Sri Rakesh Kumar Pandey, Visakhapatnam V. The ACIT, Circle-5(1)., Visakhapatnam

ITA 494/VIZ/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7123 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Gift

Judgement Text

ITA NO.494/VIZAG/2008 R.K. PANDEY, VSKP PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.494/VIZAG/2008 ASSESSMENT YEAR: 2005-06 RAKESH KUMAR PANDEY VISAKHAPATNAM ACIT CIRCLE-5(1) VISAKHAPATNAM (APPELLANT) PAN NO: AFOPP 8192D VS. (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI D.S. SUNDER SINGH, SR.DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24-07- 2008 PASSED BY LD. CIT(A-I), VISAKHAPATNAM AND IT R ELATES TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT (A) IN CONFIRMING THE ADDITION OF RS.22,00,000/- MADE BY THE ASSESSING OF FICER. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS THE PROPRIETOR OF A CONCERN NAMED M/S S.K. TRADING CO., WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL SCRAPS. AGAINST THE RETURNED INCOME OF RS.3,49,670/- DISCLOSED BY THE ASSESSEE F OR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME AT RS.49,00,201/- BY MAKING VARIOUS ADDITIONS. IN THE APPEAL FILED BY THE ASSESSEE, THE LD CIT(A) GRANTED RELIEF PARTIALLY AN D, INTER ALIA, CONFIRMED ADDITIONS TO THE TUNE OF RS.22.00 LAKHS. THE SAID ADDITION PERTAINS TO THE INCREASE IN THE CAPITAL ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S S.K.TRADING CO. THE FACTS RELATING TO THE SAME ARE STATED BRIEFLY. DURING ITA NO.494/VIZAG/2008 R.K. PANDEY, VSKP PAGE 2 OF 6 THE COURSE OF ASSESSMENT PROCEEDING, THE AO NOTICED CERTAIN CREDITS IN THE CAPITAL ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S S.K. TRADING CO. IT WAS EXPLAINED THAT THE AMOUNT STANDING IN THE NAME OF F OLLOWING CREDITORS HAS BEEN TRANSFERRED TO THE CAPITAL ACCOUNT BY WAY OF J OURNAL ENTRIES. A. TRANSFER AS ON 1.4.2004 FROM M/S SHYAM ENTERPRISES - RS.17,50,000 B. TRANSFER MADE DURING THE COURSE OF THE YE AR: A. FROM SHYAM ENTERPRISES (ON 31.3.05) RS.5,80,000 B. FROM OM UDYOG (ON 31.3.05) RS.10,20,000 C. SHYAM SAGAR ENTERPRISES RS.6,00,000 THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE CREDITORS CITED ABOVE FOR EXAMINATION, BUT THE ASSESSEE FAILED TO P RODUCE THEM. INSTEAD THE ASSESSEE OFFERED FOLLOWING EXPLANATIONS: 'REGARDING THE LOAN CREDITORS THERE ARE NO FRESH AD DITIONS DURING THE CURRENT ASST. YEAR AND THE OUTSTANDING AMOUNTS ARE BROUGHT FORWARD FROM PREVIOUS FINANCIAL YEARS. THE CREDITO RS ARE NOT FROM LOCAL AND HAVE PAID THE AMOUNTS IN OUR INITIAL YEAR S OF BUSINESS THROUGH DIRECT PAYMENTS TO VISAKHAPATNAM STEEL PLAN T. THE LIABILITY STILL PERSISTS AS WE ARE DIFFERING THE RE PAYMENT FOR WANT OF OUR BUSINESS DEVELOPMENT.' WHEN THE AO ENQUIRED ABOUT EXISTENCE OF LOAN CREDIT ORS, IT WAS STATED THAT THESE LOANS HAVE BEEN OBTAINED FROM RELATIVES WITH FREE OF INTEREST AND THEY ARE STILL OUTSTANDING. SINCE THE ASSESSEE NEI THER PRODUCED THE LOAN CREDITORS NOR FILED ANY CONFIRMATION LETTER, THE AS SESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATIONS OF THE ASSESSEE. A CCORDINGLY, HE HELD THE IMPUGNED LOANS AS BOGUS CREDITORS AND ACCORDINGLY A DDED THE AMOUNTS SO TRANSFERRED TO THE CAPITAL ACCOUNT AS THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LE ARNED CIT(A). THE FIRST APPELLATE AUTHORITY ANALYSED THE NATURE OF TR ANSFER SO MADE FROM THE CREDITORS ACCOUNT AND TOOK THE VIEW IN THE FOLLOWIN G MANNER. A) THE CREDIT IN THE NAME OF SHYAM SAGAR ENTERPRISES ( RS.6.00 LAKHS) WAS FOUND TO BE A TRADING LIABILITY, I.E. IT WAS A TRADE ADVANCE ITA NO.494/VIZAG/2008 R.K. PANDEY, VSKP PAGE 3 OF 6 RECEIVED FROM A CUSTOMER FOR WHICH GOODS ARE TO BE SUPPLIED. HENCE THE LD CIT(A) TOOK THE VIEW THAT THE TRANSFER OF TH E SAME TO THE CAPITAL ACCOUNT OF THE ASSESSEE HAS RESULTED IN CESSATION O F A TRADING LIABILITY. ACCORDINGLY HE HELD THAT THE AMOUNT OF RS.6.00 LAKH S LIABLE TO TAX U/S 41(1) OF THE ACT. B) OTHER THREE CREDITS WERE FOUND TO BE LOAN CREDITOR S. ACCORDINGLY HE TREATED THE TRANSFER MADE FROM THESE CREDITORS ACCOUNT TO THE CAPITAL ACCOUNT OF THE ASSESSEE AS GIFT TRAN SACTIONS LIABLE TO TAX U/S 56(2)(V) OF THE ACT. HOWEVER, SINCE THE SAID S ECTION IS APPLICABLE ONLY TO THE PAYMENTS RECEIVED BY AN ASSESSEE ON OR AFTER 01-09-2004, THE LD CIT(A) HELD THAT THE TRANSFER OF RS.17.50 LA KHS EFFECTED ON 01.04.2004 FROM THE ACCOUNT OF M/S SHYAM ENTERPRISE S IS NOT TAXABLE. SINCE THE AMOUNT OF RS.5.80 LAKHS AND RS.10.20 LAKH S HAVE BEEN TRANSFERRED ON 31.3.2005, THE LD CIT(A) HELD THAT T HEY ARE TAXABLE U/S 56(2)(V) OF THE ACT. THUS, IN EFFECT, THE LD CIT(A) CONFIRMED ADDITION T O THE TUNE OF RS.22.00 LAKHS, I.E. RS.6.00 LAKHS U/S 41(1) AND RS.16.00 LA KHS U/S 56(2)(V) OF THE ACT. AGGRIEVED BY THE ORDER OF LD CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE US. 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS E FFECTED THE IMPUGNED TRANSFERS FROM THE ACCOUNT OF THE CREDITORS ONLY TO IMPROVE THE FINANCIAL HEALTH OF HIS BALANCE SHEET. HOWEVER, THE LIABILITY OF THE ASSESSEE TO PAY TO THESE CREDITORS CONTINUES TO EXIST AND HENCE NO ADD ITION COULD BE MADE UNDER THE INCOME TAX ACT. ACCORDING TO LEARNED A.R, BOTH THE TAX AUTHORITIES HAVE MADE THE IMPUGNED ADDITIONS ONLY O N SOME PRESUMPTIONS. WHILE THE ASSESSING OFFICER TOOK THESE CREDITS ARE BOGUS CREDITS, THE LEARNED CIT(A) TOOK THEM AS GIFTS AND CESSATION OF TRADING LIABILITY. SINCE THESE ADDITIONS HAVE BEEN CONFIRMED ON THE BASIS OF PRESUMPTIONS, THE LEARNED A.R PRAYED FOR THE DELETION OF THE SAME. 6. ON THE OTHER HAND, THE LD DR SUBMITTED THAT THE ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY TO PROVE THE EXISTENCE OF CR EDITORS. ACCORDINGLY HE CONTENDED THAT SINCE THE ASSESSEE HAS FAILED TO PRO DUCE THE CREDITORS AND ALSO FAILED TO PROVE THE EXISTENCE OF THE LIABILITY , THE LD CIT(A) IS RIGHT IN CONFIRMING THE IMPUGNED ADDITIONS. ITA NO.494/VIZAG/2008 R.K. PANDEY, VSKP PAGE 4 OF 6 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS CONFIRMED THE ADDITIO N OF RS.6.00 LAKHS, PERTAINING TO M/S SHYAM SAGAR ENTERPRISES, U/S 41(1 ) OF THE ACT BY TREATING THE CONCERNED TRANSFER AS CESSATION OF LIABILITY. HOWEVER A CAREFUL READING OF SEC. 41(1) WOULD SHOW THAT THE BENEFIT ARISING O N CESSATION OF A TRADING LIABILITY SHALL BE DEEMED TO BE PROFITS AND GAINS O F BUSINESS ONLY IF THE SAME HAD BEEN ALLOWED AS AN ALLOWANCE OR DEDUCTION IN THE ASSESSMENT OF ANY YEAR. IN THE INSTANT CASE, THE AMOUNT OF RS.6.00 LAKHS HAS BEEN SHOWN AS 'ADVANCE RECEIVED FROM CUST OMERS'. NORMALLY THE AMOUNT RECEIVED AS ADVANCE COULD NOT HAVE BEEN ALLOWED AS A DEDUCTION IN ANY OF THE ASSESSMENT YEAR, SINCE IT I S A LIABILITY TILL THE ASSESSEE SUPPLIES GOODS TO THE SAID CUSTOMER. IN V IEW OF THE ABOVE, IN OUR VIEW, THE PROVISIONS OF SEC. 41(1) DOES NOT APPLY T O THIS MATTER. 8. THE LD CIT(A) HAS TREATED THE TRANSFER FROM THE REMAINING TWO CREDITORS AS RECEIPT OF MONEY WITHOUT CONSIDERATION ASSESSABLE U/S 56(2)(V) OF THE ACT. HOWEVER THE CLAIM OF THE ASSESSEE IS T HAT THE LIABILITY TOWARDS THESE CREDITORS CONTINUES TO EXIST AND IT WAS FURTH ER CLAIMED THAT THE ASSESSEE HAS EFFECTED THESE TRANSFERS ONLY TO DEPIC T THE BALANCE SHEET AS A HEALTHY ONE. THUS ACCORDING TO LEARNED A.R, THESE I MPUGNED TRANSFERS ARE UNILATERAL ACTIONS WITHOUT THE KNOWLEDGE OF THE CON CERNED CREDITORS. IF IT IS A UNILATERAL TRANSACTION, THEN THERE CANNOT BE A QU ESTION OF RECEIPT OF ANY MONEY WITHOUT CONSIDERATION AS CONTEMPLATED UNDER S ECTION 56(2)(V) OF THE ACT. IN THE INSTANT CASE, THE LD CIT(A) HAS NOT ES TABLISHED THAT THE IMPUGNED TRANSFERS ARE WITH THE CONCURRENCE OF THE CONCERNED CREDITORS. HENCE, IN OUR VIEW, THE PROVISIONS OF SEC. 56(2)(V) OF THE ACT COULD NOT BE INVOKED WITHOUT ESTABLISHING THE FACT THAT THE RECE IPT OF MONEY IN THE INSTANT CASES IS WITHOUT CONSIDERATION. 9. HOWEVER, WE NOTICE THAT THE ASSESSEE WAS AS KED BY THE ASSESSING OFFICER TO PRODUCE THESE CREDITORS DURING THE COURS E OF ASSESSMENT ITA NO.494/VIZAG/2008 R.K. PANDEY, VSKP PAGE 5 OF 6 PROCEEDINGS. HOWEVER, THE ASSESSEE DID NOT PRODUCE THEM AND EVEN FAILED TO FURNISH ANY CONFIRMATION LETTERS FROM THEM. THER E CANNOT BE ANY DISPUTE THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SU BSTANTIATE THE EXPLANATIONS OFFERED BY HIM IN RESPECT OF THE IMPUGNED TRANSFER ENTRIES. HOWEVER, THE ASSESSEE HAS FAILED TO SUBSTANTIATE HIS EXPLANATION THAT THE LIABILITY WITH REGARD TO THESE CREDITORS STILL EXISTS. WE HAVE AL READY NOTED THAT THE IMPUGNED ADDITIONS COULD NOT HAVE BEEN MADE UNDER S ECTION 56(2)(V) WITHOUT VERIFYING THE FACTS. HENCE, ON A CONSPECTU S OF THE MATTER, WE ARE OF THE VIEW THAT THE IMPUGNED MATTERS REQUIRE REEXA MINATION IN ORDER TO ASCERTAIN WHETHER THE LIABILITY TOWARDS THESE CREDI TORS CONTINUES TO EXIST AS ON 31.3.2005. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THE ISSUES CONTESTED BY THE ASSESSEE AND RESTORE TH EM BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO REEXAMINE THE ISSUE AFRESH. THE ASSESSEE IS ALSO DIRECTED TO FURNISH NECESSARY EVID ENCE TO PROVE HIS EXPLANATIONS. IN CASE, THE ASSESSEE FAILS TO PROVE HIS LIABILITY TOWARDS THESE CREDITORS, THE ASSESSING OFFICER MAY PROCEED TO ASS ESS THEM AS RECEIPT OF MONEY WITHOUT CONSIDERATION U/S 56(2)(V) OF THE ACT . 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 17.3.2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 17 TH MARCH,2011 ITA NO.494/VIZAG/2008 R.K. PANDEY, VSKP PAGE 6 OF 6 COPY TO 1 RAKESH KUMAR PANDEY, S.K. TRADING, PLOT NO.62B, 7 0&71, AIE, PEDAGANTYADA, VISAKHAPATNAM-530 044 2 ACIT, CIRCLE-5(1), VISAKHAPATNAM 3 4. THE CIT VISAKHAPATNAM THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM