ACIT, Trichy V. M/s. Vignesh Constructions, Srirangam

ITA 496/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51832 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHA JI P JACOB SRDR
• Assessee Lawyers: S SRIDHAR
• Keywords: Unexplained investment
• Section: 69; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NOS. 496 & 497/MDS/2011 (ASSESSMENT YEARS : 2007-08 & 2008-09) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, TIRUCHIRAPPALLI. (APPELLANT) V. M/S VIGNESH CONSTRUCTIONS, NO.100-A, GANDHI ROAD, SRIRANGAM 620 006. PAN : AAFFV1091D (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, SR-DR RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 18.08.2011 DATE OF PRONOUNCEMENT : 26.08.2011 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : BOTH ARE APPEALS FILED BY THE REVENUE AGAINST ORD ERS DATED 10.8.2010 OF COMMISSIONER OF INCOME TAX (APPEALS), TIRUCHIRAPALLI, FOR THE IMPUGNED ASSESSMENT YEARS. I.T.A. NOS. 496 & 497/MDS/11 2 2. GRIEVANCE OF THE REVENUE IN BOTH THE YEARS IS RE GARDING DELETION OF ADDITION MADE BY THE A.O. TOWARDS ALLEG ED INVESTMENT IN SCHOOL BUILDING CALLED KOOTHUR SCHOOL BUILDING. TH E SUM INVOLVED IN ASSESSMENT YEAR 2007-08 IS ` 51,56,872/- AND IN ASSESSMENT YEAR 2008-09 IS ` 53,42,158/-. AS PER THE REVENUE, KOOTHUR SCHOOL BUILDING WAS BELONGING TO A TRUST CALLED SRI VIGNES H EDUCATIONAL TRUST. THE SAID TRUST WAS CONSTITUTED ON 27.5.2007 AND THE SAID TRUST WAS NOT HAVING ANY FUNDS. ON THE OTHER HAND, AS PER THE REVENUE, MAJOR PART OF THE FUNDS WERE PROVIDED BY T HE ASSESSEE. THEREFORE, SHORTFALL IN THE COST OF CONSTRUCTION HA D TO BE ASSESSED IN THE HANDS OF THE ASSESSEE. FURTHER, AS PER THE REV ENUE, LD. CIT(APPEALS) ALLOWED TELESCOPING OF ADDITIONS MADE AGAINST THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE FOR THE I MPUGNED ASSESSMENT YEARS, THOUGH NO DIRECT NEXUS WAS PROVED . 3. SHORT FACTS APROPOS ARE THAT ASSESSEE IS A FIRM ENGAGED IN PROMOTION OF RESIDENTIAL FLATS. THERE WAS A SEARCH IN THE PREMISES OF THE ASSESSEE ON 29.8.2007. IN THE RETURN FILED SUB SEQUENT TO THE SEARCH, ASSESSEE OFFERED AN INCOME OF ` 1,60,82,970/- FOR I.T.A. NOS. 496 & 497/MDS/11 3 ASSESSMENT YEAR 2007-08 AND ` 77,75,270/- FOR ASSESSMENT YEAR 2008-09. MAJOR ADDITION MADE BY THE A.O. TO THE IN COME RETURNED WAS ON ACCOUNT OF ALLEGED UNEXPLAINED INVESTMENT IN CONSTRUCTION OF SCHOOL BUILDING BY M/S VIGNESH EDUCATIONAL TRUST, A N ASSOCIATE ENTITY OF THE ASSESSEE. FOR ARRIVING AT SUCH DIFFERENCE, ASSESSING OFFICER HAD RELIED ON RECORDS SEIZED FROM THE PREMISES OF T HE TRUST, BASED ON WHICH IT WAS CONCLUDED BY THE A.O. THAT THE SAID TR UST HAD INVESTED A SUM OF ` 1,18,01,406/- AS ON 31.3.2007 AND A SUM OF ` 1,19,52,938/- AS ON 31.3.2008 AGAINST WHICH THE INVESTMENTS ACCOU NTED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE-FIRM WAS ONLY ` 53,25,628/- AND ` 66,10,980/- RESPECTIVELY. 4. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT IT HAD NO ONUS TO EXPLAIN DIFFERENCE OF CO ST IN A CONSTRUCTION DONE BY M/S VIGNESH EDUCATIONAL TRUST, WHICH WAS A SEPARATE ASSESSABLE ENTITY. ACCORDING TO ASSESSEE, INVESTME NT MADE BY A THIRD PARTY COULD NOT BE CONSIDERED UNDER SECTION 6 9 OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT), IN ITS HAND. WITH REGARD TO SUBMISSION OF THE PARTNER OF ASSESSEE-FIRM, WHO WAS ALSO A TRU STEE OF THE TRUST, I.T.A. NOS. 496 & 497/MDS/11 4 ASSESSEE SUBMITTED THAT SUCH EXPLANATIONS WERE ONLY REGARDING FUNDING OF THE TRUST AND HAD NOTHING TO DO WITH CON STRUCTION DONE BY THE TRUST. IN ANY CASE, ACCORDING TO ASSESSEE, SUB STANTIAL INCOME WAS RETURNED BY IT FOR THE IMPUGNED ASSESSMENT YEAR S AND MONEY AVAILABLE WITH IT IN THE RELEVANT PREVIOUS YEARS WE RE SUFFICIENT TO MEET THE ALLEGED INVESTMENTS. ASSESSEE ALSO BROUGHT TO THE ATTENTION OF LD. CIT(APPEALS) THAT THE REGISTERS FOUND IN THE SCHOOL PREMISES DID NOT RECORD ACTUAL PAYMENTS, BUT, THERE WAS CONSIDERABLE TIME LAG BETWEEN THE BILL DATE AND PAYMENTS. MAIN THRUST OF THE ASSESSEES ARGUMENT WAS THAT THE ASSESSEE COULD NOT BE CALLED UPON TO EXPLAIN THE INVESTMENTS MADE BY THE TRUST. AS PER THE ASSE SSEE, IT HAD NOT MADE ANY INVESTMENTS IN THE SCHOOL BUILDING AND THE REFORE, IT COULD NOT BE TAXED ON SUCH AMOUNTS. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HIM, SECTION 69 OF THE ACT CAST RESPONSIBILITY ON A PERSON WHO HAD MADE INVESTMENTS TO EXPLAIN THE SOURCE INVESTMENTS AND HERE, ASSESSEE HAD NOT INVES TED ANY AMOUNT IN THE TRUST. LD. CIT(APPEALS) ALSO NOTED THAT NO AMOUNT WHATSOEVER WAS SEEN CREDITED IN ASSESSEES NAME IN THE BOOKS O F THE TRUST AND HENCE, THERE WAS NO QUESTION OF ASSESSEE HAVING MAD E ANY I.T.A. NOS. 496 & 497/MDS/11 5 INVESTMENT WHICH REQUIRED EXPLANATION. FURTHER, AS PER LD. CIT(APPEALS), ASSESSEE HAD OFFERED ADDITIONAL INCOM E OF ` 51,85,512/- IN ITS RETURN AND PARTNERS OF THE ASSES SEE-FIRM HAD OFFERED A SUM OF ` 49,84,000/- AS UNDISCLOSED INCOME WHICH WAS MORE T HAN SUFFICIENT TO MEET THE ALLEGED SHORTFALL IN INVESTM ENTS IN THE SCHOOL BUILDING. HE, THEREFORE, DELETED THE ADDITIONS MAD E IN BOTH THE YEARS. 5. NOW BEFORE US, LEARNED D.R., STRONGLY RELYING ON THE ORDER OF A.O., SUBMITTED THAT THE TRUST BEING AN ASSOCIATE E NTITY OF ASSESSEE AND HAVING BEEN INVOLVED IN ITS WORKING, WAS DUTY B OUND TO EXPLAIN THE AMOUNTS INVESTED. ACCORDING TO LEARNED D.R., A SSESSEE HAVING NOT BEEN ABLE TO SHOW THE SOURCE FOR THE AMOUNT INV ESTED IN THE BUILDING OF THE SCHOOL, THE A.O. WAS RIGHT IN INVOK ING SECTION 69 OF THE ACT. 6. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. FIRST FACT WE NOTE IS THAT THE SCHOOL BUILDING BELO NGED TO ONE M/S I.T.A. NOS. 496 & 497/MDS/11 6 VIGNESH EDUCATIONAL TRUST. THOUGH THE ASSESSING OF FICER TERMED IT AS AN ASSOCIATE ENTITY, SUBMISSION OF THE ASSESSE E THAT THE SAID VIGNESH EDUCATIONAL TRUST WAS A SEPARATE ASSESSABLE ENTITY CARRIES CONSIDERABLE WEIGHT. THERE IS NO DISPUTE THAT THE SAID TRUST WAS RUNNING A SCHOOL NAMED VIGNESH VIDYALAYA AT KOOTHUR VILLAGE. THE SHORTFALL IN INVESTMENT, IF ANY, FOUND IN THE CONST RUCTION OF THE SCHOOL BUILDING COULD THEREFORE BE CONSIDERED AS THAT OF V IGNESH EDUCATIONAL TRUST AND NOT OF THE ASSESSEE. MAY BE IT IS TRUE T HAT ASSESSEE OFFERED SUFFICIENT AMOUNTS IN ITS RETURN FOR EXPLAI NING THE SUMS INVESTED BY THE SAID TRUST FOR THE BUILDING OF THE SCHOOL. BUT, NEVERTHELESS, ASSESSEE CANNOT BE HELD LIABLE TO EXP LAIN THE INVESTMENT DONE BY A THIRD PARTY, EVEN IF SUCH THIR D PARTY WAS AN ASSOCIATE CONCERN. NO DOUBT, THE ASSESSING OFFICER WOULD HAVE BEEN FREE TO PROCEED AGAINST SUCH THIRD PARTY, IF IT WAS NOT ABLE TO EXPLAIN PROPERLY THE INVESTMENT MADE. FOR SECTION 69 OF TH E ACT TO BE INVOKED AGAINST ASSESSEE, IT IS IMPERATIVE THAT THE ASSESSEE CONCERNED SHOULD HAVE BEEN MADE INVESTMENTS AND FAI LED TO EXPLAIN IT. HERE, THE BOOKS OF ACCOUNTS OF THE TRUST DID N OT SHOW ANY CREDIT TO HAVE BEEN RECEIVED FROM THE ASSESSEE. THE BUILDING OF THE SCHOOL I.T.A. NOS. 496 & 497/MDS/11 7 BELONGED TO THE SAID TRUST. NO LIABILITY CAN BE FA STENED ON THE ASSESSEE INVOKING SECTION 69, IN SUCH CIRCUMSTANCES . LD. CIT(APPEALS) RIGHTLY DELETED THE ADDITIONS FOR BOTH THE YEARS. NO INTERFERENCE IS CALLED FOR. 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 26.08.2011 . SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH AUGUST, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), TIRUCHIRAPPALLI (4) CIT-CENTRAL II, CHENNAI (5) D.R. (6) GUARD FILE