M/s. Karni Industries, BIKANER V. ITO, BIKANER

ITA 428/JODH/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8001 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R KONKANI
• Assessee Lawyers: SHAF MOHD
• Keywords: Gift; Charitable institution; Source of fund; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 428/JU/2011 ASSESSMENT YEAR : 2008-09 M/S KARNI INDUSTRIES, VS. THE ITO, WARD-2(1), BIKANER BIKANER PAN NO. AAGFK3189C (APPELLANT) (RESPONDENT) APPELLANT BY : SH SHAF MOHD. RESPONDENT BY : SH G.R. KONKANI DATE OF HEARING : 27.11.2012 DATE OF PRONOUNCEMENT : 19.12.2012 ORDER PER N.K.SAINI, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 6.9.2011 OF CIT(A), BIKANER. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L:- 1 . THAT THE ASSESSMENT COMPLETED BY THE INCOME TA X OFFICER IS NOT JUSTIFIED. 2. THAT THE ADDITION OF RS. 5,00,000/-- ON PROTEC TIVE BASIS UNDER THE HEAD CAPITAL CONTRIBUTION BY PARTNERS IS SUSTAINED BY THE COMMISSIONER OF INCOME TAX (APPEALS), BIKANER IS IL LEGAL AND 2 AGAINST THE LAW ACCORDING TO THE VARIOUS JUDICIAL PRONOUNCEMENTS SUBMITTED BEFORE HIM. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS ERRED IN SUSTAINING THE ADDITION OF RS. 5,00,000/- WITHOUT C ONSIDERING THE EVIDENCES PROPERLY. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS ERRED IN SUSTAINING THE ADDITION OF RS. 13300/-- ON ACCOUNT OF DISALLOWANCE OF CERTAIN EXPENDITURES IS PURELY ON SURMISES AND C ONJECTURE BASIS AS WELL AS WITHOUT ANY SPECIFIC NOTICE. 5. THAT THE ASSESSEE HAS LIBERTY TO ADD, AMEND AN D / OR ALTER THE GROUNDS OF APPEALS. 3. GROUND NOS. 1 AND 5 ARE GENERAL IN NATURE WHILE GROUND NO.4 WAS NOT PRESSED, THEREFORE, NO FINDINGS IS REQUIRED FOR THE SE GROUNDS. 4. GROUND NOS. 2 AND 3 RELATES TO THE ADDITION OF R S. 5,00,000/- ON ACCOUNT OF CAPITAL CONTRIBUTION BY THE PARTNERS. 5. BRIEF FACTS RELATED TO THIS ISSUE IN BRIEF ARE T HAT THE ASSESSEE FILED E- RETURN OF INCOME DECLARING A LOSS OF RS. 1,21,548/- . THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER NOTICED THAT SMT. MADHU RAJPUROHIT PARTNER OF THE FIRM DEPOSITED RS. 5,00,000/- AS HER CAPITAL. WHEN THE ASSESSING OFFICER ASKED THE SOURCE OF THE SAME, THE ASSESSEE EXPLAINED THE SOURCE AS U NDER:- AMOUNT SOURCE 1,50,000 OUT OF DRAWING FROM M/S MAHENDRA ENTERPRISES, 83/1, JAI PLAZA, V.D. NAGAR, PALI (PAN: ANYPK2618P) 50,000 SHE HAS RECEIVED LOAN OF RS.50,000/- FROM KAN SIGH RAJPUROHIT, TAGORE NAGAR, PALI (PAN: AASPR1565M) 90- 3 1,00,000 GIFT RECEIVED FROM BROTHER MAHENDRA SINGH RAJPUROHI T, PALI 2,00,000 GIFT RECEIVED FROM UNCLE MOOL SINGH RAJPUROHIT , PA LI 5,00,000 THE ASSESSING OFFICER WAS NOT SATISFIED FROM THE RE PLY OF THE ASSESSEE MAINLY ON THE BASIS THAT SOURCE OF SOURCE WAS DOUBT FUL. THE ADDITION WAS MADE ON PROTECTIVE BASIS IN THE HANDS OF THE ASSESS EE. 5. THE ASSESSEE CARRIED THE MATTER TO THE LD CIT(A) AND SUBMITTED THAT PARTNER SMT. MADHU RAJPUROHIT WAS FILING HER RETURN OF INCOME WITH ITO, WARD-1, PALI AND FURNISHED THE COMPLETE DETAILS REG ARDING THE SOURCE OF RS. 5,00,000/- INTO CAPITAL ACCOUNT OF THE ASSESSEE FIR M. IT WAS STATED THAT SHRI ROHIT KUMAR PROP OF M/S MAHENDRA ENTERPRISES WAS BR OTHER OF SMT MADHU RAJPUROHIT. COPIES OF BOOKS OF ACCOUNT OF M/S MAHE NDRA ENTERPRISES SHOWING THE TRANSACTIONS WERE ALSO FURNISHED BEFORE THE ASSESSING OFFICER. IT WAS, FURTHER STATED THAT SHRI KAN SINGH RAJPUROH IT FATHER OF SMT. MADHU RAJPUROHIT WAS ALSO A REGULAR INCOME TAX ASSESSEE A ND THE SOURCE OF CASH DEPOSIT BEFORE THE ADVANCEMENT OF LOAN WAS CLAIMED OUT OF HIS PAST SAVINGS. A COPY OF HIS BANK STATEMENT WAS ALSO FIL ED TO SHOW THAT HE HAD BALANCE OF RS. 29,036/- AND THE CASH DEPOSIT WAS NO T FOR CLEARANCE OF THE CHEQUE. IT WAS CONTENDED THAT SHRI MAHENDRA SINGH RAJPUROHIT IS BROTHER OF SMT. MADHU RAJPUROHIT AND STATED IN HIS STATEMEN T THAT THE CASH DEPOSITED WAS OUT OF PAST SAVINGS. REGARDING THE OT HER SOURCES NAMELY GIFT FROM SHRI MOOL SINGH RAJUPORIHIT, IT WAS STATED THA T HE IS UNCLE OF SMT. MADHU RAJPUROHIT AND EXPLAINED THE SOURCE OF CASH D EPOSIT BEFORE MAKING 4 THE GIFT OUT OF HIS PAST SAVINGS. THEREFORE, THE PA RTNER IN WHOSE CAPITAL ACCOUNT THE AMOUNT WAS DEPOSITED BY WAY OF CHEQUE H AD EXPLAINED THE SOURCES OF SUCH FUNDS, THEREFORE, THE ADDITION MADE WAS NOT JUSTIFIED. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- CIT VS METAL AND METALS OF INDIA (298 CTR 457) (P&H ) CIT VS. RAMESHWAR DAS SURESH PAL CHEEKA (208 CTR 45 9) CIT VS. ORISSA CORPORATION PVT LTD (159 ITR 78 (SC) CIT VS. STELLER INVESTMENT LTD 251 ITR 263 (SC) CIT VS. BARKHA SYNTHETIC LTD (131 TAXMAN 114) (RAJ. ) CIT VS. FOIRST POINT FINANCE LTD (286 ITR 477) KANHAIYA LAL JANGID VS. ACIT (217 CTR 354) LAL CAHND BOHRA VS. ITO (189 TAXMAN 141) ARAWALI TRADING COMPANY VS. ITO (187 TAXMAN 338) 6. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ADDITION OBSERVING IN PAGES 7 TO 10 O F THE IMPUGNED ORDER WHICH READ AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE. THE FIRST PLEA OF THE AR THAT IN VIEW OF THE DECISIONS OF PUNJAB & HARYANA HIGH COURT THE INTRODUCTION OF CAP ITAL IN THE CAPITAL ACCOUNT OF THE PARTNER OF A FIRM CANNOT BE ADDED TO THE TOTAL INCOME OF THE FIRM EVEN IF THE SAME REMAINED UNEXPLAINED AND THAT IT OUGHT TO BE ADDED IN THE HANDS OF THE P ARTNER ALONE CANNOT BE SAID TO BE TENABLE IN VIEW OF THE DECISIO N OF RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S KISHORI LAI SANTOSHI LAI (216 ITR 9) WHEREIN IT WAS HELD THAT T HERE WAS NO DISTINCTION BETWEEN THE CASH CREDIT ENTRY IN THE BO OKS OF FIRM WHETHER IT WAS OF A PARTNER OR OF A THIRD PARTY; TH AT THE BURDEN TO PROVE THE IDENTITY, CAPACITY AND GENUINENESS WAS ON THE ASSESSEE AND IF THE CASH CREDIT WAS NOT SATISFACTOR ILY EXPLAINED 5 BY WAY OF DOCUMENTARY OR OTHER EVIDENCES THE ITO WO ULD BE JUSTIFIED TO TREAT IT AS INCOME FROM UNDISCLOSED SO URCES BY INVOKING THE DEEMING FICTION U/S 68. THE A.P. HIGH COURT IN THE CASE OF M. M. A. K. MOHIDEEN THAMBY & CO. V/S CIT ( 36 ITR 481) HAD HELD THAT 'IN THE ABSENCE OF A SATISFACTOR Y EXPLANATION WITH REGARD TO CREDIT ENTRIES IN THE NAME OF THE PA RTNERS, IT IS OPEN TO THE DEPARTMENT TO INFER THAT THE MONEY BELO NGS TO THE ASSESSEE FIRM AND REPRESENTS ITS SUPPRESSED INCOME' . IN THE INSTANT CASE, THE QUESTION IS WHETHER THE CAPITAL O F RS.5,00,000/-- ADDED TO THE CAPITAL ACCOUNT OF SMT. MADHU RAJPUROHIT, PARTNER OF THE APPELLANT FIRM WAS EXPLA INED OR NOT AND WHETHER THE SAME COULD BE ADDED BACK TO THE TOT AL INCOME OF THE FIRM IN THE EVENT IT BEING TREATED AS UNEXPL AINED. FROM THE PERUSAL OF THE ABOVE SAID DECISIONS IT IS CLEAR THAT THE CAPITAL ADDITION IN THE PARTNER'S CAPITAL ACCOUNT C AN ALSO BE ADDED TO THE INCOME OF THE FIRM WHERE THE SAME REMA INS UNEXPLAINED. NOW COMING TO THE ISSUE OF THE EXPLAN ATION REGARDING THE SOURCE OF RS.5,00,000/- THE INDIVIDUA L POSITION EMERGES AS UNDER :- (I) RS. 1,50,000/- OUT OF DRAWINGS FROM MAHENDRA ENTERPRISES - THE CLAIM MADE BY THE APPELLANT CANNO T BE ACCEPTED IN VIEW OF NO DOCUMENTARY EVIDENCE BEING FURNISHED TO SHOW THAT THE SOURCE OF THE SAME WAS O UT OF BUSINESS COLLECTIONS. IN SIMILAR CIRCUMSTANCES I.E. CASH DEPOSIT BEFORE ISSUANCE OF CHEQUE IN THE ACCOUNTS O F THE CREDITORS, THE ADDITION MADE BY THE AO WAS SUSTAINE D IN THE CASE DECIDED BY THE DELHI HIGH COURT IN THE CAS E OF KRISHAN KUMAR AGARWAL V/S AO (138 TAXMAN 1). IN THE INSTANT CASE ALSO THE SOURCE OF CASH DEPOSIT BEFORE ISSUANCE OF CHEQUES BY THE CREDITORS HAS NOT BEEN EXPLAINED BY INDEPENDENT MATERIAL BY THE APPELLANT OR THE 6 CREDITORS. THUS, THE ADDITION MADE BY THE AO IN RES PECT OF THIS ENTRY IS JUSTIFIED. (II) RS.50,000/- OUT OF LOAN RECEIVED FROM SHRI KA N SINGH RAJPUROHIT CANNOT BE ACCEPTED AS NO EVIDENCE REGARD ING THE PAST SAVINGS COULD BE FURNISHED. THIS IS MORE S O, WHEN THE SAID PERSON WAS MAINTAINING A BANK ACCOUNT . THE POSITION OF CASH ON HAND OF THIS PERSON COULD N OT BE FURNISHED. THE GENUINENESS OF THE TRANSACTION, THER EFORE, REMAINS DOUBTFUL. THUS, THE ADDITION MADE BY THE AO IN RESPECT OF THIS ENTRY IS JUSTIFIED. (III) RS. 1,00,000/- GIFT RECEIVED FROM SHRI MAHENDRA SIN GH RAJPUROHIT CANNOT BE ACCEPTED AS NO EVIDENCE REGARD ING THE PAST SAVINGS COULD BE FURNISHED. THIS IS MORE S O, WHEN THE SAID PERSON WAS MAINTAINING A BANK ACCOUNT . THE POSITION OF CASH ON HAND OF THIS PERSON COULD N OT BE FURNISHED. THE GENUINENESS OF THE TRANSACTION, THER EFORE, REMAINS DOUBTFUL. THUS, THE ADDITION MADE BY THE AO IN RESPECT OF THIS ENTRY IS JUSTIFIED. (IV) RS.2,00,000/- GIFT RECEIVED FROM SHRI MOOL SINGH RAJPUROHIT CANNOT BE ACCEPTED AS NO EVIDENCE REGARD ING THE PAST SAVINGS COULD BE FURNISHED. THIS IS MORE S O, WHEN THE SAID PERSON WAS MAINTAINING A BANK ACCOUNT . THE POSITION OF CASH ON HAND OF THIS PERSON COULD N OT BE FURNISHED. THE GENUINENESS OF THE TRANSACTION, THER EFORE, REMAINS DOUBTFUL. THUS, THE ADDITION MADE BY THE AO IN RESPECT OF THIS ENTRY IS JUSTIFIED. IN SHORT, ALTHOUGH THE PARTNER MAY BE SEPARATELY ASSESSED TO TAX THE SOURCE OF FUNDS INTO HER CAPITA L ACCOUNT 7 HAVE NOT BEEN EXPLAINED SATISFACTORILY. IT IS NOT J UST A QUESTION OF ENQUIRING INTO THE SOURCE OF SOURCE AS PLEADED B Y THE A/R BUT ESSENTIALLY A QUESTION OF EXAMINING THE GENUINE NESS OF THE TRANSACTION. THE GIFTS OR LOAN BEING PRECEDED BY CA SH DEPOSITS DO NOT EXPLAIN THE GIFTS OR LOAN TO BE THE REAL SOU RCE OF THE CAPITAL ADDED INTO THE PARTNER'S CAPITAL ACCOUN T. IN VIEW OF THE FOREGOING, IT IS HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER WAS JUSTIFIED AND, THEREFORE, SUSTAINED. 7. NOW, THE ASSESSEE IS IN APPEAL. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT TH E ADDITION ON ACCOUNT OF CAPITAL CONTRIBUTED BY THE PARTNER CANNOT BE MADE I N THE HANDS OF THE ASSESSEE WHEN THE PARTNER EXPLAINED THE SOURCES OF THE CAPITAL CONTRIBUTION. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- I) ACIT VS. MEGH MALHAR DEVELOPERS (2012) 134 ITD 4 37 (AHD.) II) ITO VS. ANANT SHELTERS P. LTD (2012) 51 SOT 234 (MUM.) III) ITO VS. CHOHTAN CONSTRUCTION CO. (2005) 142 TA XMAN 45(JODH) IV) CIT VS METAL & METAL OF INDIA [208 CTR 457 (P& H)] V) CIT VS. RAMESHWAR DASS SURESH PAL CHEEKA [208 CT R 459] AND ALSO IN 163 TAXMAN 270 VI) CIT VS ORISSA CORPN P. LTD 159 ITR 78(SC) VII) CIT VS. STELLER INVESTMENT LTD 251 ITR 263 ( SC) VIII) CIT VS. FIRST POINT FINANCE LTD 286 ITR 477 (RAJ.) IX) KALYAN MEMORIAL & CHARITABLE TRUST VS ACIT, 121 ITD 525 (AGRA- ITAT, THIRD MEMBER) 8 X) KANHAILAL JANGID VS. ACIT (217 CTR 354 (RAJ.) XI) LABH CHAND BOHRA VS. ITO 189 TAXMAN 141 (RAJ.) XII) ARAVALI TRADING COMPANY VS ITO 187 TAXMAN 3 38 (RAJ.) 9. IN HIS RIVAL SUBMISSIONS, THE LD DR SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE PARTNER SMT. MA DHU RAJPUROHIT CONTRIBUTED RS. 5 LAKHS AS HER CAPITAL WHICH WAS DEPOSITED IN T HE ASSESSEES FIRM BY WAY OF CHEQUE. THE PARTNER ALSO EXPLAINED THE SOURCE F ROM WHERE SHE BROUGHT THE AMOUNT OF RS. 5 LACS. ON A SIMILAR ISSUE, THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. METAL & METALS OF INDIA [2007] 208 CTR 457 (P&H) HAS HELD AS UNDER:- HELD THAT THE SAID FIRM HAD GIVEN EXPLANATION ABOU T THE SOURCE, NAMELY, PARTNER, WHO HIMSELF WAS AN ASSESSE E. THE SAID PARTNER HAD ADMITTED HAVING MADE DEPOSIT WITH THE FIRM. THUS, AS FAR AS THE FIRM WAS CONCERNED, EVEN IF THE GIFT CLAIMED TO HAVE BEEN RECEIVED BY THE PARTNER WAS TO BE REJECTED, THE SAID PARTNER MIGHT BE LIABLE TO THE T AXED BY TREATING THE SAID AMOUNT AS UNDISCLOSED INCOME, BUT THE FIRM COULD NOT BE SUBJECT TO TAX ON THAT GROUND. THEREF ORE, THE ADDITION IN THE HANDS OF THE FIRM WAS TO BE DELETED . 9 11. SIMILARLY, THE HON'BLE JURISDICTIONAL HIGH COUR T IN THE CASE OF ARAVALI TRADING COMPANY VS ITO [2010] 187 TAXMAN 33 8 (RAJ) HELD THAT:- ONLY ON THE FACT THAT THE DEPOSITORS' EXPLANATION ABOUT THE SOURCES WHEREFROM THEY ACQUIRED THE MONEY WAS NOT A CCEPTABLE TO THE ASSESSING OFFICER, IT COULD NOT BE PRESUMED THAT THE DEPOSITS MADE BY SUCH CREDITORS WERE THE MONEYS OF THE ASSESSEE HIMSELF. THERE WAS NO WARRANT FOR SUCH PR ESUMPTION. IN SUCH EVENT, IF THE CREDITORS' EXPLANATION IS FOU ND TO BE NOT ACCEPTABLE ABOUT SUCH DEPOSITS, THE INVESTMENTS OWN ED BY SUCH PERSONS MAY BE SUBJECTED TO THE PROCEEDINGS, FOR IN CLUSION OF SUCH INVESTMENTS AS THEIR IN COMES FROM UNDISCLOSED SOURCES OR IF THEY HAD BEEN FOUND BENAMI, THE REAL OWNER CAN B E BROUGHT TO THE TAX NET, BUT IN ORDER TO FASTEN LIABILITY ON TH E ASSESSEE BY INCLUDING SUCH CREDITS AS HIS INCOME FROM UNEXPLAIN ED SOURCE, A NEXUS HAS TO BE ESTABLISHED THAT THE SOURCES OF CRE DITORS DEPOSIT FLOW FROM THE ASSESSEE. IN THE ABSENCE OF ANY SUCH LINK, ADDITIONS OF CASH CREDITS FOUND IN THE BOOKS OF ACC OUNT OF THE ASSESSEE COULD NOT BE CONSIDERED TO BE UNEXPLAINED INCOMES OF THE ASSESSEE, WHERE EXISTENCE OF DEPOSITORS OF SUCH CREDITS WAS ESTABLISHED AND SUCH DEPOSITS/ADVANCES/LOANS WERE O WNED BY SUCH EXISTING PERSONS. ON FURNISHING OF SUCH PROOF, THE ASSESSEE'S ONUS WAS DISCHARGED. 12. IN THE PRESENT CASE ALSO, THE PARTNER OF THE AS SESSEE OWNED THE MONEY DEPOSITED WITH THE FIRM AS HER CAPITAL AND ALSO EXP LAINED THE SOURCE FROM WHERE SHE GOT THAT MONEY, THEREFORE, THE ADDITION IN THE HANDS OF THE ASSESSEE FIRM CANNOT BE MADE BY CONSIDERING THE CAP ITAL CONTRIBUTED BY PARTNER AS INCOME FROM UNDISCLOSED SOURCE. WE, THE REFORE, ARE OF THE VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD 10 CIT(A) WAS NOT JUSTIFIED. IN THAT VIEW OF THE MATE R, THE IMPUGNED ADDITION IS DELETED. 13. IN THE RESULT, THE APPEAL IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2012 ) SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 19 TH DECEMBER, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR