M/s Century Comfort Pvt. Ltd., Manipal V. ITO, Udupi

ITA 413/BANG/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5257 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-05-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 29-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: SRINIVAS SHENOY
• Keywords: Unexplained cash credit; Unexplained expenditure
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 413/BANG/2010 ASSESSMENT YEAR : 2007-08 M/S. CENTURY COMFORT PVT. LTD., SHENOY BUILDING, SYNDICATE CIRCLE, ANANTHNAGAR, MANIPAL. : APPELLANT VS. THE INCOME TAX OFFICER, WARD 1, UDUPI. : RESPONDENT APPELLANT BY : SHRI SRINIVAS SHENOY, C.A. RESPONDENT BY : SMT. V.S. SREELEKHA, ADDL. CIT(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AG AINST THE ORDER OF THE CIT (A), MANGALORE, IN ITA NO: 19/UDP/CIT(A) /MNG/09-10 DATED:12.3.2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE COMPANY [THE ASSESSEE IN SHORT] HAS RAISED FIVE GROUNDS, OUT OF WHICH, GROUND NOS: 1 AND 5 BEING G ENERAL IN NATURE, THEY DO NOT SURVIVE FOR ADJUDICATION. IN THE REMAINING GROUNDS, THE ISSUES RAISED ARE THAT ITA NO.413/BANG/10 PAGE 2 OF 9 THE CIT(A) HAS ERRED IN (I) CONFIRMING RS.34,65,310/- AS UNEXPLAINED CASH CREDI TS; (II) SUSTAINING RS. 1,91,284/- OUT OF EXPENSES; & - APPLYING THE PROVISIONS OF S.44 AD OF THE ACT IN RE SPECT OF CONTRACT WORK. 3. BRIEFLY STATED, THE ASSESSEE ENGAGES IN THE BUSI NESS OF DISTRIBUTION OF LIQUEFIED PETROLEUM GAS, GAS EQUIPMENTS, SPARES, INFRASTRUCTURE DEVELOPMENT. DURING THE ASSESSMENT PROCEEDINGS, A FTER ELICITING THE REQUIRED PARTICULARS AND FOR THE ELABORATE REASONS SET-OUT IN THE IMPUGNED ASSESSMENT ORDER, AMONG OTHERS, THE AO HAD RESORTED TO DISALLOW THE FOLLOWING CLAIMS OF THE ASSESSEE; (I) UN-EXPLAINED CASH CREDITS RS.54.13 LAK HS; (II) INCOME FROM OTHER SOURCES RS. 2.76 LAKHS; & (III) UNEXPLAINED EXPENDITURE RS.10.53 LAKHS 4. BEING AGGRIEVED, THE FOLLOWING ISSUES WERE TAKE N UP WITH THE LD. CIT (A) FOR RELIEF: I. UNEXPLAINED CASH CREDITS: THE SUNDRY CREDITORS OF RS.54.13 LAKHS CLAIMED BY T HE ASSESSEE CONSISTED OF BALANCES WITH 24 PARTIES, OUT OF WHICH RS.10.39 LAKHS OF CREDIT BALANCES OF SIX PARTIES WERE BROUGHT FORWARD FROM THE PREVI OUS YEARS BALANCE SHEET. THE O.B. PERTAINING TO THE EARLIER YEAR CANNOT BE ADDED IN THE AY UNDER DISPUTE, THUS, RS.43.74 LAKHS [RS.54.13 LAKHS 10. 39 LAKHS] WERE INTRODUCED FOR THE REMAINING CREDITORS, OUT OF WHIC H RS.7.13 LAKHS REPRESENTED ADVANCES RECEIVED FROM FOUR CUSTOMERS SAI RADHA DEVELOPERS, MANDOVI COURT, DURGA GANESH DEVELOPERS & DR.ASHIQ FOR SUPPLY OF GAS PIPELINES AND OTHER ALLIED MATERIALS. AFTER DUE VERIFICATION OF ITA NO.413/BANG/10 PAGE 3 OF 9 EVIDENCES ADVANCED, THE CIT(A) HAD ACCEPTED THE SAM E AS PROPERLY EXPLAINED. LIKEWISE, RS.1.96 LAKHS REPRESENTED AMO UNTS PAYABLE TO THREE PARTIES TOWARDS PURCHASE OF LPC STOVES ETC., THE CI T(A) ACCEPTED THE SAME AS PROPERLY EXPLAINED AFTER SCRUTINIZING THE P ROOF IN THE SHAPE OF PAYMENTS THROUGH ACCOUNT PAYEE CHEQUES ETC., HOWE VER, THE CIT(A) TOOK A VIEW WITH REGARD TO THE REMAINING CREDITORS AMOUN TING TO RS.34.65 LAKHS AS UNEXPLAINED SINCE, ACCORDING TO THE CIT(A), THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS OF ESTABLISHING THE GENUINENESS OF SUCH TRANSACTIONS. II . INCOME FROM OTHER SOURCES OF RS.2.76 LAKHS : DUE CONSIDERATION OF THE CONTENTIONS OF THE ASSESSE E WHICH HAVE BEEN NARRATED IN THE IMPUGNED ORDER WHICH IS UNDER DISPU TE, THE CIT(A) WAS OF THE VIEW THAT SINCE THE AGGREGATE OF TWO EARTH WORK CONTRACTS AMOUNTED TO RS.51.78 LAKHS, THAT THE UNDERTAKING OF EARTH WORK PROJECTS WAS NOT THE MAIN BUSINESS OF THE ASSESSEE AND THAT THIS PIECE O F WORK WAS SPECIFICALLY UNDERTAKEN BECAUSE OF ITS INTEREST IN THE PROPERTY CONSTRUCTED BY SVMCL, THE ASSESSEE OUGHT NOT TO HAVE MAINTAINED ELABORATE ACCOUNTS IN RESPECT OF THESE SMALL PROJECTS AND, THUS, THE ASSESSEE WAS JUSTIFIED IN RAISING SELF- MADE DEBIT VOUCHERS AND CLAIMING OF EXPENSES WHICH CONSISTED OF TIPPER HIRE CHARGES, LABOUR CHARGES, SUPERVISION CHARGES A ND THESE PAYMENTS WERE MADE TO PETTY CONTRACTORS WHO WOULD NOT HAVE B EEN IN A POSITION TO ISSUE INVOICES/REGULAR BILLS ETC. HOWEVER, IN THE SAME BREATH, THE CIT(A) WAS OF THE VIEW THAT SINCE THE ASSESSEE WAS NOT ABL E TO EXPLAIN THE REASON FOR HAVING NOT DEBITED THE EXPENSES IN THE EARTH WO RK CONTRACT, THE APPLICATION OF PRESUMPTIVE RATE OF TAXATION U/S 44A D OF THE ACT WAS ITA NO.413/BANG/10 PAGE 4 OF 9 APPROPRIATE AND, ACCORDINGLY WORKED OUT THAT THERE WAS A SHORTFALL OF RS.1.91,384/- IN THE NET PROFIT DECLARED FROM THE EARTHWORK CONTRACT AND, THUS, CONFIRMED THE ADDITION TO THAT EXTENT. THE BALANCE OF RS.84,716/- WAS ALLOWED AS RELIEF TO THE ASSESSEE. III. THE UNEXPLAINED EXPENDITURE OF RS.10.50 LA KHS DISALLOWED BY THE AO WAS DELETED BY THE CIT (A). 5. AGGRIEVED BY THE PARTIAL RELIEF AFFORDED BY THE CIT (A), THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL ON TWI N ISSUES, NAMELY: (1) RESTRICTING THE ADDITION TO THE EXTENT OF RS.34.65 LAKHS UNDER UNEXPLAINED CASH CREDITS; & (2) SUSTAINING THE ADDITION TO THE EXTENT OF RS.1.91 LA KHS BY INVOKING THE PROVISIONS OF S.44AD OF THE ACT. 5.1. DURING THE COURSE OF HEARING, THE SUBMISSIONS MADE BY THE LD. A R ARE SUMMARIZED AS UNDER: CASH CREDITS: (I) THE AO HAD AGREED THAT THE CREDITORS HAVE CONFIRMED THE CREDITS, BUT, HER GROUSE WAS THAT THE CONFIRMATION LETTERS WERE P RESENTED SHABBILY AND THEY HAVE BEEN TYPED IN A SINGLE SHEET OF PAPER ETC.; (II) ON THE ONE HAND THE AO HAD AGREED THAT THE OUTSTAND ING BALANCES HAVE BEEN CONFIRMED, BUT, ON THE OTHER HAND SHE DO ESNT ACCEPT THE SAME ON THE GROUND THAT THE CREDITORS WERE OPERATI NG FROM THEIR RESIDENTIAL PREMISES, THAT THEY HAVE RETURNED THEIR INCOMES U/S 44AD AND NOT U/S 44 AF AND THAT NO BOOKS OF ACCOUNT, COP IES OF BILLS, AGREEMENTS WERE PRODUCED; (III) THE PRIMARY RESPONSIBILITY OF ESTABLISHING THE IDEN TITY OF THE CREDITORS AND THEIR NAMES AND ADDRESSES HAVE BEEN FURNISHED TO PROVE THE GENUINENESS OF THE TRANSACTIONS AND, THUS, THE ASSE SSEE HAD DISCHARGED ITS ONUS; (IV) THE CIT(A) HAD NOT ADDUCED PROPER REASONS FOR REJEC TING THE NOTARIZED AFFIDAVITS FURNISHED AS EVIDENCE; ITA NO.413/BANG/10 PAGE 5 OF 9 (V) ALL THE 11 CREDITORS WHOSE OUTSTANDING BALANCES SUS TAINED ARE ASSESSED TO TAX AND THEIR CREDIT BALANCES HAVE BEEN PAID IN THE SUBSEQUENT YEAR BY CROSSED CHEQUES; DISALLOWANCE OF EXPENDITURE : (VI) THE ENTIRE CREDIT OF RS.34,62,022/- REPRESENTS EXPE NDITURE INCURRED ON THE CONTRACT WORTH RS.51.78 LAKHS IN RESPECT OF WHICH THE ASSESSEE HAD ADMITTED A NET INCOME OF RS.2.22 LAKHS. THE DI SALLOWANCE OF RS.34.62 LAKHS OUT OF EXPENDITURE TANTAMOUNT TO ES TIMATING THE INCOME FROM CONTRACT OF TOTAL VALUE OF RS.51.78 LAK HS AT RS.2,22,880 + RS.34,62,022 I.E., RS.36.84 LAKHS WHICH AMOUNTS T O 71% OF THE GROSS RECEIPTS. 5.2. IN CONCLUSION, IT WAS SUBMITTED THAT THE ADDI TIONS MADE ON FLIMSY GROUNDS REQUIRE TO THE DELETED. DURING THE COURSE OF HEARING, THE LD. A R FURNISHED A PAPER BOOK CONTAINING 1 74 PA GES WHICH MAINLY CONSISTS OF COPIES OF (I) LEDGER EXTRACTS OF CONTRA CT ACCOUNTS; (II) CONFIRMATION LETTERS; (III) NOTARIZED AFFIDAVITS AN D ALSO BANK ACCOUNT OF THE ASSESSEE. 5.3. ON THE OTHER HAND, THE LD. D R WAS OF THE FIR M VIEW THAT SINCE THE LD. CIT (A) HAD GIVEN CERTAIN RELIEF BASED ON T HE PROOF PROVIDED BY THE ASSESSEE AND RESTRICTED THE ADDITION TO THE EXTENT OF RS.34.65 LAKHS FOR WANT OF DOCUMENTARY EVIDENCE. IT WAS, THEREFORE, ASSERTED THAT THE ASSESSEE SHOULD HAVE NO GRIEVANCE ON THE ISSUE AND THAT THE FINDING OF THE LD. CIT(A) REQUIRES TO BE SUSTAINED. 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, CRITICALLY PERUSED THE RELEVANT RECORDS AND ALSO THE DOCUMENTA RY EVIDENCES ADVANCED BY THE LD. A R DURING THE COURSE OF HEARIN G. ITA NO.413/BANG/10 PAGE 6 OF 9 6.1. WITH REGARD TO CASH CREDITS TO THE EXTENT OF RS.34.65 LAKHS, THE ASSESSEE HAD FURNISHED PROOFS IN THE SHAPES OF CONF IRMATION LETTERS, NOTARIZED AFFIDAVITS ETC, THE DETAILS OF WHICH ARE PLACED IN A TABULAR AS UNDER: LEDGER ACCOUNT & CONFIRMATION LETTER NO. NAME OF THE CREDITOR AMOUNT PAGE NO ON PB NOTARIZED AFFIDAVIT ON PAGE NO .ON PB WHETHER INCOME- TAX ASSESSEE 1. 2. 3. 4. 5. 6 7. 8. 9. 10. 11. SUBHASH SHENOY PRABHAKAR BHANDARKAR VINOD PAI A PRASAD RAO PALLAVI BHANERKAR SUDHA PAI SANDEEP SHENOY NITYANANDAKAMATH S.K.GIRISH JAGADESH ASHA SHENOY 368000 351134 318860 358730 386158 377244 139937 341587 300942 383317 139113 23-25 2731 32-33 35-38 40-42 44-45 47-52 54-56 58-64 66-69 71-73 26 31 34 39 43 46 53 57 65 70 74 YES 6.2. WE HAVE CAREFULLY PERUSED THE RELEVANT LEDGER ACCOUNTS, CONFIRMATION LETTERS AND ALSO THE NOTARIZED AFFIDAV ITS, INDIVIDUALLY CONFIRMING THE OUTSTANDING CASH CREDITS. ON A SCRUTINY OF THE BANK STATEMENT OF THE ASSESSEE FOR THE PERIOD FROM SEPTEMBER 2007 NOVEM BER, 2007, IT WAS SEEN THAT THE ABOVE MENTIONED CREDITORS HAVE BEEN R EPAID THE RESPECTIVE AMOUNTS THROUGH CHEQUES WHICH HAVE BEEN DULY REFLEC TED IN THE BANK STATEMENT. AS COULD BE SEEN FROM THE CONFIRMATION LETTERS AND NOTARIZED AFFIDAVITS FURNISHED, THE CREDITORS WERE INCOME-TAX ASSESSEES WHO HAVE CONFIRMED THE CREDITS OUTSTANDING AS ON 31.3.2007. IN VIEW OF THE FORE- GOING, WE ARE OF THE FIRM VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ITA NO.413/BANG/10 PAGE 7 OF 9 RESTRICTING THE ADDITION TO THE EXTENT OF RS.34.65 LAKHS AS UNEXPLAINED CASH CREDITS. SINCE THE ASSESSEE HAD, IN FACT, SATISFAC TORILY EXPLAINED THE CASH CREDITS OF RS.34.65 LAKHS BACKED WITH CONFIRMATION LETTERS, NOTARIZED AFFIDAVITS, BANK STATEMENT ETC., WE HAVE NO HESITA TION IN DELETING THE CASH CREDITS OF RS.34.65 LAKHS SUSTAINED BY THE CIT(A) A S UNEXPLAINED CASH CREDITS. IT IS ORDERED ACCORDINGLY. 6.3. WITH REGARD TO THE DISALLOWANCE OF EXPENSES O F RS.1,91,384/- UNDER THE HEAD EARTHWORK CONTRACTS, WE FIND THAT THE LD. CIT(A) HAD RESORTED TO INVOKE THE PROVISIONS OF S.44AD OF THE ACT TO QUANTIFY THE DISALLOWANCE TO THE EXTENT OF RS.1.91 LAKHS FOR THE REASONS SET-OUT IN HIS IMPUGNED ORDER. 6.3.1. AT THE OUTSET, WE ARE OF THE FIRM VIEW THAT THE ASSESSEES CASE DOESNT FALL WITHIN THE AMBIT OF S.44AD OF THE ACT SINCE ITS GROSS RECEIPTS EXCEEDED RS.40 LAKHS AND AS SUCH, THE FINDING OF TH E CIT(A) GOES ASTRAY. 6.3.2. AT THE SAME TIME, WE FIND FORCE IN THE ARGU MENT OF THE ASSESSEE THAT NEITHER THE AO NOR THE CIT(A) HAVE DOUBTED THE BONA FIDE OF THE ACCOUNTS OF THE ASSESSEE OR NO CASE HAS BEEN MADE O UT THAT THE EXPENDITURE DEBITED WAS EXCESSIVE. IN OUR VIEW, D ISALLOWANCE OF ANY EXPENSES CLAIMED CANNOT BE RESORTED TO FOR THE SAKE OF MAKING DISALLOWANCE. ANY DISALLOWANCE IS TO BE MADE, IT S HOULD, OF COURSE, BE MADE ONLY ON THE BASIS OF A SOUND FOOTING WHICH SHO ULD STAND THE TESTIMONY OF LAW. ITA NO.413/BANG/10 PAGE 8 OF 9 6.3.3. AS CONCEDED BY THE LD. CIT (A) [PARA 26 OF HIS IMPUGNED ORDER] THAT THE AGGREGATE FROM THE TWO EARTH WORK CONTRACT S UNDERTAKEN BY THE ASSESSEE ON BEHALF OF SVMCL WAS RS.51.78 LAKHS. TH OUGH EARTHWORK CONTRACT WAS NOT THE MAIN BUSINESS OF THE ASSESSEE, THE ASSESSEE UNDERTOOK THIS VENTURE UNDER PECULIAR CIRCUMSTANC ES IT WOULD NOT HAVE MAINTAINED ELABORATE ACCOUNTS IN RESPECT OF THESE T INY PROJECTS FOR WHICH, THE ASSESSEE WOULD HAVE MADE, AS ADMITTED BY THE CI T(A), CERTAIN NEGLIGIBLE PAYMENTS TO PIECE WORK CONTRACTORS WHO W OULD NOT HAVE THE FACILITY OR KNOWLEDGE OF ISSUANCE OF INVOICES/BILLS AUTHENTICATING OF SUCH WORKS EXECUTED BY THEM. CONSIDERING THE MAGNITUDE OF THE TURNOVER OF THE ASSESSEE FOR THE PERIOD UNDER DISPUTE, THE GENUINEN ESS OF THE EXPENSES CLAIMED FOR A PALTRY SUM OF RS.1.91 LAKHS CANNOT BE VIEWED WITH SUSPICION. IN AN OVERALL CONSIDERATION OF THE ISSUE AS DISCUSS ED ABOVE, WE DELETE THE ADDITION OF RS.1,91,384/- SUSTAINED BY THE LD. CIT( A) ON THIS COUNT. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 11TH DAY OF JUNE, 2010. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 11 TH JUNE, 2010. DS/- ITA NO.413/BANG/10 PAGE 9 OF 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.