M/s Jaya Krishna Aluminium Ltd., Secunderabad V. ACIT, Hyderabad

ITA 64/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59182 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 13-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: P PRASAD
• Keywords: Unexplained cash credit; Source of fund
• Section: 43B; 143(3); 68; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER IN ITA NO.64/H/2009 ASSESSMENT YEAR 2005-06 M/S JAYAKRISHNA ALLUMINIUM LTD., SECUNDERABAD (PAN AAACJ2561L) VS THE ACIT, CIRCLE 2(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI P. PRASAD RESPONDENT BY : SHRI B.V. PRASAD REDDY DATE OF HEARING : 27.12.2011 DATE OF PRONOUNCEMENT : 31.1.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 17.11.2008 AND PERTAINS TO THE ASSESSMENT YEAR 2005-06, CONFIRMING THE LEVY OF PE NALTY IN RESPECT OF ADDITION OF RS.222.19 LAKHS OF SHARE APP LICATION MONEY AS UNEXPLAINED CASH CREDITS. THE ASSESSEE HAS ALSO RAISED A GROUND THAT THE CIT(A) HAS NOT PROVIDED AD EQUATE OPPORTUNITY TO ASSESSEE TO FURNISH THE DOCUMENTS IN SUPPORT OF THE SHARE APPLICATION MONEY RECEIVED. 2. IN RESPONSE TO THE PENALTY NOTICE, THE ASSESSEE , VIDE ITS LETTER FILED ON 19.6.2008 SIMPLY STATED THAT THE A DDITION TOWARDS SHARE APPLICATION MONEY WAS OFFERED VOLUNTARILY EVE N BEFORE THE DEPARTMENT HAS INITIATED ENQUIRIES ABOUT THE NAMES AND ADDRESSES OF THE APPLICANTS, QUANTUM OF SHARE APPLI CATION MONEY INVESTED AND SOURCE THEREOF. IT WAS ALSO INF ORMED THAT AS ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 2 THE SHARE APPLICATION MONEY WAS OFFERED VOLUNTARILY , THE SAME CANNOT BE TREATED AS UNEXPLAINED SOURCES OF INCOME AND HENCE DOES NOT ATTRACT PENALTY PROCEEDINGS CITING THE CAS E LAW IN THE CASE OF DWARAKA PRASAD RAGHUBIR SARAN VS ITO (004 T TJ 1212). IT WAS FURTHER INFORMED BY THE ASSESSEE THAT THE CO MPANY IS ALREADY A SICK COMPANY APPLICATION MONEY TO THE TUN E OF RS. 4,96,33,093/- HAS BEEN RECEIVED DURING THE PREVIOUS YEAR RELEVANT TO AY 2005-06. THE ASSESSEE WAS ASKED TO FURNISH COMPLETE BREAK UP FOR INCREASE IN SHARE CAPITAL/ SH ARE APPLICATION MONEY ALONG WITH CONFIRMATION LETTERS F ROM THE INVESTORS CONTAINING COMPLETE ADDRESS ASSESSMENT PA RTICULARS, SOURCES FOR INVESTMENT AND DOCUMENTARY EVIDENCE THE REOF, ETC., IN RESPONSE THE ASSESSEE VIDE ITS LETTER DATED 14.1 2.07 INFORMED AS UNDER: INCREASE IN SHARE APPLICATION MONEY. AN AMOUNT OF RS 4,96,33,093/- HAS BEEN RECEIVED AS SHARE APPLICATIO N MONEY DURING F. Y. 2004-05. OURS IS A SICK COMPANY AND FACTORY WAS CLOSED FOR INTERMITTED PERIODS. THIS H AS RESULTED IN DISRUPTION OF ACTIVITIES. FURTHER MOST OF THE ACCOUNTS STAFF HAS RESIGNED RESULTING IN DIFFICULTI ES IN COMPILING DATA. WE HAVE SENT CONFIRMATION LETTERS BUT THE SAME ARE STILL NOT RECEIVED AT OUR END. IN THESE CIRCUMSTANCES WE VOLUNTARILY OFFER RS 4,96,33,093/- RECEIVED AS SHARE APPLICATION MONEY TOWARDS INCOME AND IN VIEW OF THE LOSSES AND THE COMPANY BEING SICK COMPA NY WE REQUEST THE DEPARTMENT NOT TO LEVY PENALTY U/S 271( 1)( C). IN VIEW OF THE ABOVE, THE SHARE APPLICATION MONEY A MOUNT OF RS 4,96,33,093/- WAS ADDED TO THE INCOME RETURNE D. 3. AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT IT HAS OFFERED THE SHARE APPLICATION MONEY AS INCOME S TATED ABOVE ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 3 VOLUNTARILY IS NOT ACCEPTABLE AS THE COMPANY HAS CO ME FORWARD FOR ADDITION ONLY AFTER INITIATING SCRUTINY PROCEED INGS. HE CONCLUDED THAT HAD THE CASE NOT BEEN CONVERTED INTO SCRUTINY THE ABOVE SAID ADDITION TOWARDS UNEXPLAINED SHARE A PPLICATION MONEY WOULD HAVE ESCAPED ASSESSMENT AND THE ASSESS EE WOULD HAVE CONCEALED THE SAME. THE FACTS AND CIRCUMSTANCE S OF THE CASE LAW RELIED UPON BY THE ASSESSEE ARE QUITE DIFF ERENT FROM THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE. THE REFORE THE RATIO LAID DOWN IN THE CASE LAW CITED BY THE ASSESS EE CANNOT BE APPLIED HERE. EVEN FOR OTHER ADDITIONS ALSO, HAD TH E CASE NOT BEEN CONVERTED INTO SCRUTINY, THE ADDITIONS WOULD H AVE ESCAPED ASSESSMENT AND THE ASSESSEE WOULD HAVE CONCEALED TH E SAME. 4. IN VIEW OF THE ABOVE FACTS OF THE CASE, THE AO C ONSIDERED IT A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) FOR CO NCEALING THE PARTICULARS OF THE INCOME AND FURNISHING INACCURATE PARTICULARS OF SUCH INCOME TO THE EXTENT OF ALL ADDITIONS MADE IN THE SCRUTINY ASSESSMENT ORDER DATED 18.12.2007. THEREF ORE, HE LEVIED THE MINIMUM PENALTY U/S 271(1)(C), IN RESPEC T OF THE ABOVE ADDITIONS/DISALLOWANCES BEING THE CONCEALED I NCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06. 5. THE FACTS LEADING TO THE INITIATION AND IMPOSIT ION OF PENALTY ARE THAT THE APPELLANT COMPANY FILED ITS RE TURN OF INCOME FOR THE AY 2005-06 ON 28.10.2005 ADMITTING LOSS OF RS.2,88,19,748/- THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 18.12.2007 DETERMINING CURRENT YEARS INCOME AT RS 2,19,33,845/- WHICH WAS SET OFF AGAINST THE BROUGHT FORWARD LOSSES RESULTING INTO TOTAL INCOME AT RS NIL. THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS TO THE RETURN ED INCOME. ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 4 I. UNEXPLAINED SHARE APPLICATION MONEY RS 4,96,33, 093/- II. DISALLOWANCE U/S 43B RS. 1,20,500/- III. DISALLOWANCE OF EXPENSES R S.10,00,000/- 6. THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1) (C) IN RESPECT OF THE AFORESAID ADDITIONS. IN RESPONSE TO THE SHOW CAUSE NOTICE THE APPELLANT FILED LETTER DATED 19.6.2008 S TATING THAT ADDITIONAL INCOME ON ACCOUNT OF SHARE APPLICATION M ONEY WAS OFFERED VOLUNTARILY EVEN BEFORE THE DEPARTMENT HAS INITIATED ENQUIRIES IN THIS REGARD. IT WAS FURTHER STATED THA T THE COMPANY WAS ALREADY A SICK COMPANY. THIS EXPLANATION OF THE APPELLANT WAS NOT ACCEPTED BY THE AO WHO HELD THAT THE ASSESS EE CAME FORWARD FOR ADDITION ONLY AFTER THE SCRUTINY PROCEE DINGS WERE INITIATED AND ENQUIRIES MADE. HAD THE CASE NOT BE EN CONVERTED INTO SCRUTINY THE AFORESAID ADDITION TOWARDS UNEXPL AINED SHARE APPLICATION MONEY WOULD HAVE ESCAPED ASSESSMENT AND THE ASSESSEE WOULD HAVE CONCEALED THE SAME. THE AO THE REFORE LEVIED MINIMUM PENALTY OF RS 1,85,72,008 U/S 271(1) OF THE ACT. 7. DURING THE APPEAL PROCEEDINGS THE LD. AR FILED WRITTEN SUBMISSIONS STATING THEREIN THAT: I. THE CONDITIONS REQUIRED TO LEVY PENALTY U/S 271(1) HAVE NOT BEEN FULFILLED. THE AO HAS NOT PROVED THE MENS REA AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF DILIP N SHROFF (291 ITR 519). II. OUT OF THE TOTAL SHARE APPLICATION MONEY OF RS 495, 33,093/- A SUM OF RS 68.21 LAKHS WAS TRANSFERRED FROM UNSECURED LOAN ACCOUNT WHILE A SUM OF TRS 217.01 LAKHS WAS BY WAY OF CONVERSION OF TERM LOAN OF ANDH RA PRADESH INDUSTRIAL DEVELOPMENT CORPORATION A GOVERNMENT OF ANDHRA PRADESH UNDERTAKING, THE BALANCE AMOUNT OF RS 211.11 LAKHS WAS RECEIVED FROM FRIENDS AND RELATIVES OUT OF WHICH RS 53.30 LAKHS W AS RECEIVED BY CHEQUE. THE APPELLANT OFFERED THE ENTI RE AMOUNT FOR TAXATION FOR THE PURPOSE OF PURCHASING PEACE ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 5 BEFORE ANY CONCEALMENT OF INCOME WAS DETECTED BY TH E DEPARTMENT. IV. THE ADDITION U.S 43B WAS MADE DUE TO DIFFERENCE B ETWEEN THE AMOUNT CERTIFIED BY THE AUDITOR IN 3CD REPORT A ND AS PER BOOKS OF ACCOUNT. THE MISTAKE WAS A BONAFIED MISTAKE FOR WHICH NO PENALTY U/S 271(1)(C) CAN BE L EVIED. V. THE ADDITION OF RS 10,00,000/- OR NON PRODUCTION OF BILLS VOUCHERS WAS MADE ON ESTIMATED FOR WHICH NO PENALT Y U/S 271(1)(C) CAN BE LEVIED 8. THE LD. AR RELIED ON VARIOUS CASE LAWS TO SUPPO RT HIS AFORESAID CONTENTION. THE CIT(A) CONCLUDED AS UNDER : I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE MATERIAL AVAILABLE ON RECORD. SINCE THE ADDITIONS OF INCOME IN THE ASST. ORDER HAD BEEN MAD E ON AGREED BASIS AND NO APPEAL HAS BEEN FILED AGAINST T HE SAID ASST. ORDER, THE SAME HAS ATTAINED FINALITY. T HE FACTS IN RESPECT OF ADDITION MADE ON ACCOUNT OF SHA RE APPLICATION MONEY ARE THAT THE AO REQUIRED THE APPE LLANT TO FILE THE COMPLETE DETAILS IN RESPECT OF INCREASE IN SHARE APPLICATION MONEY ALONG WITH CONFIRMATION LETTERS F ROM THE INVESTORS CONTAINING THEIR ADDRESSES ASSESSMENT PARTICULARS SOURCES FOR INVESTMENT AND DOCUMENTARY EVIDENCES THEREOF. SINCE THE APPELLANT COULD NOT F URNISH THESE DETAILS AND DOCUMENTS IT SURRENDERED A SUM OF RS 4,96,33,093/- AS ADDITIONAL INCOME OF THE YEAR. THI S CONDUCT OF THE APPELLANT CANNOT BE TREATED AS VOLUN TARY OFFER OF THE ADDITIONAL INCOME. DURING THE APPEAL PROCEEDINGS THE LD AR FURNISHED THE BROAD CATEGORIE S OF SHARE APPLICATION MONEY, IT IS EVIDENT FROM THE PE RUSAL OF THESE DETAILS THAT A SUM OF RS 217.01 LAKHS WAS A TRANSFER ENTRY FROM THE LOAN ACCOUNT TO THE SHARE APPLICATION MONEY ACCOUNT. THE TERM LOAN OF RS 217. 01 ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 6 LAKHS WAS ADVANCED BY APIDC, IN EARLIER YEARS WHICH WAS SUBSEQUENTLY DECIDED BY THE GOVERNMENT TO BE CONVERTED INTO EQUITY IN TERMS OF G.O.MS.NO.1 DATED 5.1.2003 AND THE PSUS SANCTION LETTER NO.DGM(M-III ) JAL/2380/2005 DATED 11.3.2005. HOWEVER SUBSEQUENTLY THE SAID AMOUNT WAS TREATED AS TERM LO AN IN THE REHABILITATION PACKAGE. SIMILARLY A SUM OF RS 68.21 LAKHS WAS TRANSFERRED FROM UNSECURED LOAN ACCOUNT IN WHICH RS 57.13 LAKHS WAS THE OPENING BALANCE BROUGHT FORWARD FROM LAST YEAR/ HENCE THES E TWO AMOUNTS OF RS 217.01 LAKHS AND RS 57.13 LAKHS CANNOT BE TREATED AS THE FRESH AMOUNT RECEIVED DURI NG THE YEAR WHICH CAN BE CONSIDERED U/S 68 OF THE ACT. PRIMA FACIE THEY ARE REQUIRED TO BE EXCLUDED FROM T HE COMPUTATION OF PENALTY U/S 271(1)(C) OF THE ACT. S INCE THESE FACTS WERE NOT FURNISHED TO THE AO, THOUGH AVAILABLE ON RECORDS THE AO IS DIRECTED TO VERIFY T HE CORRECTNESS OF THE CLAIM OF THE APPELLANT AND EXCLU DE IT FROM THE COMPUTATION OF PENALTY., IF FOUND CORRECT . . IN RESPECT OF BALANCE AMOUNT OF RS 222.19 LAKHS THE APPELLANT HAS NOT FURNISHED ANY DETAILS TO ESTABLIS H EVEN THE IDENTITY OF THE CREDITORS EITHER DURING THE ASS ESSMENT PROCEEDINGS OR DURING THE APPEAL PROCEEDINGS. HENCE , PENALTY IS LEVIABLE IN RESPECT OF THE SAID UNEXPLAI NED CASH CREDITS. 9. FURTHER, THE CIT(A) AFTER CONSIDERING VARIOUS DECISIONS ON THE ISSUE OF 271(1) (C) HELD AS FOLLOWS: IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, IT I S HELD THAT PENALTY U/S 271(1)(C) IS LEVIABLE EVEN IN THE CASES WHERE THE INCOME IS ESTIMATED IF THE AO IS SATISFIED THAT THE ASSESSEE ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 7 HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. THE EXPLANATION SUBMITTED BY THE APPELLANT IN RESPE CT OF ADDITION MADE BY WAY OF DISALLOWANCE U/S 43B OF THE ACT, IS ALSO NOT BONA FIDE AND NOT SUPPORTED BY EVIDENCE S. THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF I NCOME. CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT IS PARTLY UPHELD SUBJECT TO VERIFICATION OF THE AO, AS DISCUS SED ABOVE. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 10. AGGRIEVED THE ASSESSEE IS ON APPEAL. THE ASSES SEE IS A SICK COMPANY AND WAS BEFORE THE BIFR FOR RECONSTRUCTION. PROBABLY THE COMPANY HAD INFUSED FRESH CAPITAL. IT IS ESTABL ISHED THAT PART OF THE ADDITIONAL CAPITAL HAS BEEN BY CONVERSI ON OF LOAN AMOUNT. THE ASSESSEE SUBMITS THAT BECAUSE THE ASSES SEE WAS A SICK COMPANY, THEY WERE NOT ABLE TO FURNISH THE PAR TICULARS. IT IS NOT CLEAR WHETHER SHARES HAVE BEEN ALLOTTED ON SUCH APPLICATION MONIES. THE APEX COURT IN THE CASE OF CIT V LOVELY EXPORTS P LTD (216 CTR 195) HAS HELD THAT IF THE COMPANY HAS GI VEN NAMES OF BOGUS SHARE HOLDERS IT IS OPEN TO THE DEPARTMENT TO PROCEED AGAINST SUCH SHAREHOLDERS. IN VIEW OF THE SUBMISSIO N BY THE ASSESSEE THAT THEY MAY BE GIVEN ANOTHER OPPORTUNITY TO FURNISH DETAILS, THE MATTER IS SET ASIDE TO THE FILES OF TH E AO TO ENABLE THE ASSESSEE TO FURNISH FURTHER DETAILS ABOUT THE PERSO NS WHO HAVE PAID THE SHARE APPLICATION MONIES. AS THIS ISSUE HA S BEEN SET ASIDE TO THE FILES OF THE AO, WE ALSO SET ASIDE THE ISSUE REGARDING PENALTY IN RESPECT OF DISALLOWANCE U/S 43B TO THE F ILES OF THE AO FOR BEING REDONE. 11. THE AO WILL REDO THE LEVY OF PENALTY ON THE AB OVE TWO ADDITIONS AFTER GIVING REASONABLE OPPORTUNITY TO TH E ASSESSEE. ITA NO.64/H/2009 JAYAKRISHNA ALUMINIUM LTD., SECUNDERABAD 8 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.1. 2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 31 ST JANUARY, 2012 COPY FORWARDED TO: 1. M/S JAYAKRISHNA ALUMINIUM LTD., 4 TH FLOOT, KODALI TOWERS, TRANSPORT ROAD, SIKH VILLAGE, SECUNDERABAD. 2. THE ACIT, CIRCLE 2(2), HYDERABAD 3. THE CIT(A)-III, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/