Sri Zubin Ranka, Secunderabad V. ITO, WArd-10(1), Hyderabad

ITA 592/HYD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87312 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: SUNIL KUMAR JAIN
• Keywords: Unexplained cash credit
• Section: 68; 69C; 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.592/HYD/2011 ASSESSMENT YEAR 2007-2008 MR. ZUBIN RANKA SECUNDERABAD. PAN ABGPR8904F VS. THE INCOME TAX OFFICER WARD 10(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. SUNIL KUMAR JAIN FOR REVENUE : MR. RAMAKRISHNA BANDI DATE OF HEARING : 04.02.2015 DATE OF PRONOUNCEMENT : 18.02.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-VI, HYDERABAD DATED 30.11.2010. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDU AL WHO IS ENGAGED IN THE BUSINESS OF TRADING IN CHEMIC ALS ON WHOLESALE BASIS IN THE NAME AND STYLE OF HIS PROPRI ETARY CONCERN M/S. GURUDEV AGENCY. THE RETURN OF INCOME F OR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 25.10. 2007 DECLARING TOTAL INCOME OF RS.3,13,080. IN THE ASSES SMENT COMPLETED UNDER SECTION 143(3) VIDE ORDER DATED 30. 11.2009, THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED BY TH E A.O. AT RS.25,61,415 AFTER MAKING THE FOLLOWING ADDITIONS. 2 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA SL.NO. PARTICULARS AMOUNT IN RS. 1. UNEXPLAINED CASH CREDITS UNDER SECTION 68 OF THE ACT 6,13,262 2. DISALLOWANCE OF INTEREST UNDER SECTION 40(A)(IA) 5,46,639 3. INCOME FROM OTHER SOURCES 5,91,619 4. UNEXPLAINED JOURNAL ENTRIES 2,54,729 5. DISALLOWANCE OF VAT UNDER SECTION 43B 24,894 6. DISALLOWANCE OF UNVERIFIABLE EXPENDITURE 2,72,517 2.1. AGAINST THE ORDER PASSED BY A.O. UNDER SECTIO N 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LD. CIT(A) DISPUTING ALL THE ABOVE SIX ADDITIONS/DISALL OWANCES MADE BY A.O. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND PERUSING THE RELEVANT MA TERIAL ON RECORD, THE LD. CIT(A) RESTRICTED THE ADDITIONS/DIS ALLOWANCES MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED CASH CRE DITS UNDER SECTION 68, INTEREST UNDER SECTION 40(A)(IA) AND UNVERIFIABLE EXPENSES TO RS.4,34,515, RS.3,22,045 A ND RS.2,17,185 RESPECTIVELY. HE ALSO DELETED ENTIRELY THE ADDITION OF RS. 24,894 MADE BY A.O. ON ACCOUNT OF VAT PAYABL E UNDER SECTION 43B. THE ADDITIONS MADE BY A.O. ON ACCOUNT OF INCOME FROM OTHER SOURCES AND UNEXPLAINED JOURNAL ENTRIES, HOWEVER, WERE CONFIRMED BY LD. CIT(A). STILL AGGRIEVED BY TH E ORDER OF THE LD. CIT(A), ASSESSEE HAS PREFERRED THIS APPEAL BEFO RE THE TRIBUNAL ON THE FOLLOWING GROUNDS : I. THE LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE MADE BY THE A.O. FOR UNSECURED LOANS UNDER SECTION 68 OF THE INCOME TAX ACT, 1961 OF RS.4,34,515. II. THE LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE OF INTEREST PAYMENT UNDER SECTION 40(A)(IA) OF RS.3,22,045 MADE BY THE A.O. 3 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA III. THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITIONS MADE UNDER INCOME FROM OTHER SOURCES FOR RS.5,91,619. IV. THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION O F RS.2,54,729 AS SALES. V. THE LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 69C OF THE INCOME TAX ACT, 1961 OF RS.2,17,185 ON EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT @ 20% ON RS.10,85,944. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RE GARDS THE ISSUE INVOLVED IN GROUND NO.1 RELATING TO THE ADDIT ION MADE ON ACCOUNT OF UNSECURED LOANS TREATING THE SAME AS UNE XPLAINED CASH CREDITS UNDER SECTION 68 OF THE ACT, THE LEARN ED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE R ELEVANT DETAILS PLACED AT PAGE NO.12 TO SHOW THAT THE AMOUN TS ADDED BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ACTUALL Y REPRESENTED LOANS AND ADVANCES GIVEN BY THE ASSESSE E AND THAT TOO IN THE EARLIER YEARS AND NOT IN THE YEAR UNDER CONSIDERATION. HE HAS CONTENDED THAT THESE AMOUNTS REPRESENTING ADVANCES GIVEN THUS CANNOT BE ADDED UN DER SECTION 68 OF THE ACT. ALTHOUGH THE LEARNED D.R. HA S AGREED IN PRINCIPLE WITH THIS CONTENTION OF THE LEARNED COUNS EL FOR THE ASSESSEE, HE HAS CONTENDED THAT THIS MATTER REQUIRE S VERIFICATION AS THE FACT THAT THE AMOUNTS IN QUESTI ON REPRESENTED ADVANCES GIVEN BY THE ASSESSEE WAS NOT SPECIFICALLY BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER BY THE ASSESSEE. SINCE THE LEARNED COUNSEL FOR THE ASS ESSEE ALSO HAS NO OBJECTION IN THIS REGARD, WE RESTORE THIS IS SUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH, AFTER VER IFYING THE STAND OF THE ASSESSEE THAT THE AMOUNT IN QUESTION A CTUALLY 4 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA REPRESENTED ADVANCES GIVEN BY THE ASSESSEE WHICH CA NNOT BE ADDED UNDER SECTION 68 OF THE ACT AS UNEXPLAINED CA SH CREDITS. GROUND NO.1 IS ACCORDINGLY TREATED AS ALLOWED FOR S TATISTICAL PURPOSES. 4. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.2 RELATING TO THE DISALLOWANCE MADE BY THE A.O. AND C ONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF INTEREST UNDER SECT ION 40(A)(IA), LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE REQUIRED DECLARATIONS IN THE PRESCRIBED FORM NO.15G WERE OBTAINED BY THE ASSESSEE FROM ALL THE PARTIES TO WH OM INTEREST WAS PAYABLE AND THE SAID FORMS HAVING BEEN RECEIVE D FROM THE PAYEES IN THE PRESCRIBED TIME LIMIT, THERE WAS NO O BLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FR OM THE PAYMENT OF INTEREST AND CONSEQUENTLY, THERE WAS NO QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(IA). THIS CONTE NTION RAISED BY THE ASSESSEE, WHICH IS DULY SUPPORTED BY THE DEC ISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VI PIN B. MEHTA VS. ITO RENDERED VIDE ITS ORDER DATED 20.05.2 011 IN ITA.NO.3317/MUM/2010, IS NOT CONTROVERTED BY THE LE ARNED D.R. HE, HOWEVER, HAS CONTENDED THAT THE CLAIM OF T HE ASSESSEE OF HAVING RECEIVED DECLARATIONS IN FORM 15G FROM AL L THE PAYEES OF INTEREST REQUIRES VERIFICATION BY THE A.O . SINCE THE LEARNED COUNSEL FOR THE ASSESSEE HAS NO OBJECTION I N THIS REGARD, WE RESTORE THIS ISSUE TO THE FILE OF A.O. F OR DECIDING THE SAME AFRESH, AFTER VERIFYING THE STAND OF THE ASSES SEE IN THE LIGHT OF DECISION OF THE TRIBUNAL IN THE CASE OF VI PIN B. MEHTA (SUPRA). GROUND NO.2 OF THE APPEAL IS ACCORDINGLY T REATED AS ALLOWED FOR STATISTICAL PURPOSES. 5 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA 5. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.3 RELATING TO THE ADDITION MADE BY THE A.O. AND CONFI RMED BY THE LD. CIT(A) ON ACCOUNT OF INCOME FROM OTHER SOURCES, IT IS OBSERVED THAT IN THE ABSENCE OF ANY INTEREST CHARGE D BY THE ASSESSEE ON THE LOANS AND ADVANCES ALLEGEDLY GIVEN FOR NON- BUSINESS PURPOSES, INTEREST ATTRIBUTABLE TO SUCH AD VANCES WAS WORKED OUT BY THE A.O. AT RS.5,91,619 AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS INCOME FROM OTHER SOURCES. 5.1. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE DETAILS O F SUCH LOANS AND ADVANCES PLACED AT PAGE 12 AS WELL AS THE DETAI LS OF INTEREST RECEIVED AT PAGE NO.13 TO POINT OUT THAT I NTEREST ON LOANS GIVEN TO G.COM SYSTEMS AMOUNTING TO RS.9,24,2 73, L C. RANKA HUF AMOUNTING TO RS.3,65,537, VINOD RANKA AMOUNTING TO RS.11,50,414 AND BHANUSA.COM AMOUNTIN G TO RS.11,73,192 WAS DULY CHARGED BY THE ASSESSEE AND T HE SAME WAS ALSO OFFERED TO TAX AS INCOME. AS REGARDS THE R EMAINING LOANS AND ADVANCES REPRESENTING SMALL AMOUNTS, HE H AS SUBMITTED THAT THE SAME WERE MAINLY GIVEN TO THE EM PLOYEES AS WELL AS FOR SOME OTHER BUSINESS PURPOSES AND THE REFORE, THE ADDITION MADE ON ACCOUNT OF INTEREST ATTRIBUTABLE T O THE SAID ADVANCES IS NOT SUSTAINABLE. 6. LEARNED D.R. ON THE OTHER HAND HAS SUBMITTED THAT THE EXPLANATION NOW OFFERED BY THE LEARNED COU NSEL FOR THE ASSESSEE BEING OFFERED FOR THE FIRST TIME BEFOR E THE TRIBUNAL AND SINCE THE SAME WAS NOT SPECIFICALLY PUTFORTH BE FORE THE AUTHORITIES BELOW, AN OPPORTUNITY MAY BE GIVEN TO T HE A.O. TO VERIFY THE SAME. WE FIND MERIT IN THE CONTENTION OF THE LEARNED D.R. AND SINCE THE LEARNED COUNSEL FOR THE ASSESSEE ALSO HAS 6 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA NO OBJECTION IN THIS REGARD, WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH, AFTER VERIFY ING THE EXPLANATION OF THE ASSESSEE OFFERED BEFORE THE TRIB UNAL. GROUND NO.3 IS ACCORDINGLY TREATED AS ALLOWED FOR S TATISTICAL PURPOSES. 7. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.4 RELATING TO THE ADDITION MADE BY THE A.O. AND CONFI RMED BY THE LD. CIT(A) ON ACCOUNT OF JOURNAL ENTRIES, IT IS OBS ERVED THAT THE AMOUNTS RECEIVABLE FROM THE VARIOUS PARTIES AMOUNTI NG TO RS.2,54,729 WERE SQUARED OFF BY THE ASSESSEE BY TRA NSFERRING THE BALANCES IN THE SAID ACCOUNTS TO ONE CREDITOR N AMELY RAJESH CHEMICAL COMPANY BY WAY OF JOURNAL ENTRY. SI NCE THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPECT OF T HESE JOURNAL ENTRIES WAS NOT FOUND ACCEPTABLE BY THE A.O., HE TR EATED THE BALANCES SQUARED OFF AMOUNTING TO RS.2,54,729 AS TH E SALES MADE BY THE ASSESSEE AND ADDED THE SAME TO HIS TOTA L INCOME WHICH THE LD. CIT(A) CONFIRMED. 8. AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE REL EVANT SIX DEBTORS AS WELL AS ONE CREDITOR NAMELY RAJESH CHEMI CAL COMPANY WERE BELONGING TO THE SAME GROUP AND A JOUR NAL ENTRY, THEREFORE, WAS PASSED IN THE BOOKS OF ACCOUN T SQUARING OFF THE DEBIT BALANCES IN THE DEBTORS ACCOUNT AGAIN ST THE CREDIT BALANCE OF RAJESH CHEMICAL COMPANY. HE HAS CONTENDE D THAT THIS ENTRY PASSED BY THE ASSESSEE IN THE BOOKS OF A CCOUNTS SQUARING OFF THE DEBIT BALANCES/AGAINST THE CREDIT BALANCE PERTAINING TO THE SAME GROUP WAS REVENUE NEUTRAL AN D THERE WAS NO JUSTIFICATION IN ADDING THE AMOUNT OF RS.2,5 4,729 TO THE TOTAL INCOME OF THE ASSESSEE TREATING THE SAME AS SALES. ALTHOUGH THIS STAND OF THE LEARNED COUNSEL FOR THE ASSESSEE IS 7 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA DULY SUPPORTED BY THE LEDGER ACCOUNT EXTRACTS OF TH E CONCERNED PARTIES PLACED AT PAGE NOS. 26 TO 32 OF THE PAPER B OOK, WE FIND THAT THE EXPLANATION ON THIS ISSUE AS OFFERED BY TH E LEARNED COUNSEL FOR THE ASSESSEE BEFORE US WAS NOT OFFERED SPECIFICALLY IN THAT MANNER BEFORE THE A.O. AND IN THE ABSENCE O F THE SAME, THE A.O. HAD NO OCCASION TO VERIFY THE SAME FROM TH E BOOKS OF ACCOUNTS OF THE ASSESSEE AS RIGHTLY POINTED OUT BY THE LEARNED D.R. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF A.O. FOR DECIDING THE SAME AFRESH, AFTER VERIFYING THE EXPLA NATION OF THE ASSESSEE FROM THE RELEVANT RECORD. GROUND NO.4 IS A CCORDINGLY, TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.5 RELATING TO THE DISALLOWANCE MADE BY THE A.O. AND S USTAINED BY THE LD. CIT(A) OUT OF VARIOUS EXPENSES ON ACCOUNT O F UNVERIFIABLE ELEMENT INVOLVED THEREIN, IT IS OBSERV ED THAT OUT OF TOTAL EXPENSES OF RS.13,62,591, SUM OF RS.2,72,517 BEING 20% OF THE TOTAL EXPENSES WAS DISALLOWED BY THE A.O. ON THE GROUND THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE. LD. CIT(A), HOWEVER, FOUND FROM THE REL EVANT ORDER SHEET ENTRY THAT DISALLOWANCE OF 20% WAS LIABLE TO BE MADE AS PER THE CALCULATION MADE BY THE A.O. HIMSELF OUT OF THE TOTAL EXPENSES OF RS.10,85,944 CLAIMED BY THE ASSESSEE. H E, THEREFORE, RESTRICTED THE DISALLOWANCE OF RS.2,72,5 17 MADE BY THE A.O. ON THIS ISSUE TO RS.2,17,185. 10. AT THE TIME OF HEARING BEFORE US, LEARNED COUN SEL FOR THE ASSESSEE HAS SUBMITTED THAT THE BOOKS OF AC COUNT REGULARLY MAINTAINED BY THE ASSESSEE WERE DULY PROD UCED BEFORE THE A.O. FOR VERIFICATION ALONG WITH SUPPORT ING BILLS AND VOUCHERS. HE HAS CONTENDED THAT NOT A SINGLE INSTAN CE, HOWEVER, WAS POINTED OUT BY THE A.O. OF ANY UNVERIF IABLE 8 ITA.NO.592/HYD/2011 MR. ZUBIN RANKA ELEMENT INVOLVED IN THE EXPENSES CLAIMED BY THE ASS ESSEE WHICH WERE DULY SUPPORTED BY THE RELEVANT BILLS OR VOUCHERS. HOWEVER, AS RIGHTLY CONTENDED BY THE LEARNED D.R., THE NATURE OF EXPENSES CLAIMED BY THE ASSESSEE SUCH AS CONVEYA NCE, PETROL, ENTERTAINMENT, TELEPHONE ETC., IS SUCH THAT THE INVOLVEMENT OF PERSONAL ELEMENT IN THE EXPENSES CLA IMED BY THE ASSESSEE CANNOT BE RULED OUT AND SOME DISALLOWA NCE OUT OF THE SAID EXPENSES FOR SUCH PERSONAL ELEMENT CAN JUS TIFIABLY BE MADE. HAVING REGARD TO ALL THE FACTS AND CIRCUMSTAN CES OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND REASONABLE TO DISALLOW THE EXPENSES CLAIMED BY THE ASSESSEE TO TH E EXTENT OF RS.50,000 ON ACCOUNT OF INVOLVEMENT OF PERSONAL ELE MENT. WE, ACCORDINGLY, MODIFY THE IMPUGNED ORDER OF LD. CIT(A ) ON THIS ISSUE AND RESTRICT THE DISALLOWANCE TO RS.50,000. G ROUND NO.5 IS PARTLY ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.02.2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 18 TH FEBRUARY, 2015 VBP/- COPY TO 1. MR. ZUBIN RANKA, 1-8-73, 473, JAWAHARNAGAR COLONY, P.G. ROAD, SECUNDERABAD. 2. THE INCOME TAX OFFICER, WARD 10(1), HYDERABAD 3. CIT(A)-VI, 6A, I.T. TOWERS, A.C. GUARDS, HYDERABAD 004. 4. CIT-V, HYDERABAD. 5. D.R. I.T.A.T. A BENCH, HYDERABAD.