: Unexplained investment
• Section: 44AD; 133(6)

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. 378/CTK/2010 / ASSESSMENT YEAR 2005 - 06 SRI GADADHAR NAYAK,PLOT NO.14 - A, BAPUJINAGAR, BHUBANESWAR, PIN NO.751 009 (ORISSA) PAN: AAMPN 9031 E - - - VERSUS - INCOME - TAX OFFICE R, WARD 1(2), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI M.K.KARNA,AR / FOR THE RESPONDENT: / SHRI J.KHANRA,DR / ORDER . . , , SHRI K.K .GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE AGITATES THE CONFIRMATION OF A SUM OF 4 LAKHS BEING INVESTMENT IN MUTUAL FUNDS IN THE IMPUGNED ASSESSMENT YEAR FORMING PART OF VARIOUS OTHER INVESTMENTS MADE BY THE ASSESSEE AGAINST THE CAPITAL HEL D BY THE ASSESSEE BROUGHT FORWARD FROM EARLIER YEARS. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD BY THE AUTHORITIES BELOW ARE THAT THE ASSESSEE DERIVES INCOME FROM EXECUTION OF CONTRACT WORKS DECLARING INCOME FOR THE IMPUGNED ASSESSMENT YEAR AT 1, 34,890 .ON THE BASIS OF INFORMATION AVAILABLE TO THE ASSESSING OFFICER ABOUT INVESTMENT IN MUTUAL FUNDS EXCEEDING 2 LAKHS IN A PARTICULAR YEAR , VERIFICATION WAS SOUGHT FOR FROM UTI U/S.133(6) . THEREAFTER IT WAS HELD THAT THE ASSESSEE INVESTED IN MUTUAL F UNDS AMOUNTING TO 4 LAKHS WHICH IN VIEW OF THE ASSESSEE FILING RETURN UNDER THE PROVISIONS OF SECTION 44AD HAD NOT DISCLOSED THE SAME , WAS ASSESSED AS UNEXPLAINED INVESTMENT ALONG WITH LIC PREMIUM PAID OF 1,04,928, MEDICAL EXPENSES AMOUNTING TO 70,000 AND BANK BALANCE OF I.T.A.NO. 378/CTK/2010 2 3,34,491. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO DELETED THE OTHER DISALLOWANCE ON ACCOUNT OF INVESTMENT OR PERSONAL DRAWINGS BUT RETAINED ONLY THE INVESTMENT OF 4 LAKHS IN MUTUAL FUNDS AS HAVING BEE N MADE FROM UNDISCLOSED SOURCES. THE ASSESSEE IS IN APPEAL BEFORE US ON THE SOLITARY ISSUE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSMENT ORDER AS WELL AS THE APPEAL ORDER PASSED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) ARE ILLEGAL AND ARBITRARY. T HE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT OF 4,00,000 IN PURCHASE OF UTI MUTUAL FUND IS UNJUSTIFIED ,ARBITRARY AND ILLEGAL. THE INCOME FOR THE IMPUGNED YEAR, SO ALSO PRECEDING YEARS INCOME HAS NOT BEEN DISPUTED, THEREBY, TH E DEPOSIT OF 4,00,000 ON MUTUAL FUND SHOULD HAVE BEEN ALLOWED BY THE LEARNED ASSESSING OFFICER. T HE ASSESSES IS THE SON OF LATE KAPILA NAYAK AND AFTER THE DEATH OF HIS FATHER HE IS ENJOYING THE SHARE OF AGRICULTURE AND PISCICULTURE INCOME, WHICH HAS NOT BEEN CONSIDERED BY THE LEARNED ASSESSING OFFICER AS WELL AS LEARNED CIT(A) IGNORING THE FACTS. THE ASSESSEE IS A PARTNER OF THE FIRM MIS GDN CONSTRUCTION AND HAS MADE THE DRAWALS FROM HIS CAPITAL ACCOUNT WHICH HAS NOT CONSIDERED BY THE LEARNED A SSESSING OF FICER SO ALSO BY LEARNED CIT(A). THE ASSESSEE HAS RECEIVED THE REFUND OF E.M.D. DEFECTIVES LIABILITY OF PREVIOUS BILLS, SECURITY DEPOSIT AND IT REFUND AMOUNT DULY CREDITED TO HIS BANK ACCOUNT AND OUT OF WHICH HE HAS MADE THE INVESTMENT ON MUTUAL FUND FOR 4,00,000 WHI CH SHOULD HAVE BEEN CONSIDERED. FOR THIS PURPOSE HE FILED THE COPIES OF I.T.RETURN FILED IN THE SIMPLIFIED PROVISIONS OF THE ACT INDICATING THE INCOME GENERATED BY THE ASSESSEE FOR THE PAST THREE YEARS INCLUDING THE SHARE OF INCOME RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRM. HE SUBMITTED THAT THE AUTHORITIES BELOW MISDIRECTED THEMSELVES TO DISCOVER THAT THE AMOUNT OF 4 LAKHS INVESTED IN MUTUAL FUNDS IN THE IMPUGNED ASSESSMENT YEAR WAS OUT I.T.A.NO. 378/CTK/2010 3 OF THE INCOME GENERATED BY THE ASSESSEE FROM THE UNDISCLOSED SOURCES. THE LEARNED CIT(A) ALSO CONSIDERED THAT THE CLOSING BANK BALANCE COULD NOT BE TAXED AS CONSIDERED BY THE ASSESSING OFFICER FOR TAXATION IN VIEW OF THE FACT THAT THE ASSESSEE HAD EARNED INCOME OF 2,04,859 ON HAVING RAISED BILLS FOR CONTRACT WORK RENDERED BY THE ASSESSEE AMOUNTING TO 25,61,113 IN THE IMPUGNED ASSESSMENT YEAR. THE TOTAL CREDITS IN THE BANK THEREF ORE INDICATED 34,28,495 INCLUDING A SUM OF 6,64,438 WHICH HAVE BEEN TRANSFERRED BY THE BANK HELD IN THE FROM THE EARLIER Y EAR ON THE MATURITY OF EARNEST MONEY DEPOSITS AND OTHER DEPOSITS WHICH HAD ALREADY SUFFERED TAXATION IN THE EARLIER YEARS. THE LEARNED CIT(A) THEREFORE ERRED IN HOLDING THAT THE AMOUNT OF BANK DEPOSITS AS ON 31.3.2005 COULD NOT BE TAXED ALONG WITH DELETING THE LIC PREMIUM PAID 1,04,928 AND EXPENSES INCURRED FOR MEDICAL TREATMENT AMOUNTING TO 70,000 WAS ON THE BASIS OF ASSESSEE HAVING SUFFICIENT BALANCE TO INCUR THE SAME IN THE IMPUGNED ASSESSMENT YEAR. HE ARGUED THAT THE SUM OF 4 LAKHS WAS INVESTED BY T HE ASSESSEE ON 27.11.20 - 04 AND 12.2.2005 WAS ON THE AMOUNT AVAILABLE TO THE ASSESSEE FROM THE TOTAL CREDIT SUMMATIONS AND OUTGOINGS RESULTING IN THE AO AND THE LEARNED CIT(A) HOLDING IT DID NOT PERTAIN TO INCOME GENERATED FROM CONTRACT RECEIPTS LEAVING UN - RECONCILED BALANCE OF 7,04,530.THEREFORE,HE SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO OBSERVE THAT IN ABSENCE OF ANY BOOKS OF ACCOUNT AND THE ASSESSEE RETURNING INCOME UNDER THE PROVISIONS OF SECTION 44AD HAD TO RELY ON THE ENTRIES MADE BY THE BANK W HICH HAD TO BE VERIFIED BY THE ASSESSING OFFICER ON THE BASIS OF INFORMATION AVAILABLE TO IT WAS NOT TO BE CONSIDERED AS UNEXPLAINED INVESTMENT IN THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE HAVING SUFFICIENT CAPITAL BALANCE IN THE FORM OF EARNEST MONEY DEP OSITS AND OTHER INCOME MAINLY AGRICULTURAL AND ALSO SHARE IN PARTNERSHIP FIRM WHICH ARE NOT TO BE TAXED BUT TO BE INCLUDED FOR RATE PURPOSE WAS PARKED IN THE BANK I.T.A.NO. 378/CTK/2010 4 AND UTILIZED FOR THE PURCHASE OF MUTUAL FUNDS CANNOT BE SEPARATELY ASSESSED UNDER THE HEAD I NVESTMENT FROM UNDISCLOSED SOURCES. 4. THE LEARNED DR SUBMITTED THAT THE SOURCE OF INVESTMENT OF 4 LAKHS HA S NOT BEEN EXPLAINED IN VIEW OF THE FACT THAT THE INCOME GENERATED IN THE EARLIER YEAR , IF ANY, HAD NOT BEEN ESTABLISHED BEYOND DOUBT BY THE ASSE SSEE WHEN THE BANK BALANCE AS ON 31.3.2.4004 STOOD AT 14,897 ONLY. THE LEARNED CIT(A) THEREFORE WAS JUSTIFIED IN HOLDING THAT THE SOURCE AVAILABLE TO THE ASSESSEE AMOUNTING TO 4 LAKHS REMAINED UNEXPLAINED EVEN FROM PAST SAVINGS BY THE ASSESSEE WAS RIGHTLY CONSIDERED FOR TAXATION IN THE IMPUGNED ASSESSMENT YEAR. HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR PART OF HIS SUBMISS ION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT ON THE BASIS OF INFORMATION MADE AVAILABLE TO THE ASSESSING OFFICER UNDER THE PROVISIONS OF SE CTION 133(6) OF ASSESSEE HAVING INVESTED 2 LAKHS EACH TOTALING 4 LAKHS IN UTI MUTUAL FUNDS WAS REQUIRED TO EXPLAIN THE SOURCE OF THE SAME IN THE ABSENCE OF BOOKS OF ACCOUNT. THE ASSESSING AUTHORITIES THEREAFTER PROCEEDED TO HOLD THAT THE ASSESSEE HAS NOT BEEN ABLE TO SPECIFICALLY EXPLAIN THE SOURCE OF SUCH INVESTMENT INDICATING THE INVESTMENT EITHER FROM EARLIER DEPOSITS OR FROM AGRICULTURAL INCOME OR FROM ENCASHMENT OF FIXED DEPOSITS OR EARNEST MONEY DEPOSITS THEREFORE BECOME CONTRADICTORY FOR CONSIDERAT ION IN THE IMPUGNED ASSESSMENT YEAR. HE NEGATED THE EXPLANATION THAT EVEN THOUGH INVESTMENT WAS FROM BANK COULD NOT BE ACCEPTED WITH REGARD TO ITS SOURCE . WE HAVE PERUSED THE BANK ACCOUNT AND FIND THAT THE ASSESSEE HAD RECEIVED A SUM OF 6,.64,438 ON 5.4 .2004 WHICH WAS UTILIZED FOR THE PURPOSE OF RENDERING INCOME UNDER THE PROVISIONS OF SECTION 44AD AS VERIFIED BY THE ASSESSING OFFICER . HAVING VERIFIED THE I.T.A.NO. 378/CTK/2010 5 CREDIT SUMMATIONS AND THE TOTAL OUT FLOW THE LEARNED CIT(A) IN HIS WISDOM RIGHTLY CONSIDERED THAT TH E BANK BALANCE OF 3,34,491 COULD NOT BE CONSIDERED AS UNEXPLAINED INVESTMENT IN THE HANDS OF THE ASSESSEE . IN THE SAME ANALOGY THE SUM OF 4 LAKHS OUGHT TO HAVE BEEN DELETED BY THE LEARNED CIT(A) IN SO FAR AS IT WAS NEVER THE CASE OF THE ASSESSEE THAT TH E BANK ENTRIES FOR EACH SOURCE OF INCOME DEPOSITED REQUIRED EXPLANATION. CREDIT SUMMATIONS IN A BANK ARE ON ACCOUNT OF MATURITY OF VARIOUS EARNEST MONEY DEPOSITS, SHARE OF INCOME FROM PARTNERSHIP FIRM AND CONTRACT RECEIPTS WHICH HAVE BEEN VERIFIED BY THE A SSESSING OFFICER. THERE IS NOT A SINGLE CASH DEPOSIT IN THE BANK ACCOUNT FOR FINANCIAL YEAR ENDING 31.3.2005 WHICH CAN BE SAID TO HAVE BEEN MADE FROM UNEXPLAINED SOURCES. HAVING TAKEN THE TOTALITY OF THE CREDIT SUMMATIONS AND HAVING CONSIDERED THE INCOME P ORTION IN THE CONTRACT RECEIPT, THE ASSESSING OFFICER HAD NO BASIS TO ISOLATE CONSIDERING BANK BALANCE AT THE END OF THE FINANCIAL YEAR AFTER DRAWINGS FOR LIC AND MEDICAL TREATMENT HAVE ALSO BEEN CONSIDERED FROM UNEXPLAINED SOURCE BUT PROPERLY CONSIDERED F OR DELETION BY THE LEARNED CIT(A). IN OTHER WORDS ASSETS HELD BY THE ASSESSEE WHICH HAVE TRANSFORMED INTO DIFFERENT NATURE OF ASSET HAVE BEEN CONSIDERED BY THE AUTHORITIES BELOW TO BE TAXED UNDER THE PROVISIONS OF SECTION 69. WE ARE UNABLE TO ACCEPT THIS A SSUMPTION BY THE AUTHORITIES BELOW TO THE EXTENT HAVING ENHANCED THE INCOME RETURNED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 44AD AND WAS NOT AGITATED BY THE ASSESSEE APPELLANT BEFORE THE LEARNED CIT(A) , CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT THE ASSESSING OFFICER HIMSELF DISCOV ERED THAT THIS SOLITARY DRAWING AND BANK BALANCE ALONG WITH THE MUTUAL FUND INVESTMENT WERE RIGHTLY REFLECTED BY THE ASSESSEE AGAINST THE BANK BALANCE AND ASSETS IN THE FORM OF EARNEST MONEY DEPOSITS, DEBTORS AND INCOME RECEIVABLE FROM EARLIER YEARS HAD BEEN ENCASHED AFTER TAXATION HAVING BEEN PAID FOR IN EARLIER I.T.A.NO. 378/CTK/2010 6 YEARS. THE LEARNED DR RIGHTLY POINTED OUT THAT AS THE SAME HAS BEEN BROUGHT FORWARD FROM EARLIER YEAR CANNOT BE TAXED IN THE IMPUGNED ASSESSM ENT YEAR ONLY BECAUSE THE INVESTMENT WAS MADE FROM THE BANK BALANCES AVAILABLE TO THE ASSESSEE IN THE IMPUGNED AR OF THE ASSESSEE. THIS IS FURTHER FORTIFIED BY THE ACTION OF THE ASSESSEE WHEN NO CASH HAS BEEN DEPOSITED IN THE BANK IN THE IMPUGNED ASSESSMEN T YEAR. FINDING NO INFIRMITY IN THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE, WE HAVE NO HESITATION TO DELETE THIS ADDITION MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 13 TH APRIL, 2011 S D/ - S D/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 13 TH APRIL, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : SRI GADADHAR NAYAK,PLOT NO.14 - A, BAPUJINAGAR, BHUBANESWAR,PIN NO.751 009 (ORISSA) 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 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.