The ITO, Ward-2(4), Surat V. M/s. Envirocare Associates, Surat

ITA 565/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51061 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASESH SHAH
• Keywords: Unexplained cash credit; Source of fund
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. MOHAN A LANKAMONY, AM) ITA NO. 565/AHD/2009 A. Y.: 2005-06 THE INCOME TAX OFFICER, WARD 2(4), SURAT ROOM NO.119, 1 ST FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. ENVIROCARE ASSOCIATES, 97, VAIRAGINI WADI, DELHI GATE, NEAR SUMILON IND. LTD., SURAT PA NO. AABFE 2234 K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. L. YADAV, DR RESPONDENT BY SHRI RASESH SHAH, AR DATE OF HEARING: 13-12-2011 DATE OF PRONOUNCEMENT: 16-12-2011 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II , SURAT DATED 10 TH NOVEMBER, 2008 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.565/AHD/2009 THE ITO, WARD- 2 (4), SURAT VS M/S. ENVIROCARE ASSO CIATES 2 3. ON GROUND NO.1, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.5,79,982/- AND RS.15,07,036/- OUT OF TRADING EXPENSES AND ADMINISTRATIVE EXPENSES. THE LEARNED CIT(A) NOT ED WITH REGARD TO THE TRADING EXPENSES AND ADMINISTRATIVE EXPENSES THAT ALL THE ITEMS OF EXPENDITURE WERE SHOWN IN TWO SETS OF ACCO UNTS. THERE WERE SEVERAL EXPENSES WHICH WERE NOT SHOWN IN THE FIRST RETURN OF INCOME BUT CLAIMED IN THE SECOND RETURN. IT IS FURTHER NOT ED THAT THERE WERE ALSO CERTAIN EXPENSES WHICH WERE CLAIMED IN THE SEC OND RETURN BUT NOT CLAIMED IN THE FIRST. THE AO ACCORDINGLY WORKED OUT THE EXCESS EXPENDITURE AND MADE THE ADDITION WHICH HAS BEEN HI GHLIGHTED IN THE ASSESSMENT ORDER IN PARA 8. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT EXCESS EXPENDITURE CLAIMED IN THE SECON D RETURN SHOULD HAVE BEEN ADJUSTED AGAINST THE EXCESS CLAIM MADE IN THE FIRST. THE LEARNED CIT(A) WAS OF THE VIEW ONCE BOOK RESULTS AR E REJECTED AND PROFIT IS ESTIMATED IT WOULD BE BETTER TO REJECT TH E BOOK RESULTS AND TO APPLY GROSS PROFIT/NET PROFIT RATE FOR THE PURPOSE OF COMPUTATION OF THE INCOME OF THE ASSESSEE AND NO FURTHER ADDITION SHOU LD BE MADE. THE LEARNED CIT(A) WITH REGARD TO SUPPRESSION OF THE CO NTRACT RECEIPT IN A SUM OF RS.5,37,915/- CONFIRMED THE ORDER OF THE AO IN PRINCIPLE BUT TOOK IT FOR THE PURPOSE OF DETERMINING THE PROFIT. THE LEARNED CIT(A) WITH REGARD TO REJECTION OF THE BOOK RESULTS U/S 14 5(3) OF THE IT ACT CONFIRMED THE ORDER OF THE AO AND REJECTED THE SUBM ISSION OF THE ASSESSEE. THE LEARNED CIT(A) ACCORDINGLY CONSIDERIN G THE RECEIPTS SHOWN IN THE SECOND RETURN OF INCOME AND SUPPRESSED RECEIPTS AND CONSIDERING THE HISTORY OF THE ASSESSEE IN EARLIER YEARS FOR APPLICATION OF NET PROFIT RATE DIRECTED TO APPLY AVERAGE NET PR OFIT RATE OF 1.32% AND ESTIMATED THE PROFIT AT RS.1,25,767/-. THE RESULTAN T DISALLOWANCE OUT ITA NO.565/AHD/2009 THE ITO, WARD- 2 (4), SURAT VS M/S. ENVIROCARE ASSO CIATES 3 OF THE TRADING EXPENSES AND ADMINISTRATIVE EXPENSES WERE ACCORDINGLY DELETED. 4. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED CIT(A) CONFIRMED REJECTION OF BOOKS RESULTS U/S 145(3) OF THE IT ACT AND ALSO DIRECTED TO APPLY AVERAGE NET PROFIT RATE OF 1.32% AS AGAINST SMALLER NET PROFIT DISCLOSED BY THE ASSESSEE. THERE IS NO G ROUND OF APPEAL RAISED BY THE REVENUE CHALLENGING THE FINDINGS OF T HE LEARNED CIT(A) IN APPLYING NET PROFIT RATE FOR THE PURPOSE OF COMP UTING THE INCOME OF THE ASSESSEE. IT IS THUS FINALLY CONCLUDED THAT BOO K RESULTS OF THE ASSESSEE ARE NOT RELIABLE AND NET PROFIT RATE IS AP PLIED FOR THE PURPOSE OF COMPUTATION OF INCOME. THE HONBLE ALLAHABAD HIG H COURT IN THE CASE OF CIT VS BANWARI LAL BANSHIDHAR, 229 ITR 229 HELD THAT WHEN GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WERE NO NEED FOR THE AO TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES BY THE ASSESSEE. SINCE THE PROFIT IS ESTIMATED BY REJECTING THE BOOK RESULTS A ND APPLYING THE NET PROFIT, THE LEARNED CIT(A) CORRECTLY DELETED THE DI SALLOWANCE OF THE EXPENDITURE. WE, THEREFORE, DO NOT FIND ANY MERIT I N THIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCORDINGLY DISMISSE D. 5. ON GROUND NO.2, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.2,55,000/- MADE BY THE AO ON ACCOUNT OF CASH INTRODUCED IN THE CAPITAL ACCOUNTS OF THE PARTNERS. THE AO FOUND THAT 3 PARTNERS OF THE ASSESSEE FIRM HAD INTRODUCED CAPI TAL IN THE FORM OF CASH IN A SUM OF RS.85,000/- EACH. NO EXPLANATION W AS FURNISHED. ITA NO.565/AHD/2009 THE ITO, WARD- 2 (4), SURAT VS M/S. ENVIROCARE ASSO CIATES 4 THEREFORE, ADDITION WAS MADE U/S 68 OF THE IT ACT T REATING IT TO BE UNEXPLAINED CASH CREDIT. IT WAS SUBMITTED BEFORE TH E LEARNED CIT(A) THAT THE PARTNERS HAVE INTRODUCED CAPITAL IN THEIR PERSONAL ACCOUNT AND THEY ARE ASSESSED TO TAX AND HAVE OTHER SOURCES OF INCOME AS WELL. THEREFORE, ADDITION SHOULD NOT HAVE BEEN MADE IN THE CASE OF THE FIRM AND IT SHOULD BE TREATED AS UNEXPLAINED IN COME OF THE PARTNERS. RELIANCE WAS PLACED ON THE DECISION OF TH E HONBLE M. P. HIGH COURT IN THE CASE OF METACHEM INDUSTRIES, 245 ITR 160. THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSES SEE SINCE THE PARTNERS INTRODUCED CAPITAL IN THEIR ACCOUNTS WITH THE FIRM, THEREFORE, SOURCE IS EXPLAINED BY THE PARTNERS AND AS SUCH NO ADDITION COULD BE MADE IN THE CASE OF THE FIRM AND ADDITION CAN BE MA DE IN THE HANDS OF THE INDIVIDUAL PARTNERS. ADDITION WAS ACCORDINGL Y DELETED. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE PARTNERS HAVE ACCEPTED INTRODUCTION OF CAPITAL AND AS SUCH SOURCE IS EXPLAINED. IT IS STATED THAT ALL THE PARTNERS ARE ASSESSED TO TAX AN D HAVE OTHER SOURCES OF INCOME ALSO. THEREFORE, THE LEARNED CIT( A) WAS JUSTIFIED IN HOLDING THAT ADDITION COULD BE CONSIDERED IN THE IN DIVIDUAL CASES OF THE PARTNERS. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE UNREPORTED DECISION OF THE HONBLE GUJARAT HIGH COU RT IN THE CASE OF PANKAJ DYESTUFF IN I. T. REFERENCE NO.241/1993 DATE D 06-07-2005 IN WHICH ON IDENTICAL ISSUE ADDITION WAS DELETED BY TH E TRIBUNAL AND DEPARTMENTAL APPEAL WAS DISMISSED BY THE HONBLE HI GH COURT BY HOLDING THAT ONCE THE PARTNERS HAVE OWNED UP THAT MONEY IS DEPOSITED IN THEIR ACCOUNTS ARE THEIR OWN, ITO IS E NTITLED TO AND ITA NO.565/AHD/2009 THE ITO, WARD- 2 (4), SURAT VS M/S. ENVIROCARE ASSO CIATES 5 MAY PROCEED AGAINST THE PARTNERS AND ASSESS THE SAM E IN THEIR HANDS, IF THEIR EXPLANATION IS NOT FOUND SATISFACTO RY. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF ITO, VAPI WARD -4, D AMAN VS M/S. VARSHA PAPER PRODUCT IN ITA NO. 2414/AHD/2009 DATED 16-10-2009 IN WHICH THE TRIBUNAL FOLLOWING THE DECISION IN THE CA SE OF METACHEM INDUSTRIES (SUPRA) UPHELD THE ORDER OF THE LEARNED CIT(A) IN DELETING THE SIMILAR ADDITION. ACCORDINGLY, WE DO NOT FIND A NY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCORDINGL Y DISMISSED. 7. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.88,533/- ON ACCOUNT OF LATE PAYMENT OF PROVIDENT FUND CONTRIBUTION U/S 36(1) (VA) OF THE IT ACT. THOUGH T HE LEARNED CIT(A) DELETED THE ADDITION HOLDING THAT ONCE NET PROFIT R ATE IS APPLIED SUCH ADDITION COULD NOT BE MADE BUT THE LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY CONTENDED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD., 319 ITR 306. THE LE ARNED COUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE ASSESSMENT OR DER TO SHOW THAT ALL THE PAYMENTS ARE MADE BEFORE THE DUE DATE OF FI LING OF THE RETURN WHICH SUPPORTS THE CONTENTION OF THE LEARNED COUNSE L FOR THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY MERIT IN T HIS GROUND OF APPEAL OF THE REVENUE. SAME IS ACCORDINGLY DISMISSE D. 8. NO OTHER POINT IS ARGUED OR PRESSED. ITA NO.565/AHD/2009 THE ITO, WARD- 2 (4), SURAT VS M/S. ENVIROCARE ASSO CIATES 6 9. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD