M/s. Rajesh Bhaidas Patil, Jalgaon V. Addl.CIT,Range-2, Jalgaon, Jalgaon

ITA 479/PUN/2011

• Counselvise Citation: 47924514 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 19-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.479/PN/2011 (ASSESSMENT YEAR 2006-07) RAJESH BHAIDAS PATIL, SIDDHIVINAYAK COLONY, DHULE ROAD, AMALNER, DIST : JALGAON 425 401. .. APPELLANT PAN NO.AAHFR 5845F VS. ADDL.CIT, RANGE-2, JALGAON. .. RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SMT. SHAILJA RAI DATE OF HEARING : 03-04-2013 DATE OF PRONOUNCEMENT : 10 -04-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 08-03-2011 OF THE CIT(A)-II, NASHIK RELATING TO AS SESSMENT YEAR 2006-07. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES PREVAILING I N THE CASE AND AS PER THE PROVISION OF LAW, IT MAY PLEASE BE HELD THAT THE LD . CITI(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS.5,23,500/- AND FURTHE R ENHANCING THE SAID ADDITION BY RS.3,66,500/-, BEING UNEXPLAINED CREDITS U/S.68 OF THE ACT, OUT OF THE SOURCES OF AGRICULTURAL INCOME SHOWN BY THE CREDITOR, SHRI BHAIDAS S. PATIL. THE LD. CIT(A) HAS ENHANCED THE AFORESAID ADDITION WITHOUT GRANTING ANY OPPORTUNITY TO THE APPELLANT. THUS, CONFIRMATION OF THE SAID CRED ITED AMOUNT, IS BAD IN LAW, PARTICULARLY WHEN ALL THE INGREDIENT REQUIRED TO PR OVE THE CREDITS HAVE BEEN FULFILLED BY THE APPELLANT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF GOVERNMENT CONTRACT FOR CONSTRUCTION OF ROADS ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSING OFFICER ON VERIFICATION OF THE CAPITAL ACCOUNT OF THE 4 PARTNE RS NOTED THAT SMT. RAJESHREE RAJESH PATIL, SHRI BHAIDAS S. PATIL AND S MT. JAYSHREE ANIL PATIL HAD INTRODUCED CAPITAL DURING THE YEAR. ON FURTHER VERIFICATION OF THE BANK ACCOUNT, IT WAS SEEN THAT IN THE CASE OF SMT. RAJAS HREE RAJESH PATIL AND SMT. 2 JAYSHREE ANIL PATIL, THE AMOUNT HAD BEEN RECEIVED F ROM THE FIRM INTO THEIR RESPECTIVE SAVING ACCOUNTS AND SUBSEQUENTLY WITHDRA WN IN CASH AND GIVEN BACK TO THE FIRM. THE ASSESSING OFFICER ACCEPTED T HE EXPLANATION AND NO ADDITION WAS MADE ON ACCOUNT OF INTRODUCTION OF CAP ITAL OF THESE 2 PARTNERS. IN THE CASE OF SHRI BHAIDAS S. PATIL THE ASSESSING OFFICER NOTED THAT AN AMOUNT OF RS.13.90 LAKHS HAD BEEN DEPOSITED IN CASH PRIOR TO ISSUE OF CHEQUES IN FAVOUR OF THE FIRM. THE ASSESSEE WAS ASK ED TO EXPLAIN THE SOURCE OF THIS CASH AMOUNTING TO RS. 13.90 LAKHS. THE ASS ESSEE FURNISHED A WORKING WHICH SHOWS THAT A CHEQUE OF RS.5 LAKHS WAS RECEIVED FROM THE FIRM ON 15-04-2005. THE BALANCE AMOUNT WAS CLAIMED BY THE ASSESSEE AS BEING AGRICULTURAL INCOME OF THE F.Y. 2005-06 AND E ARLIER YEARS. ASSESSING OFFICER, NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, ADDED RS.5,23,500/- AS UNEXPLAINED CASH CREDIT U/S.68 OF THE I.T. ACT IN THE HANDS OF THE FIRM 4. BEFORE THE CIT(A) THE ASSESSEE MADE DETAILED SUB MISSIONS CHALLENGING THE ADDITION MADE BY THE ASSESSING OFFI CER. THE ASSESSEE ALSO FURNISHED BANK ACCOUNT, CASH FLOW STATEMENT AND AFF IDAVIT OF SRI BHAIDAS S. PATIL. THE ASSESSEE ALSO FURNISHED 7/12 EXTRACTS R ELATING TO AGRICULTURAL INCOME OF SRI BHAIDAS S. PATIL. IT WAS SUBMITTED T HAT SRI BHAIDAS S. PATIL IS A RETIRED ENGINEER FROM GOVERNMENT SERVICE. HE IS OF 71 YEARS OF AGE AND GOT RETIREMENT BENEFIT TO THE TUNE OF RS.6,50,000/- 11 YEARS BACK. IT WAS FURTHER SUBMITTED IN THE AFFIDAVIT THAT HE IS AN AG RICULTURIST AND BECAME A PARTNER IN THE ASSESSEE FIRM IN SEPTEMBER 2004. AN AMOUNT OF RS.12,86,500/- WAS STATED TO BE DEPOSITED IN CHEQUE . IT WAS FURTHER SUBMITTED THAT APART FROM WITHDRAWAL FROM THE CAPIT AL ACCOUNT OF THE FIRM THE ASSESSEE HAD ALSO AGRICULTURE INCOME OF RS.80,0 00/- IN A.Y. 2004-05, 3 RS. 50,000/- IN A.Y. 2005-06 AND RS. 3,66,500/- IN A.Y. 2006-07. TO SUPPORT THE ABOVE AGRICULTURAL INCOME THE 7/12 EXTR ACTS WERE PRODUCED BEFORE THE CIT(A). 5. HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH T HE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT SINCE THE PAR TNER/CREDITOR HAS A COUPLE OF BANK ACCOUNTS HE WOULD NOT HAVE KEPT THE CASH FO R THAT LONG DURATION IN HIS HOUSE. ALTHOUGH THERE IS NO BAR IN THE LAW TO K EEP CASH IN HIS HOUSE BUT THE CREDITOR BEING A RETIRED ENGINEER, THEREFORE, K EEPING SUCH HUGE AMOUNT OF CASH IS IMPROBABLE AND NOT ACCEPTABLE PARTICULAR LY IN ABSENCE OF ANY CREDIBLE DOCUMENTARY EVIDENCE EXCEPT 7/12 EXTRACTS. FURTHER, HAD THERE BEEN SUFFICIENT CASH AVAILABLE WITH THE CREDITOR HE WOULD NOT HAVE TAKEN LOANS FROM THE BANK AND WOULD NOT HAVE PAID INTERES T THEREON WHILE KEEPING THE AVAILABLE CASH IDLE WITH HIM. FURTHER, EXTREME LY LOW HOUSEHOLD EXPENSES/WITHDRAWALS SHOWN BY THE LOAN CREDITOR SUG GEST THAT HE HAS INCURRED EXPENSES OUTSIDE HIS RECORDED TRANSACTIONS , MAY BE OUT OF SALE PROCEEDS OF AGRICULTURAL PRODUCE. THEREFORE, HE WA S OF THE OPINION THAT THERE WAS NO PROBABILITY OF AVAILABILITY OF CASH WI TH THE CREDITOR. HE, THEREFORE, WAS OF THE VIEW THAT UNACCOUNTED CASH OF THE FIRM WAS INTRODUCED IN THE BOOKS THROUGH CAPITAL ACCOUNT OF THE CREDITO R NAMELY SRI BHAIDAS S. PATIL. HE REJECTED THE CASH FLOW STATEMENT SHOWN B Y SRI BHAIDAS S. PATIL SHOWING HIS OPENING CASH OF RS.1,80,000/- AS ON 01- 04-2003 AND SHOWING THE RECEIPT ON ACCOUNT OF PENSION AND AGRICULTURE I NCOME FOR DIFFERENT YEARS FROM WHICH HE HAD JUSTIFIED THE SOURCE. REJECTING THE CASH FLOW STATEMENT FURNISHED BY THE ASSESSEE THE LD. CIT(A) CAME TO TH E CONCLUSION THAT THE ASSESSEE HAD FABRICATED AND CONCOCTED AND THEREFORE RE-CASTED THE CASH FLOW STATEMENT. WHILE UPHOLDING THE ADDITION OF RS.5,23 ,500/- MADE BY THE 4 ASSESSING OFFICER U/S.68 OF THE INCOME TAX ACT THE LD. CIT(A) ENHANCED THE INCOME BY RS.3,66,500/- ON ACCOUNT OF UNDISCLOS ED INCOME IN THE GUISE OF AGRICULTURE INCOME SHOWN FOR THE IMPUGNED ASSESS MENT YEAR. WHILE DOING SO, HE FURTHER OBSERVED THAT THE CREDITOR HAD FILED INCOME TAX RETURN SHOWING THE AGRICULTURE INCOME FOR A.Y. 2005-06 AND 2006-07 MUCH AFTER THE DUE DATE WHICH SEEMS TO BE AN AFTERTHOUGHT EXER CISE. 5.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO ADDITION COULD HAVE BEEN MADE IN THE HANDS OF THE FIRM AND ADDITIO N, IF ANY, COULD HAVE BEEN MADE ONLY IN THE HANDS OF THE PARTNER. FOR TH IS PROPOSAL, HE RELIED ON A COUPLE OF DECISIONS. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) ALSO RELIED ON V ARIOUS DECISIONS AND SUBMITTED THAT ADDITION CAN BE MADE IN THE HANDS OF THE FIRM IF THE PARTNER IS UNABLE TO EXPLAIN THE SOURCE OF DEPOSIT TOWARDS HIS /HER CAPITAL ACCOUNT. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ADDITION HAS BEE N MADE U/S.68 BEING UNEXPLAINED CASH CREDIT APPEARING IN ONE OF THE PAR TNERS CAPITAL ACCOUNT. IN THE INSTANT CASE, OUT OF THE INTRODUCTION OF CAP ITAL BY THE 3 PARTNERS, THE ASSESSING OFFICER HAS ACCEPTED THE ADDITION OF CAPI TAL IN THE CASE OF 5 SMT.RAJASHREE RAJESH PATIL AND SMT. JAYSHREE ANIL P ATIL. HE HOWEVER HAD REJECTED THE CAPACITY OF SRI BHAIDAS S. PATIL AND M ADE ADDITION OF RS.5,23,500/- WHICH WAS ENHANCED TO RS. 8,90,000/- BY THE LD. CIT. IT IS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE TH AT THE ASSESSEE HAS EXPLAINED THE SOURCE AND HE IS NOT REQUIRED TO EXPL AIN THE SOURCE OF SOURCE. FURTHER, ACCORDING TO THE LD. COUNSEL FOR THE ASSES SEE AMOUNT INTRODUCED BY A PARTNER IN THE FIRM AS CAPITAL WOULD NOT ATTRACT PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT. ADDITION IN RESPECT OF CREDITS IN THE CAPITAL ACCOUNT BY A PARTNER HAS TO BE CONSIDERED IN THE CASE OF THE P ARTNER AND NOT IN THE CASE OF THE ASSESSEE FIRM, MORE SO, WHEN THE PARTNER HAS OWNED UP THE INTRODUCTION OF THE CAPITAL. IT IS THE SUBMISSION O F THE LD. DEPARTMENTAL REPRESENTATIVE THAT IN CASE THE PARTNER IS UNABLE T O EXPLAIN THE SOURCE OF INTRODUCTION OF CAPITAL THE SAME CAN BE TREATED AS UNEXPLAINED CREDIT AND ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE F IRM. 8.1 IN THE INSTANT CASE WE FIND THE PARTNER NAMELY SRI BHAIDAS S. PATIL HAD GIVEN THE DETAILS OF SOURCE TOWARDS INTRODUCTION OF CAPITAL IN THE PARTNERSHIP FIRM WHICH ACCORDING TO HIM IS ON ACCOUNT OF PENSIO N FROM GOVERNMENT, AGRICULTURE INCOME, WITHDRAWAL FROM THE FIRM ON PRE VIOUS DATES ETC. WE FIND THE REVENUE AUTHORITIES DISBELIEVED THE HOLDIN G OF SUCH HUGECASH BY THE PARTNER ON THE GROUND THAT THE CREDITOR HAS A COUPL E OF BANK ACCOUNTS AND WOULD NOT HAVE KEPT THE CASH FOR LONG DURATION AND THE PARTNER HAS ALSO AVAILED LOAN FROM BANK FOR CULTIVATION AND PAID INT EREST ON THAT. FURTHER, THE HOUSEHOLD DRAWINGS SHOWN BY THE PARTNER IN HIS CAPI TAL ACCOUNT WAS HELD TO BE ON THE LOWER SIDE BY THE LD. CIT(A) FOR WHICH HE RECASTED THE CASH FLOW STATEMENT PREPARED BY THE ASSESSEE. WHILE DOING SO HE ALSO DISBELIEVED THE OPENING CASH BALANCE. IN OUR OPINION, IN THE INSTA NT CASE PARTNER HAS 6 EXPLAINED THE SOURCE TOWARDS INTRODUCTION OF THE CA PITAL IN THE FIRM. ADDITION, IF ANY, COULD HAVE BEEN MADE IN THE HANDS OF THE PARTNER BUT NO ADDITION IN THE HANDS OF THE FIRM IS WARRANTED IN T HE FACTS OF THE PRESENT CASE. THE ASSESSING OFFICER HAD THE POWER TO SCRUT INISE THE ASSESSMENT OF THE CONCERNED PARTNER. THIS VIEW OF OURS IS SUPPOR TED BY THE DECISION OF THE HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. MOH D. PERWEZ AHMAD REPORTED IN 268 ITR 381 WHEREIN IT HAS BEEN HELD TH AT AMOUNT INTRODUCED BY A PARTNER IN ASSESSEE FIRM AS CAPITAL WOULD NOT ATT RACT SECTION 68. IN THIS VIEW OF THE MATTER WE SET-ASIDE THE ORDER OF THE CI T(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. GROUND N O.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 9. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES PREVAILING I N THE CASE AND AS PER THE PROVISION OF LAW, IT MAY PLEASE BE HELD THAT THE LD . CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOWANCES/ADDITION OF RS.3,50,00 0/- MADE OUT OF THE EXPENSES OF LABOUR, KHADI, AND MURUM ETC. ON THE GROUND THAT POSSIBILITY OF INFLATION OF EXPENSES CANNOT BE RULED OUT IN THE APPELLATE TRADE . 10. FACTS IN BRIEF ARE THAT DURING THE COURSE OF AS SESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE VARIOUS EXPENS ES CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT HAVE BEEN P AID MOSTLY IN CASH AND ARE NOT SUBJECT TO CROSS VERIFICATION. HENCE, THE VALIDITY AND REASONING OF SUCH EXPENDITURE WAS DOUBTFUL FOR WHICH THE ASSESSI NG OFFICER DISALLOWED AN AMOUNT OF RS.3,50,000/- ON ESTIMATE BASIS OUT OF THE CLAIM OF EXPENDITURE ON LABOUR, KHADI, MURUM PURCHASE AND TR ANSPORTATION CHARGES PAID. IN APPEAL THE LEARNED CIT(A) REJECTED THE CO NTENTION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS FAILED TO PIN POINT ANY SPECIFIC DISCREPANCY IN THE EXPENSES ACCOUNT FOR THE SIMPLE REASON THAT IT IS NOT POSSIBLE TO SCRUTINISE/VERIFY EACH AND EVERY CASH VOUCHER PREPA RED BY THE ASSESSEE IN 7 SUPPORT OF SUCH PURCHASES/EXPENSES. HE NOTED THAT THERE IS A FALL IN THE GP RATE FROM 8.45% IN A.Y. 2005-06 TO 6.76% FOR THE IM PUGNED ASSESSMENT YEAR 2006-07. HE, THEREFORE, HELD THAT ALTHOUGH TH E FALL IN GP MAY BE DUE TO HIGHER TURNOVER, HOWEVER, POSSIBILITY OF INFLATION OF EXPENSES CANNOT BE RULED OUT IN ASSESSEES CASE. HE ACCORDINGLY UPHEL D THE ADDITION MADE BY THE ASSESSING OFFICER FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE I S ENGAGED IN CONSTRUCTION BUSINESS AND MOST OF THE EXPENSES ON ACCOUNT OF LAB OUR CHARGES, TRANSPORTATION CHARGES AND PURCHASE OF KHADI, MURUM ETC. ARE PAID IN CASH AND WHICH ARE NOT SUBJECT TO CROSS VERIFICATION. TH EREFORE, POSSIBILITY OF LEAKAGE OF REVENUE OR INFLATED BOOKING OF EXPENSES CANNOT BE RULED OUT. THEREFORE, SOME DISALLOWANCE IS JUSTIFIED. HOWEVER , THE DISALLOWANCE OF RS.3,50,000/- IN THE INSTANT CASE APPEARS TO BE ON THE HIGHER SIDE. WE, THEREFORE, RESTRICT SUCH DISALLOWANCE TO RS.1,50,00 0/-. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSE SSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . THE ASSESSEE GETS PART RELIEF ON THIS ACCOUNT. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 10 TH OF APRIL, 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED THE 10 TH APRIL 2013. 8 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, NASHIK 4. THE CIT-II, NASHIK 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // PRIVATE SECRETARY, INCOME TAX APPELLATE T RIBUNAL, PUNE.