Jai Giri Gobardhan Rice Mill, Kalahandi V. ITO, Bhawanipatna

ITA 4/CTK/2012

• Counselvise Citation: 422114 RSA 2012
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2012
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: D K SETH
• Keywords: Gift; Onus to prove
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM, AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 004/CTK/2012 (ASSESSMENT YEAR 2008 - 09) JAI GIRI GOBARDHAN RICE MILL, PO: KESINGA, (NEAR SBI), DIST. KALAHANDI 766 012 PAN:A AEFJ 7521 M VERSUS INCOME - TAX OFFICER, BHAWANIPATNA. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.SETH, AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HEARING : 12.03.2012 DATE OF PRONOUNCEMENT : 16.03.2012 ORDER SHRI K.K.GU PTA, AM : THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY ISSUE WITH RESPECT TO CONFIRMATION OF A SUM OF 33,20,000 UNDER THE PROVISIONS OF SECTION 68 OF THE I.T.ACT,1961 BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). 2. THE BRIEF FACTS ARE THAT THE A SSESSEE FIRM IS A RICE MILL AND STARTED PRODUCTION IN THE IMPUGNED ASSESSMENT YEAR AND HAD FILED RETURN OF NIL INCOME WHEN THE RE TURN WAS SUBJECTED TO SCRUTINY UNDER THE PROVISIONS OF SECTION 143(3). THE ASSESSEE FIRM HAD SHOWN OPENING CAPITAL OF 67 LAKHS AS ON 31 ST MARCH, 2008 WHEN THE ASSESSING OFFICER OBSERVED THAT FOR THE ASSESSMENT YEAR 2007 - 08 T HE ASSESSEE FIRM HAD SHOWN THE CLOSING BALANCE OF PARTNERS CAPITAL AT .33,83,000. THE ASSESSEE WAS ASKED TO EXPLAIN THE INCREASE IN THE CAPITAL ACCOUNT OF H AVING INTRODUCED OF 33,20,000 WHEN THE PARTNERS FURNISHED THE COPIES OF THE GIFTS AND LOANS RECEIVED BY THEM IN THEIR INDIVIDUAL CAPACITY BY FURNISHING THE REQUISITE DETAILS OF THE DONORS AND LENDERS IDENTITY, CREDITWORTHINESS AND GENUINENITY BY WAY OF BA NK TRANSACTION. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE BY UPHOLDING A VIEW THAT THE ASSESSEE FIRM HAD GOT ITS ACCOUNTS AUDITED AND NOWHERE PARTNERS CAPITAL ENHANCEMENT WAS MENTIONED IN THE CAPITAL ACCOUNT ITA NO.004/CTK/2012 2 IN SCHEDULE - A OF THE FIRM I N THE AUDIT COPY. THE ASSESSING OFFICER, THEREFORE, MADE THE ADDITION OF 33,20,000 UNDER THE PROVISIONS OF SECTION 68 OF THE ACT. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THAT THE ASSESSEE HAD RECEIVED A SUM OF 23 LAKHS BY WAY OF GIFTS WHICH PARTNERS HAD INTRODUCED AS CAPITAL IN THE FIRM BUT HOLDING A VIEW THAT THE HUGE GIFTS ARE DOUBTFUL FOR THE PURPOSE OF INTRODUCTION OF CAPITAL WHEN GIFTS ARE TO BE RECIPROCATED. THE LEARNED CIT(A) CONFIRMED THE ADDITION MADE U/S.68 AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE IMPUGNED ORDER S OF THE AUTHORITIES BELOW. WE FIND THAT THE LEARNED CIT(A) HAS OBSERVED IN HIS ORDER THAT THE ASSESSING OFFICER HAS RELIED ONLY ON THE CAPITAL ACCOUNT AT SCHEDULE A AND HAS ACCORDINGLY TREATED THE DIFFERENCE AS UNEXPLAINED WITHOUT EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE. THEREFORE, HE EXAMINED THE DETAILS OF LEDGER OF ACCOUNTS OF THE PARTNERS AND BROUGHT THE FACTS ON RECORD REGARDING THE CAPITAL INTRODUCED BY THE PARTNERS, VIDE PARAGRAPH 7 .3 OF HIS ORDER, THE RELEVANT PORTION OF WHICH IS REPRODUCED AS UNDER : 7.3 IN THE LEDGER ACCOUNT FILED IT IS SEEN THAT IN CASE OF SHRI SUSHILA SAHOO, PARTNER, THE INTRODUCTION OF CAPITAL OF 10 ,00,000 IS ATTRIBUTABLE TO GIFTS FROM SMT. MAJULA SAHOO, SMT. MINATI SAHOO AND SHRI ARUN KR. SAH U @ 2,00,000 EACH AMOUNTING TO 6,00,000, FROM BIDYADHAR SAHU AMOUNTING TO 1,50,000 AND RAJESH KR. SAHU AMOUNTING TO 1,00,000. THE BALANCE 1,5 0 ,000 I S F ROM OWN SOURC ES OF THE PARTNER. I N CASE OF SHRI ARUN KR. SAHU, PARTNER, THE TOTAL CAPITAL INTRODUCTION OF 14,00,000 IS BY WAY OF GIFT OF 2,00,000 EACH FROM SM T. LAXMIPRIYA SAHU, PRAMILLA SAHU AND SARAT CH. SAHU AND THE BALANCE AMOUNT OF 8,00 ,000 IS BY W AY OF SELF - INTRODUCTION. IN CASE OF SRI JAI PRAKASH SAHU, PARTNER, THE CAPITAL INTRODUCTION OF 9,20,000 IS ATTRIBUTED TO GIFTS OF 2,00,000 EACH FROM KU. KALPANA SAHU, SRI PARAMANANDA SAHU AND SRI ARUN KR. SAHU, ITA NO.004/CTK/2012 3 1,50,000 FROM ARCHANA SAHU AND 1,00,000 F ROM BISWANATH SAHU, WITH THE BALANCE 70,000 BEING BY WAY OF SELF - INTRODUCTION. THUS, TO SUM UP TOTAL CAPITAL INTRODUCTION OF 33,20,000 BY THE PARTNERS IS EXPLAINED BY WAY OF GIFTS OF 23,00,000 AND THE BALANCE 10 ,20,000 AS OUT OF PARTNERS OWN SOURCES. FROM THE ABOVE IT IS THUS SEEN THAT THE INTRODUCTION OF CAPITAL BY THE PARTNERS AMOUNTING TO 23,00,000 WAS CLAIMED TO HAVE BEEN RECEIVED BY THE PARTNERS AS GIFTS AND THE BALANCE AMOUNT OF 10,20,000 WAS FROM PERSONAL SOURCES OF THE PARTNERS. THUS, THE F ACTS UNDISPUTED ARE THAT THE TOTAL AMOUNT OF 33,20,000 RELATES TO INTRODUCTION OF CAPITAL BY PARTNERS. BUT, ON THE OBSERVATION THAT THE ASSESSEE NEITHER COULD GIVE DETAILS OF GIFTS NOR FURNISHED ANY CONFIRMATION FROM THE ALLEGED DONORS, PURPOSE OF GIFT AN D RELATIONSHIP WITH THE PARTNERS, THE LEARNED CIT(A) HAS DISBELIEVED THE GIFTS TO THE PARTNERS WHO IN TURN HAVE INTRODUCED THE SAME AS CAPITAL IN THE ASSESSEE - FIRM. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE LEARNED CIT(A) HAS TRIED TO VERIFY THE FACT OF RECEIPT OF GIFTS BY THE CAPITAL OR THEIR SOURCE FOR INTRODUCING THE CAPITAL IN QUESTION, WHEN THEY HAVE DOUBTED THE SOURCE OF SOURCE. NO OPPORTUNITY IN THIS REGARD APPEARS TO HAVE BEEN AFFORDED TO THE ASSESSEE . THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, IN ORDER TO MEET THE PROPER ENDS OF JUSTICE, WE SET ASIDE THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION IN THE LIGHT AS STATED ABOVE. 4. IN THE RESULT, T HE APPEAL IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 16.03.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.004/CTK/2012 4 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: JAI GIRI GOBARDHAN RICE MILL, PO: KESINGA, (NEAR SBI), DIST. KALAHANDI 766 012. 2. THE RESPONDENT: INCOME - TAX OFFICER, BHAWANIPATNA. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY. ITA NO.004/CTK/2012 5 IN THIS REGARD, HE HAS RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS REFERRED TO IN HIS ORDER IN PARAGRAPH 7.3.1 TO HOLD THE GIFTS TO THE PARTNERS ARE BOGUS O R NOT GENUINE. FURTHER, AS REGARDS THE CAPITAL INTRODUCED BY THE PARTNERS OUT OF THEIR OWN SOURCES, THE LEARNED CIT(A) HAS DISBELIEVED THE SAME THE ASSESSEE HAVING NOT SHOWN THE AVAILABILITY OF SUCH FUNDS WITH THE PARTNERS. THUS, HE FINALLY HOLDING THAT TH E INTRODUCTION OF CAPITAL BY PARTNERS IS BEREFT OF ANY EXPLANA TION AT ALL AND THEREFORE, HE CONFIRMED THE ADDITION OF 33,20,000 MADE BY THE ASSESSING OFFICER U/S.68 OF THE I.T.ACT,1961. 4. FROM THE FACTS STATED IN THE FOREGOING PARAGRAPHS, IT IS QUITE CLEAR AND ALSO NOT DISPUTED BY THE REVENUE THAT THE SUM OF 33,20 ,000 RELATES TO CAPITAL INTRODUCED BY THE PARTNERS. THEREFORE, THE ONUS ON THE ASSESSEE - FIRM UNDER THE PROVISIONS OF SECTION 68 STOOD DULY DISCHARGED AND IN THAT VIEW OF THE MATTER, IN OUR CONSIDERED VIEW, THE SAME CANNOT BE ADDED IN THE HANDS OF THE ASSES SEE - FIRM REQUIRING IT TO ESTABLISH THE SOURCE OF SOURCE. HONBLE SUPREME COURT IN THE CASE OF CIT V. LOVELY EXPORTS P LTD [216 CTR (SC) 195], RELIED ON BY THE LEARNED COUNSEL OF THE ASSESSEE, HELD THAT IF THE CAPITAL INTRODUCTION IS HELD AS BOGUS BY THE AS SESSING OFFICER, THE SAME CANNOT BE ADDED IN THE HANDS OF THE ASSESSEE TILL SUCH TIME THE ASSESSING OFFICER HAS EXHAUSTED HIS REMEDIES TO TAX THE SAME IN THE HANDS OF THE LOAN CREDITORS ALONE. WE MAY ALSO REFER TO CERTAIN JUDICIAL PRONOUNCEMENT IN THIS REG ARD. IN THE CASE OF CIT V. METACHEM INDUSTRIES [2000] 245 ITR 160 (MP) HONBLE HIGH COURT OF MADHYA PRADESH HAS HELD THAT WHERE THE ASSESSEE - FIRM HAD SATISFACTORILY EXPLAINED THE CREDITS STANDING IN THE NAME OF ITS PARTNERS, THE RESPONSIBILITY OF THE ASSESSEE STANDS DISCHARGED. ONCE IT IS ESTABLISHED THAT THE AMOUNT HAS BEEN INVESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN ITA NO.004/CTK/2012 6 INDIVIDUAL, THEN THE RESPONSIBILITY OF THE ASSES SEE - FIRM IS OVER. IF THAT PERSON OWNS THE ENTRY, THEN THE BURDEN OF THE ASSES SEE - FIRM IS DISCHARGED. IT IS OPEN TO THE ASSESSING OFFICER TO UNDERTAKE FURTHER INVESTIGATION WITH REGARD TO THAT INDIVIDUAL WHO HAS DEPOSITED THE AMOUNT. SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAISWAL MOTORS FINANCE 141 ITR 706, WHEREIN HONBLE HIGH COURT HAS OBSERVED THAT IF AO HAD ANY DOUBT WITH REGARD TO SOURCE OF DEPOSITS IN PARTNERS ACCOUNT, HE MAY TAKE SUITABLE ACTION IN THE CASE OF PARTNERS, IF HE HAPPENS TO BE THEIR AO OR HE MAY REFER THE MATTER TO THE CONCERNED AO AS PARTNERS ARE I.T. ASSESSEES. APPLYING THE RATIO OF THE ABOVE DECISION OF HONBLE ALLAHABAD HIGH COURT, ITAT, AHMEDABAD BENCH IN THE CASE OF DHORAJIA CONSTRUCTION CO. VS. ITO 42 ITD 450 (AHD) HAS HELD AS UNDER : 24. A STUDY OF THE ABOVE CASES BRINGS US TO HOLD THAT WHERE CERTAIN CASH CREDITS APPEAR IN T HE BOOKS OF THE FIRM IN THE NAME OF ITS PARTNERS, THE ONUS TO PROVE THAT THE PARTNERS HAD BROUGHT IN THE AMOUNTS REPRESENTED BY THOSE CASH CREDITS RESTS ON THE FIRM. IT MAY BE OBSERVED THAT A FIRM IS CONSTITUTED BY ITS PARTNERS AND, THEREFORE, THE EXPLANAT ION TO BE OFFERED IN THE CASES PERTAINING TO THE CASH CREDITS APPEARING IN ITS BOOKS IN THE NAME OF ITS PARTNERS MUST FIT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND SHOULD BE ACCEPTABLE TO A PRUDENT MIND. ONCE IT IS PROVED THAT THE PARTNERS HAD IN FACT BROUGHT IN THE AMOUNTS REPRESENTED BY THE CASH CREDITS AND THAT THE ENTRIES MADE IN RESPECT THERETO WERE NOT FICTITIOUS, THE CASH CREDITS CANNOT BE TREATED AS REPRESENTING THE PROFITS OR INCOME OF THE ASSESSEE - FIRM. THE NATURE AND SOURCE OF THE CASH CREDI TS HAVING BEEN SO ESTABLISHED IT SHOULD NOT BE THE SCOPE OF ENQUIRY IN THE CASE OF THE FIRM TO KNOW AS TO FROM WHERE THE PARTNERS HAD BROUGHT IN THE AMOUNTS REPRESENTED BY THE CASH CREDITS. FOR, THAT WOULD BE THE SUBJECT - MATTER OF ENQUIRY IN THE CASE OF TH E PARTNER CONCERNED. IN OTHER WORDS UNTIL AND UNLESS THERE EXIST CIRCUMSTANCES IN A GIVEN CASE OR MATERIAL ON RECORD TO SHOW THAT THE CASH CREDITS APPEARING IN THE NAME OF THE PARTNERS REPRESENTS THE PROFIT OF THE FIRM ITSELF, NO ADDITION TO THE TOTAL INCO ME OF THE FIRM IN THAT BEHALF CAN BE MADE, TREATING THE CASH CREDITS AS UNDISCLOSED INCOME OF THE FIRM. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE ON HAND IN THE LIGHT OF THE ABOVE DECISIONS, THE ASSESSEE - FIRM HAVING DULY DISCH ARGED THE ONUS LAY UPON IT U/S.68 ESTABLISHING THE FACTS THE AMOUNT IN ITA NO.004/CTK/2012 7 QUESTION IS THE CAPITAL INTRODUCED BY THE PARTNERS, WHICH IS ALSO NOT DISPUTED BY THE REVENUE, WE ARE OF THE CONSIDERED VIEW THAT NO FURTHER ONUS LIE ON THE ASSESSEE TO PROVE THE SOURCE OF SOURCE AND AS SUCH, THE ADDITION OF 33,20,000 OF THE SAID AMOUNT IN THE HANDS OF THE ASSESSEE - FIRM IS NOT AT ALL JUSTIFIED UNDER THE DEEMING PROVISION OF SECTION 68 OF THE I.T.ACT,1961. WE THEREFORE, DELETE THE SAID ADDITION BY ALLOWING THE APPEAL OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED.