M/s. Shree Ram Metallic Industries, Surat V. The ACIT.,Cent.Circle-4, Surat

ITA 448/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73119 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Unexplained expenditure; Income from undisclosed sources; Document seized; Revised return; Documents seized
• Section: 69C; 153A; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER M/S. SHREE RAM METALLIC INDUSTRIES, 3/1810, GHAMLAWAD, SHERI NO. 1, SALABATPURA, SURAT PAN: AAKFS0610E (APPELLANT) VS ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4, SURAT (RESPONDENT) REVENUE BY: SRI K.C. MATHEWS, SR.D.R. ASSESSEE BY: SRI RAJESH SHAH, A.R. DATE OF HEARING : 24-03-2014 DATE OF PRONOUNCEMENT : 28-03-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-II AHMEDABAD DATED 27-11-2009. ITA NO. 448/AHD/2010 ASSESSMENT YEAR 2006-07 I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 2 2. AT THE TIME OF HEARING FOLLOWING GROUNDS WERE PR ESSED:- 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A)- II HAS ERRED IN SUSTAINING THE AMOUNT OF ADDITION M ADE BY AO AN ACCOUNT OF UNEXPLAINED PURCHASES OF RS. 1,06,920/- WITHOUT CONSIDERING THE FACT THAT- -THE SAME IS NOT THE AMOUNT OF UNEXPLAINED PURCHASE BUT IS ACTUALLY UN-RECONCILED SALES ON WHICH THE GP RATE H AS TO BE APPLIED AND -THE SAID AMOUNT HAS ALREADY BEEN CONSIDERED AS UN- RECORDED SALES BY THE AO IN THE CASE OF GROUP CONCERN OF THE APPELLANT FIRM M/S. T.N . FABRICS AND GROSS PROFIT THEREON HAS ALREADY BEEN TAXED IN THE HANDS OF M/S. TN FABRICS AND THE SAME HAS NOT BEEN CONTESTED BY THE APPELLANT. 4. THAT ON THE FACTS AND CIRCUMSTANCES THE CIT(A)-I I HAS ERRED IN SUSTAINING THE ACTION OF THE AO OF NOT DOING TELES COPING IN THE APPELLANT'S CASE- -OF THE DISCREPANCY IF ANY REMAINING UNIDENTIFIED I N THE HANDS OF SHRI NAGINBHAI KAPADIA AND / OR SHRI ASHOKBHAI J ARIWALO AS CATEGORICALLY MENTIONED BY THEM IN NOTES FILED WITH THEIR REVISED RETURN U/S 153A STATING THAT- -THE CONDITIONAL DISCLOSURE MADE THEREIN IS A FIRST HAND APPROXIMATION WHICH MAY VARY WITHIN THE OVERALL AMO UNT DECLARED AT THE TIME OF ASSESSMENT PROCEEDINGS OR A PPELLATE OR REVISION PROCEEDINGS AND -THE THE AMOUNT OF CONDITIONAL DISCLOSURE REMAINING SPECIFICALLY UNIDENTIFIED MAY BE TELESCOPED AGAINST ANY ADDITION OR DISALLOWANCES OF ANY EXPENSES OR DEDUCTION OR OTHER WISE MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR APPE LLATE OR REVISION PROCEEDINGS IN THE HANDS OF FAMILY MEMBERS OR ANY GROUP CONCERNS FOR THE PERIOD COVERED UNDER THE NOT ICE ISSUED U/S. 153A/153C OF THE ACT. 3. THESE GROUNDS RELATE TO ADDITION OF RS. 1,06,920 /- ON ACCOUNT OF UNEXPLAINED EXPENDITURE. AO WHILE MAKING THIS ADDI TION HAS OBSERVED AS UNDER:- DURING THE COURSE OF SURVEY OPERATIONS AT THE PREM ISES OF T.N FABRICS, PLOT NO. 818/819, ROAD NO. 8, GIDC, SACHIN , SURAT, AS PER I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 3 PAGE IN LOOSE PAPER FILE IMPOUNDED VIDE ANNEXURE A/ 2 PAGE 27-29. EXPENSES OF RS. 1,06,920/- HAVE BEEN MADE ON ACCOUN T OF JAI JALARAM TEXTILES. DURING THE COURSE OF SEARCH ASSESSMENT P ROCEEDINGS, IT HAS BEEN FOUND THAT THESE HAVE NOT BEEN ACCOUNTED. ALS O THESE EXPENDITURES HAVE BEEN ADMITTED LED BY SH. NAGINDAS T. KAPADIA, ASSOCIATE OF THE ASSESSEE FIRM. THE ASSESSEE HAS AL SO FAILED TO ACCOUNT FOR THE SALES IN ITS BOOKS OF ACCOUNTS. FURTHER IT HAS BEEN CLAIMED THAT THE PURCHASES HAVE BEEN MADE BY SH. NAGINDAS T. KAPADIA WHO IS AT THE HELM OF AFFAIRS O F THE GROUP USING THE NAME OF THE FIRM. THE UNACCOUNTED TRANSACTIONS HAVE BEEN CLAIMED EXECUTED BY SH. KAPADIA WITHOUT CONSULTING THE PARTNERS OF THE FIRM. AT PRESENT, HE IS UNABLE TO RECONCILE THE SAID WITH HIS RECORDS IN THE SHORT TIME CONSTRAINT GIVEN TO HIM AND THERE FORE IN ORDER TO AVOID LITIGATION AND BUY PERSONAL PEACE OF MIND, HE HAS VOLUNTARILY CONSIDERED THE SAME AS PART OF HIS DISCLOSURE OF IN COME STATEMENT. THIS CONTENTION OF THE ASSESSEE FIRM IS NOT ACCEPTA BLE ON ACCOUNT OF THE FOLLOWING REASONS: A) THE ASSESSEE FIRM IS A DISTINCT AND SEPARATE PER SON (LEGAL AND TAXABLE ENTITY) FROM SH N T KAPADIA (INDIVIDUA L) WHICH IS ENGAGED IN BUSINESS ON ITS OWN STANDING; B). THE UNACCOUNTED TRANSACTIONS HAVE BENEFITED THE ASSESSEE FIRM DIRECTLY, WHICH HAS MANY PARTNERS, C). THE INCOME HAS ARISEN/ACCRUED/DEEMED TO ARISE/D EEMED TO ACCRUE TO THE FIRM ONLY, ON ACCOUNT OF THE DETECTED UNACCOUNTED PURCHASES; D). SH. NAGINDAS KAPADIA MAY BE AN INDIRECT AND FRA CTIONAL BENEFICIARY FROM THE FIRM ON ACCOUNT OF THE PARTNER SHIP INTEREST, BUT CAN NOT BE TREATED AS CO-EQUAL TO THE STANDING; E). THE CLAIM THAT UNACCOUNTED BUSINESS HAS BEEN UN DERTAKEN BY ONLY SH NAGINDAS T KAPADIA, AND NO OTHER PARTNERS O F THE FIRM IS A MERE ASSERTION TO SUIT CONVENIENCE OF ASSESSEE. THE RE IS NO PROOF OR EVIDENCE FOR THIS CLAIM NO OTHER PARTNERS HAVE INDU LGED IN UNACCOUNTED BUSINESS. FURTHER, SINCE SH. KAPADIA I S A PARTNER OF THE ASSESSEE FIRM, THE FIRM IS LIABLE FOR ALL HIS ACTIO NS IN CAPACITY OF PARTNER. ALSO, SH. KAPADIA ENJOYS FULL SUPPORT OF THE PARTNERS IS REFLECTED FROM THE FACT THAT DESPITE THE DETECTION OF THE FACT THAT UNACCOUNTED BUSINESS HAS BEEN UNDERTAKEN, THE EXIST ING PARTNERS DID NOT TAKE ANY ACTION AGAINST BY SH. NAGINDAS T KAPAD IA AND STILL I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 4 RETAINED HIM AS PARTNER DURING F.Y 2005-06 AND F.Y. 2006-07. THUS, THE ARGUMENT THAT SH. NAGINDAS KAPADIA HAS MADE UNA CCOUNTED TRANSACTIONS ON HIS OWN ACCORD IS BASELESS AND UNAC CEPTABLE. F). IN THE LIGHT OF THE ABOVE, THE FIRM IS DIRECTLY LIABLE ON ACCOUNT OF THE UNACCOUNTED TRANSACTIONS MADE ON ITS BEHALF AND NOT THE PERSON WHO MAY HAVE PLACED THE ORDER. THEREFORE THE TAXABILITY OF THE UNACCOUNTED AND UNE XPLAINED PURCHASES ARISES IN THE HANDS OF THE ASSESSEE FIRM ONLY, WHO HAS BENEFITED FROM THE IMPUGNED TRANSACTIONS. SH. KAPA DIA (INDIVIDUAL) CAN NOT BE HELD TAXABLE AND ACCOUNTABLE FOR THE ILL EGAL AND UNACCOUNTED ACTIVITIES UNDERTAKEN BY THE FIRM. FURT HER, THERE ARE NO PROVISIONS FOR INTER-PERSON SHIFTING OF TAX LIABILI TY. THEREFORE, THE CONTENTION THAT SH. NAGINDAS T. KAPADIA HAS VOLUNTA RILY CONSIDERED THE UNACCOUNTED PURCHASES AS PART OF HIS DISCLOSURE OF INCOME STATEMENT ON BEHALF OF THE ASSESSEE FIRM AND NO SEP ARATE ADDITION CAN BE MADE IN THE HANDS OF THE CULPABLE FIRM, IS UNTEN ABLE, BEING BAD IN LAW. WITHOUT PREJUDICE TO THE LEGAL SCENARIO, THE F ACT IS THAT SH. NAGINDAS T KAPADIA HAS NOWHERE FURNISHED THE BASI S OF HIS DISCLOSURE AND THE FACT THAT INCOME ASSESSED IN HIS HANDS HAVE BEEN FOUND TO BE MORE THAN THE DISCLOSED INCOME DISCLOSE D BY HIM, IT IS CRYSTAL CLEAR THAT SH. NAGINDAS T KAPADIA COULD NO T HAVE MADE ANY DISCLOSURE ON BEHALF OF THE ASSESSEE FIRM. FURTHER, THE ASSESSEE HAS CONTENDED THAT THE IMPUGN ED PURCHASE ALREADY FORMS PART OF SALES ON WHICH GROSS PROFIT A S PERCENTAGE OF SALES HAS ALREADY BEEN CONSIDERED BY SH NAGINDAS T KAPADIA. THIS CONTENTION IS NOT ACCEPTABLE ON ACCOUNT OF THE FOLL OWING: A) AS DISCUSSED IN DETAIL ABOVE, THERE ARE NO PROVI SIONS FOR INTER-PERSON SHIFTING OF TAX LIABILITY. ONE PERSON CAN NOT MAKE A DISCLOSURE ON BEHALF OF ANOTHER'S UNACCOUNTED INCOM E. B) SH. NAGMDAS T KAPADIA, A 5% SHARE-HOLDER OF THE FIRM CAN NOT BE MADE LIABLE FOR THE UNACCOUNTED BUSINESS OF THE FIRM: C) WITHOUT PREJUDICE TO THE LEGAL STANDING, INCOME ASSESSED IN HANDS OF SH N T KAPADIA EXCEEDS THE DISCLOSED I NCOME DISCLOSED BY HIM. HENCE, SH. NAGINDAS T KAPADIA CO ULD NOT HAVE MADE ANY DISCLOSURE OF UNACCOUNTED INCOME ON B EHALF OF THE ASSESSEE FIRM; I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 5 D) SH NAGINDAS T. KAPADIA HAS FAILED TO PROVIDE B ASIS OF HIS DISCLOSURE, DESPITE REQUESTED VIDE NOTICE U/S 142(1 ), DATED. 03.08.2007. IN LIGHT OF FAILURE OF SH KAPADIA, I T CAN NOT BE MAINTAINED THAT ANY DISCLOSURE HAS BEEN MADE ON BEH ALF OF THE ASSESSEE FIRM. IT HAS ALSO BEEN ARGUED BY THE ASSESSEE THAT SINCE IT HAS FAILED TO ESTABLISH THE NEXUS BETWEEN PURCHASE AND SALE IN PA RTICULAR PERIOD, THE GROSS PROFIT CALCULATED AS PERCENTAGE OF PURCHA SE ON THE IMPUGNED PURCHASE ARE TO BE ADDED. THIS CONTENTION IS UNACC EPTABLE BECAUSE PROFIT IS EARNED ON SALES AND NOT ON PURCHASES. PRO FIT CAN BE BASED AND DETERMINED ON PURCHASES. THEREFORE, THE CONTENT ION OF THE ASSESSEE IS ILLOGICAL AND THEREFORE REJECTED. THUS, ALL THE ARGUMENTS AND CONTENTIONS OF THE ASSE SSEE HAVE BEEN FOUND TO BE UNSOUND AND ARE REJECTED. FAILING TO EX PLAIN THE SOURCE OF UNACCOUNTED PURCHASES MADE, THE ASSESSEE IS HIT BY THE PROVISIONS OF SECTION 69C OF THE ACT. SECTION 69C WAS INSERTED O N THE STATUTE BOOK BY THE TAXATION LAWS (AMENDMENT) ACT, 1975 W.E.F. 1 ST APRIL, 1976 TO DEAL WITH UNEXPLAINED EXPENDITURES AS IN CASE OF TH E ASSESSEE AND READS AS UNDER: WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURR ED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SA TISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FI NANCIAL YEAR: PROVIDED THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOW ED AS A DEDUCTION UNDER ANY HEAD OF INCOME. (A) FROM SEIZED DOCUMENTS IT IS EVIDENT THAT THERE HAVE BEEN UNEXPLAINED EXPENDITURES. THE ASSESSEE HAS ALSO ADM ITTED THESE AS SUCH. (B) FURTHER THE SOURCE OF THESE EXPENDITURES HAS NO T BEEN EXPLAINED BY THE ASSESSEE AT ALL, IN ANY MANNER. THE ASSESSEE HAS FAILED TO FURNISH THE DETAILED LEDGER OF THESE UNACCOUNTED I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 6 PURCHASES AND ALSO FAILED TO INDICATE THE SOURCES O F THESE OUT OF BOOKS PURCHASES, IF ANY. THUS BOTH THE CONDITIONS OF SECTION 69C HAVE BEEN F ULLY SATISFIED. AS PER SECTION 69C, THESE UNEXPLAINED EXPENDITURES ARE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR RELEVANT FINANCIAL YEAR. THE QUESTION OF ADDITION HAS BEEN HINGED UPON THE SATISFACTORY EXPL ANATION OF THE SOURCE. THE ASSESSEE HAS UNDERTAKEN UNACCOUNTED PURCHASES F OR WHICH IT HAS NOT MAINTAINED OR JOURNALS. ALSO NO SATISFACTORY EX PLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE HAVE BEEN PROVIDED. MERE ASSERTION THAT THE UNACCOUNTED EXPENDITURES ARE MADE OUT FROM UNRE CORDED SALES IS NOT ACCEPTABLE AS A SATISFACTORY EXPLANATION. THE A SSESSEE HAS FAILED TO FURNISH THE EXACT DETAILS OF UNEXPLAINED PURCHAS ES AND THE SALES MADE FROM THESE PURCHASES, IN UNACCOUNTED MANNER IN ORDER TO EXPLAIN THE SOURCES OF UNACCOUNTED EXPENDITURES. IN THIS CASE, THE UNACCOUNTED EXPENDITURE HAS NOT B EEN DEBITED IN THE BOOKS OF ACCOUNT. FAILURE TO EXPLAIN THE SOURCE OF THE EXPENDITURE HAS RESULTED IN LEGAL FICTION AS PROVIDED BY SECTION 69 C UNDER WHICH THE EXPENDITURE IS TO BE DEEMED AS AN INCOME AND LIABLE TO BE ADDED. SECTION 69C, IN NO UNCERTAIN TERMS, PROVIDES THAT I F THE EXPLANATION FOR THE SOURCE OF THE EXPENDITURE INCURRED OFFERED BY THE ASSESSEE IS NOT SATISFACTORY, THEN IT IS TO DEEMED TO BE AN INC OME OF THE ASSESSEE. IN THE INSTANT CASE UNRECORDED, NO SOURCE HAS BEEN PROVIDED BY THE ASSESSEE FOR INCURRENCE OF THE OUT OF BOOKS EXPENDI TURES. ALSO THAT, NO NEXUS BETWEEN UNACCOUNTED SALES (IF ANY) AND THE UN EXPLAINED EXPENDITURES ARE ESTABLISHED BY THE ASSESSEE. THUS, EXPLANATIONS OF THE EXPENDITURES HAVE NOT BEEN GIVEN IN PROPER AND SATISFACTORY MANNER. ON THE FAILURE TO EXPLAIN THE SOURCE OF THE EXPENDI TURE, IT IS DEEMED TO BE INCOME OF THE ASSESSEE AND LIABLE TO BE ADDED UN DER SECTION 69C. FURTHER, AS PER THE PROVISO TO THE SECTION, NO DEDU CTION CAN BE ALLOWED IN RESPECT OF SUCH EXPENDITURES. THUS FROM THE ABOVE DISCUSSION, IT IS EVIDENT THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS BY MAKING OUT-OF-B OOKS EXPENSES M I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 7 RESPECT COLOURS AND CHEMICALS AND ON ACCOUNT OF IN COME THAT HAS ARISEN TO IT. THE ENSUING INCOME HAS BEEN UNDER-REP ORTED THIS FURNISHING OF INACCURATE PARTICULARS OF PURCHASES A ND HENCE THERE HAS BEEN RESULTANT CONCEALMENT OF INCOME. THEREFORE, SA TISFIED ON ACCOUNT OF THESE REASONS AS ABOVE, PENALTY PROCEEDINGS U/S. 27L(L)(C) IS BEING INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND THEREBY LEADING TO CONCEALMENT OF INCOME. 4. BEFORE LD. CIT(A) ASSESSEES CONTENTION WAS TWO FOLD:- (I). ONLY GP ADDITION SHOULD HAVE BEEN MADE ON THIS EXPENDITURE OF RS. 1,06,920/- MADE FOR PURCHASE BY AO AND (II) ASSESSEE SHOULD HAVE B EEN GIVEN TELESCOPING AGAINST GP ADDITION. HOWEVER LD. CIT(A) CONFIRMED THE ACTION OF AO. 5. BEFORE US ALSO LEARNED COUNSEL OF THE ASSESSEE R EITERATED THE SAME SUBMISSIONS MADE BEFORE THE LD. CIT(A). LD. DR HOW EVER RELIED ON THE ORDER OF LOWER AUTHORITIES. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT AO WHILE MAKING THIS ADDITION HAS CATEGORICALLY GIV EN ITS FINDING THAT ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF THIS E XPENDITURE. DESPITE THE OPPORTUNITY GIVEN BY THE AO, ASSESSEE FAILED TO FUR NISH THE EXACT DETAILS OF UNEXPLAINED PURCHASES AND SALES MADE FROM THESE PUR CHASES, IN UNACCOUNTED MANNER IN ORDER TO EXPLAIN THE SOURCES OF UNACCOUNTED EXPENDITURE AND THEREFORE HE HAS RIGHTLY TREATED TH IS EXPENDITURE AS INCOME OF THE ASSESSEE. SINCE THERE WAS NO NEXUS ESTABLIS HED BY THE ASSESSEE IN RESPECT OF UNACCOUNTED SALES AND THIS UNEXPLAINED E XPENDITURE ON PURCHASES TELESCOPING AGAINST GP ADDITION HAS RIGHTLY BEEN DE NIED BY THE AO. THEREFORE WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF LD. CIT(A) WHO HAS UPHELD THE ORDER PASSED BY AO. I.T.A NO.448 /AHD/2010 A.Y. 2006-07 PAGE NO M/S. SHREE RAM METALLIC INDUSTRIES VS. ACIT 8 7. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 28/03/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,