M/s Green Fuels, Kannur V. ITO, Kannur

ITA 419/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58350 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 26-05-2011
• Court: TRIBUNAL
• Department Lawyers: R SIVAKUMAR
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Unexplained cash credit; Condonation of delay
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 419/COCH/2011 ASSESSMENT YEARS : 2006-07 M/S. GREEN FUELS, 28/1A, 31/1A, 2A3 P.O. KUTHUPARAMBA, KANNUR [PAN: AAGFG 2748D] VS. I.T.O., WARD-1(2), KANNUR. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY SHRI R. SIVAKUMAR, JR. DR DATE OF HEARING 06/03/2012 DATE OF PRONOUNCEMENT 23/03/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17-03-2011 PASSED BY THE LD. CIT(A)-II, CALICUT AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. 2. THE EFFECTIVE GROUNDS RAISED BY THE ASSESSEE REA D AS UNDER:- 2. THE LEARNED CIT(A) ERRED IN REJECTING THE PETIT ION FOR CONDONATION OF DELAY IN FILING THE APPEAL AND DISMISSING THE APPEAL AS NOT MAINTAINABLE. 3. THE LEARNED LOWER AUTHORITIES ERRED IN ADDING A SUM OF ` 28,20,000/- ALLEGING UNEXPLAINED CASH CREDIT. 4. THE LEARNED LOWER AUTHORITIES ERRED IN ADDING A SUM OF 13,82,396/- INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE I .T. ACT, 1961. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE-FIRM IS A DEALER IN DIESEL, PETROL AND OIL. THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION WAS FILED ON 25-01-2008 DECLARING NIL INCOME. IN THE SCRUTINY P ROCEEDINGS, THE ASSESSING OFFICER I.T.A. NO.419/COCH/2011 2 NOTICED THAT ONE OF THE PARTNERS OF THE FIRM SHRI P .P. BHASKARAN HAS INTRODUCED A CAPITAL OF ` 28,20,000/- IN CASH ON 27-05-2005. THE ASSESSING O FFICER ASKED THE ASSESSEE TO PROVE THE GENUINENESS AND SOURCE OF THE SAID CREDIT. IN ITS REPLY, THE ASSESSEE STATED THAT SHRI P.P. BHASKARAN IS AN INCOME TAX ASSESSEE AND THE CA PITAL INTRODUCED REPRESENTS HIS PAST SAVINGS. IT WAS ALSO FURTHER STATED THAT THE FIRM IS NOT LIABLE TO ESTABLISH THE SOURCE FOR CAPITAL INTRODUCED BY THE PARTNERS. SINCE THE ABOV E SAID EXPLANATIONS WERE NOT CONVINCING TO THE ASSESSING OFFICER, HE TREATED THE ABOVE SAID SUM OF ` 28,20,000/- AS THE INCOME OF THE ASSESSEE U/S. 68 OF THE ACT. THE AS SESSING OFFICER ALSO NOTICED THAT THE ASSESSEE HAD EFFECTED FOLLOWING PAYMENTS WITHOUT DE DUCTING TDS UNDER CHAPTER XVIIB OF THE ACT:- 1. FREIGHT RS.10,74,646/- 2. COMPUTER NETWORK SERVICE RS. 78,750/- 3. REPAIRS & MAINTENANCE RS . 99,500/- 4. SERVICE CHARGES RS. 1,29,500/- TOTA L RS.13,82,396/- HENCE HE DISALLOWED THE ABOVE SAID SUM OF ` 13,82,396 /- BY INVOKING THE PROVISIONS OF S. 40(A)(IA) OF THE ACT. 4. THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSI NG OFFICER IN APPEAL FILED BEFORE THE LD. CIT(A). SINCE THE APPEAL WAS BARRED BY LIM ITATION, THE LD. CIT(A) DISMISSED THE APPEAL BY REJECTING THE PETITION FILED FOR CONDONAT ION OF DELAY. HOWEVER, THE LD. CIT(A) PROCEEDED TO DISPOSE OF THE APPEAL ON MERITS ALSO A ND CONFIRMED BOTH THE ADDITIONS. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE INSTANT CASE, THE LD CIT(A) DID NOT STOP WITH THE ORDER AFTER REF USING TO CONDONE THE DELAY AND PROCEEDED TO DISPOSE THE APPEAL ON MERITS. WHEN HE IS DECLINING TO ADMIT THE APPEAL ON THE GROUND THAT IT IS BARRED BY LIMITATION, THERE I S NO NECESSITY FOR HIM TO ADDRESS THE APPEAL ON MERITS. SINCE HE HAS DISPOSED OF THE APP EAL, PRACTICALLY IT MEANS THAT HE HAS CONSIDERED THE APPEAL AS A PROPER APPEAL. SIMILAR V IEW HAS BEEN EXPRESSED BY HONBLE MADRAS HIGH COURT IN THE CASE OF VIJAYESWARI TEXTIL ES LTD VS. CIT (256 ITR 560). WE I.T.A. NO.419/COCH/2011 3 NOTICE THAT THERE WAS A DELAY OF 12 DAYS IN FILING THE APPEAL BEFORE THE LD CIT(A). THE ASSESSEE HAS SUBMITTED THAT THE APPEAL DOCUMENTS WE RE PREPARED WELL WITHIN THE TIME, BUT THERE WAS A CONFUSION ABOUT THE OFFICE, WHERE IT WA S REQUIRED TO BE FILED, I.E., WHETHER IT WAS REQUIRED TO BE FILED AT CALICUT OR AT KANNUR. FINALLY, IT WAS FILED AT CALICUT OFFICE. WE NOTICE THAT THE REASONS CITED BY THE ASSESSEE FO R THE DELAY IS NOT UNREASONABLE ONE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE DELAY OF 1 2 DAYS SHOULD HAVE BEEN CONDONED BY LD CIT(A). SINCE THE LD CIT(A) HAS DISPOSED OF THE APPEAL ON MERITS ALSO, WE PROCEED TO DEAL WITH THE GROUNDS RAISED ON MERITS. 6. THE FIRST ISSUE RELATES TO THE ADDITION OF R S.28.20 LAKHS U/S 68 OF THE ACT. ACCORDING TO THE ASSESSEE, THE PARTNERSHIP FIRM ITSELF CAME I NTO EXISTENCE ON 25-05-2005 ON WHICH DATE 14 PARTNERS OF THE FIRM INTRODUCED THEIR RESPE CTIVE CAPITAL SUBSEQUENTLY, ON 27-05- 2005, ONE OF THE PARTNERS, SHRI P.P. BHASKARAN INTR ODUCED ADDITIONAL CAPITAL OF ` 28,20,000/-. IT WAS FURTHER SUBMITTED THAT THE PAR TNERSHIP FIRM COMMENCED ITS BUSINESS IN PETROLEUM PRODUCTS SUPPLIED BY M/S. RELIANCE PET RO PRODUCTS ONLY ON 27-10-2005. ACCORDINGLY, HE SUBMITTED THAT THE FIRM COULD EARN INCOME, IF ANY, ONLY FROM 27-10-2005 AND HENCE THE CAPITAL INTRODUCED ON 27-05-2005 COUL D NOT HAVE BEEN EARNED BY THE PARTNERSHIP FIRM. ACCORDINGLY, IT WAS CONTENDED TH AT THE AO WAS RIGHT IN INVOKING THE PROVISIONS OF SEC. 68 IN THE FACTS DISCUSSED ABOVE. 7. WITH REFERENCE TO THE PROVISIONS OF S. 68 OF THE ACT, VIS--VIS THE ADDITION OF ` 28,20,000/-, THE LD AR MADE FOLLOWING SUBMISSIONS:- SEC. 68 DEALS WITH CASH CREDITS WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF ACCOUNTS OF AN ASSESSEE FOR ANY PREVIOUS YEAR AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE OF THE SOURC E THEREOF OR THE EXPLANATION OFFERED IS, IN THE OPINION OF THE ASSES SING OFFICER, NOT SATISFACTORY, IN THAT EVENT THE SUM SO CREDITED MA Y BE CHARGEABLE TO INCOME TAX AS THE INCOME OF THE ASSESSEE IN THAT PR EVIOUS YEAR. THE ABOVE SECTION WAS CONSIDERED BY THE SUPREME COURT IN THE DECISION IN COMMISSIONER OF INCOME TAX VS. P.K. NOORJAHAN. IT WAS HELD THAT EVEN THOUGH EXPLANATION ABOUT THE NATURE AND THE SO URCE OF MONEY FOUND INVESTED BY THE ASSESSEE WAS NOT SATISFACTOR Y, IT WAS NOT MANDATORY THAT THE AMOUNT SHOULD BE ASSESSED AS UND ISCLOSED INCOME. I.T.A. NO.419/COCH/2011 4 IT WAS FURTHER HELD THAT THERE WAS DISCRETION ON TH E PART OF THE ASSESSING OFFICER TO ASSESS OR NOT TO ASSESS THE AM OUNT AS UNDISCLOSED INCOME OF THE ASSESSEE. IT WAS ALSO HELD THAT THE POSSIBILITY OF EARNING INCOME TO THAT EXTENT IS TO BE CONSIDERED. THE ST ATUTORY AUTHORITY HAS A JUDICIAL DISCRETION AS REGARDS THE QUESTION OF AS SESSMENT OF THE SUM CREDITED. IT WAS FURTHER FOUND THAT THE TERMINOLOG Y USED IN THE SECTION IS THAT THE SUM SO CREDITED MAY BE CHARGE TO INCOM E TAX. THE WORD MAY INDICATES THAT THERE IS A DISCRETIONARY POWER (CIT VS. P.K. NOORJAHAN 237 ITR 570). HAVING REGARD TO THE FACTS OF THE CASE AND FURTHER HAVING REGARD TO THE FACT THAT THE APPELLAN T IS A PARTNERSHIP FIRM HAVING 14 PARTNERS WHILE THE AMOUNT IS CREDIT ED TO THE ACCOUNT OF ONLY ONE PARTNER AND THE IMPACT OF THE ADDITION IS ON THE FIRM ITSELF, THE ASSESSING OFFICER SHOULD NOT HAVE MADE THE ADDI TION IN THE FIRM ASSESSMENT. 8. WE HEARD THE LD D.R ON THIS ISSUE. HOWEVER, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE. THE BUSINESS OF THE PARTNERSHIP FIRM ITSELF COMMENCED ON 27-10-2005 AND HENCE, THE INCOME, IF ANY, COULD HAVE BEEN GENERATE D BY THE FIRM ONLY FROM THAT DATE. THE AMOUNT OF ` 28,20,000/- WAS INTRODUCED BY ONE OF THE PARTNERS A BOUT 5 MONTHS PRIOR TO THE DATE OF COMMENCEMENT OF THE BUSINESS, ON WHI CH DATE THERE WAS NO SCOPE FOR THE PARTNERSHIP FIRM TO EARN ANY INCOME. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ENQUIRY, IF ANY, WITH REGARD TO THE SOURCE OF THE SAID SUM OF ` 28,20,000/- SHOULD HAVE BEEN CONDUCTED IN THE HANDS OF THE CONCERNED PARTNER. A CCORDINGLY, WE ARE OF THE VIEW THAT THE AO WAS NOT RIGHT IN TREATING THE ABOVE SAID SUM OF RS.28.20 LAKHS AS THE INCOME OF THE FIRM BY INVOKING THE PROVISIONS OF S. 68 OF THE ACT. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET ASIDE THE ORDER OF THE LD. CIT( A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ABOVE SAID ADDITION. 9. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT. WITH REGARD TO THE FREIGHT CHARGES, THE LD. AR SUBMITTED THAT THE CONCERNED LORRIES WERE ENGAGED BY THE SUPPLIER M/S. RELAINCE PETRO PRODUCT S AND THE ASSESSEE WAS ONLY REIMBURSING THE FREIGHT CHARGES TO THE SAID SUPPLIE R. ACCORDINGLY HE SUBMITTED THAT THERE IS NO PRIVITY OF CONTRACT BETWEEN THE ASSESSEE AND THE LORRY OWNER AND HENCE, THE QUESTION OF APPLICATION PROVISIONS OF S. 40(A)(IA) WOULD NOT APPLY IN THE HANDS OF THE ASSESSEE. HE I.T.A. NO.419/COCH/2011 5 ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION IN A SUMMARY MANNER, WITHOUT EXAMINING AS TO WHETHER THE EXPENSES CONSID ERED BY THE AO WERE MADE TO A SINGLE PERSON OR TO MORE THAN ONE PERSON AND FURTHE R, WHETHER THE PAYMENTS HAVE ACTUALLY EXCEEDED THE MONETARY LIMITS PRESCRIBED U/S. 194C O F THE ACT. ACCORDINGLY, HE SUBMITTED THAT THE ENTIRE ISSUE NEEDS TO BE EXAMINED AFRESH. ON THE CONTRARY, THE LD D.R SUPPORTED THE ORDER PASSED BY LD CIT(A). 10. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND N OTICE THAT THERE IS NO DISCUSSION ON THE POINTS POINTED OUT BY THE LD A.R, I.E., WE DO NOT FIND ANY DISCUSSION ABOUT THE QUANTUM OF THE PAYMENTS MADE TO EACH PAYEE AND THE APPLICATION OF SECTION 194C OF THE ACT ON EACH SUCH PAYMENT. HENCE, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ADDITION M ADE U/S 40(A)(IA) OF THE ACT NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER AFTER COLLE CTING THE NECESSARY DETAILS IN THIS REGARD. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R WITH A DIRECTION TO CALL FOR THE NECESSARY DETAILS FROM THE ASSESSEE AND EXAMINE TH E ISSUE AFRESH IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE NE CESSARY DETAILS THAT MAY BE CALLED FOR BY THE ASSESSING OFFICER. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 23-03-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 23 MARCH, 2012 GJ COPY TO: 1. M/S. GREEN FUELS, 28/1A, 31/1A, 2A3 P.O. KUTHUPA RAMBA, KANNUR.. 2. THE INCOME TAX OFFICER, WARD-1(2), KANNUR.. I.T.A. NO.419/COCH/2011 6 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, CAL ICUT. 4. THE COMMISSIONER OF INCOME-TAX, CALICUT. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN