ITO 24(3)(3), MUMBAI V. O.K. SUSHEELA NAMBIAR, MUMBAI

ITA 6788/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0186 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: R ANANTH A KRISHNAN
• Keywords: Opportunity of being heard
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6788/MUM/2014 ASSESSMENT YEAR: 2010 - 11 ITO - 24(3) - 3 ROOM NO. 705, 7 TH FLOOR, C - 11, PRATYAKSHAKARBHAVAN, BKC, BANDRA (E), MUMBAI - 400051. VS. SMT. O.K. SUSHEELA NAMBIAR 201, KRISHNA KUNJ, FILM CITY ROAD, GOREGAON (E), MUMBAI - 400063. PAN NO. AAFPN0427K APPELLANT RESPONDENT REVENUE BY : SHRI RAJAT MITTAL, D R ASSESSEE BY: SHRI R. ANANTH A KRISHNAN, A R DATE OF HEARING : 30 /05/2017 DATE OF PRONOUNCEMENT : 24/08/2017 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 34 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3 ) OF THE INCOME TAX ACT 1961, (T HE ACT). ITA NO 6788/MUM/2014 2 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: - 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN HOLDING THAT THE CAPITAL IN THE PROPRIETARY CONCERN MINAR EXPORTS WAS THE CARRIED FORWARD BALANCE OF EARLIER YEARS IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) FAILED TO APPRECIATE THAT THE ONUS IS ON THE ASSESSE TO ESTABLISH AND PROVE THE CORRECTNESS OF THE OPENING BALANCE , THE CAPITAL IN THE ASSESSMENT YEAR 2010 - 11 AS THE ASSESSEE FOR THE FIRST TIME FILED HER RETURN FOR AY 2010 - 11 AND NOT FILED ANY RETURNS OF INCOME IN EARLIER ASSESSMENT YEARS. 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN HOLDING THAT THE CAPITAL WAS INTRODUCED IN THE EARLIER YEARS MERELY ON THE BASIS THAT IT WAS SHOWN AS 'OPENING CAPITAL BALANCE' IN THE BOOKS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, ESPECIALLY WHEN THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF THE OPENING BALAN CE. 4. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN HOLDING THAT CAPITAL WAS INTRODUCED IN THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR 2006 - 07 EVEN WHEN THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO PROVE THAT THE C APITAL WAS ACQUIRED IN THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR 2006 - 07 THROUGH TAKING OVER OF THE DEBTORS AND CLOSING STOCK OF THE ERSTWHILE PARTNERSHIP FIRM MINOR EXPORTS. 5. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN ALLOWING THE ASSES S EE'S APPEAL BASED ON THE CASE LAWS QUOTED BY THE ASSE S SEE EVEN THOUGH THE CASE LAWS WERE FACTUALLY DISTINGUI SHABLE FROM THE ASSESEE'S CASE? ITA NO 6788/MUM/2014 3 3 . BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HER RETURN OF INC OME FOR THE AY 2010 - 11 ON 03.06.2011 DECLARING TOTAL INCOME OF RS.7,33,210/ - . THE ASSESSING OFFICER (AO) NOTICED DURING THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD SHOWN AN OPENING CREDIT BALANCE OF CAPITAL AT RS.2,75,00,000/ - AND ADDING THE PROFIT OF THE YEAR, SHE HAD SHOWN THE CAPITAL AT RS.2,80,40,829/ - BEFORE DEBITING THE DRAWINGS OF RS.11,03,267/ - . THE ASSESSEES ACCOUNTS SHOWED AN OPENING CAPITAL OF RS.2,75,00,000/ - . T HE ASSESSEE VIDE LETTER DATED 1 2 .03.2013 FILED BEFORE THE AO EXPLAINED THAT THE ABOVE AMOUNT COULD ONLY BE BROUGHT TO TAX IN THE AY 2006 - 07. THE ASSESSEE FURTHER SUBMITTED BEFORE THE AO THAT (I) SHE WAS A PARTNER OF M/S MINAR EXPORTS W.E.F. 1997, (II) THE SAID FIRM STOPPED ITS OPERATION ON 16.01.2006, (III) AS PER THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE SAID FIRM AS ON 16.01.2006, THE BALANCE OF THE ASSESSEE IN THE CURRENT ACCOUNT AND CAPITAL ACCOUNT WAS RS.3,56,28,736/ - AND OUT OF THE ABOVE CAPITAL BALANCE, THE ASSESSEE TOOK OVER RS.280 LAKHS AS STOCK AND DEBTORS AND STARTED HER PROPRIETARY BUSINESS IN THE NAME OF MINAR EXPORTS AND STARTED TRADING IN SOME SELECTED AREAS OF TEXTILE GOODS W.E.F. 17.01.2006, (IV) FOR THE YEARS ENDED 31.03.2006, 31.03.2007, 31.03.2008 AND 31.03.2 009, HER PROPRIETARY BUSINESS MADE LOSSES AND SHE DID NOT FILE RETURNS FOR THE AYS 2007 - 08, 2008 - 09 AND 2009 - 10, (V) THE CLOSING BALANCE IN THE CAPITAL ACCOUNT AS ON 31.03.2009 IS CARRIED OVER AS OPENING BALANCE FOR THE FINANCIAL YEAR 2009 - 10 AND (VI) THER E IS NO INTRODUCTION OF ADDITIONAL CAPITAL DURING THE FY 2009 - 10 AND THEREFORE, THERE CAN BE NO ADDITION FOR AN AMOUNT APPEARING AS OPENING BALANCE CARRIED OVER FROM EARLIER YEARS. ITA NO 6788/MUM/2014 4 3.1 HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE AS SESSEE FOR THE REASON THAT (I) AS PER THE AGREEMENT DATED 22.12.2005, M/S MINAR EXPORTS, THE ERSTWHILE PARTNERSHIP FIRM WAS TO BE CONVERTED TO A COMPANY W.E.F. 16.01.2006 AND AS PER CLAUSE 5 OF THE SAID AGREEMENT, THE PARTIES THERETO (INCLUDING THE ASSESSE E) SHALL PREPARE A SEPARATE RESTATED BALANCE SHEET AS AT 16.01.2006 AFTER REVALUATION OF ASSETS AND LIABILITIES AND THIS RESTATED BALANCE SHEET SHALL BE THE BASIS FOR ALLOTMENT OF SHARES TO THE PARTIES. AS THE DOCUMENTS RELATING TO REV ALUATION ACCOUNT WA S NOT FILED, AND ADMITTEDLY AS THE ASSESSEE WAS NOT FILING HER RETURN OF INCOME AFTER CLOSURE/CONVERSION OF THE PARTNERSHIP, THE AO MADE AN ADDITION OF THE OPENING CAPITAL OF RS.2,75,00,000/ - SHOWN BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR . 4. AGGRI EVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS HELD THAT THE AMOUNT OF RS.2,75,00,000/ - REPRESENTS THE OPENING BALANCE IN THE CAPITAL ACCOUNT BROUGHT FORWARD FROM EARLIER YEARS AND IT IS SET TLED LAW THAT THERE CAN BE NO ADDITION FOR AN AMOUNT APPEARING AS OPENING BALANCE CARRIED OVER FROM EARLIER YEARS. THEREFORE, THE LD. CIT(A) DELETED THE ADDITION OF RS.2,75,00,000/ - MADE BY THE AO AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US , THE LD. DR SUBMITS THAT ADMITTEDLY THE PROPRIETARY CONCERN OF THE ASSESSEE DID NOT FILE RETURN OF INCOME FOR THE AYS 2007 - 08, 2008 - 09 AND 2009 - 10. THEREFORE, IT IS INCUMBENT ON THE PART OF THE ITA NO 6788/MUM/2014 5 AO TO VERIFY THE OPENING CAPITAL OF RS.2,75,00,000/ - SHOWN BY THE ASSESSEE IN THE AY 2010 - 11. AS THE ASSESSEE HAS NOT FILED THE REVALUATION ACCOUNT, THE LD. DR PLEADS THAT THE AO HAS RIGHTLY MADE AN ADDITION OF RS.2,75,00,000/ - . 6. PER CONTRA THE LD. C OUNSEL OF THE ASSESSEE SUBMITS THAT THERE WAS NO INTRODUCTION OF CAPITAL DURING THE FY 2009 - 10 AND THERE CAN BE NO ADDITION FOR AN AMOUNT APPEARING AS OPENING BALANCE CARRIED OVER FROM EARLIER YEARS. RELIANCE IS PLACED BY HIM ON THE DECISION IN CIT VS. V.P. SINGH (2013) 40 TAXMANN.COM 162 (P&H), CIT VS. USHA STUD AGRIC ULTURAL FIRMS LTD. (2009) 183 TAXMAN 277 (DELHI), ITO VS. NASIR KHAN J. MAHADIK (ITA NO. 153/MUM/2010) - ITAT MUMBAI; D . R . PATEL VS. DEPARTMENT OF INCOME TAX (ITA NO. 345/AHD/2007) - ITAT AHMEDABAD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE BEGIN WITH THE DECISIONS RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. IN THE CASE OF V.P. SINGH (SUPRA) , THERE WAS A SEARCH CONDUCTED BY THE DEPARTMENT AT THE RESIDENTIAL PREMISES OF THE ASSESSEE AND IN THAT CONTEXT THE HONBLE HIGH COURT HELD THAT WHERE ASSESSEE WAS FILING HIS RETURN REGULARLY, NON - FILING OF RETURN FOR ASSESSMENT YEAR IN QUESTION ON GROUND THAT AFTER ALLOWING DEDUCTION UNDER THE ACT INCOME REMAINED BELOW TAXABLE LIMIT COULD NOT BE GOOD GROUND TO HOLD INCOME AS UNDISCLOSED INCOME FOR BLOCK PERIOD. IN THE CASE OF USHA STUD AGRICULTURAL FIRMS LTD. (SUPRA) , THE ORDER OF THE CIT(A) DELETING ADDITION ON THE GROUND THAT THE CASH CREDIT WAS APPEARING IN THE BO OKS OF THE ASSESSEE OVER PAST 4 TO 5 YEARS AND, THUS, IT ITA NO 6788/MUM/2014 6 WAS NOT FRESH CREDIT ENTRY PERTAINING TO THE RELEVANT ASSESSMENT YEAR WAS UPHELD BY THE ITAT AND HIGH COURT. IN THE CASE OF NASIR KHAN J. MAHADIK (SUPRA) , IT IS HELD THAT ADDITION U/S 68 CANNOT BE MADE FOR LOAN TAKEN IN EARLIER YEARS. IN THE CASE OF D.R. PATEL (SUPRA) , IT IS HELD THAT SINCE, NO AMOUNT IS CREDITED IN THE BOOKS OF ACCOUNT OF THE RELEVANT PREVIOUS YEAR BUT WHICH IS MERELY CLOSING BALANCE OF EARLIER YEAR BEING CARRIED FORWARD, NO ADD ITION CAN BE MADE. HOWEVER, WE FIND THAT THE FACTS IN THE INSTANT APPEAL ARE DIFFERENT FROM THE CASE LAWS RELIED ON BY THE LD. C OUNSEL AND IT WOULD BE EVIDENT FROM OUR NARRATION INFRA. 7.1 AFTER PERUSAL OF THE RELEVANT RECORDS, WE FIND THAT THE ASSESSEE HAS NOT FILED HER RETURN OF INCOME FOR THE AY S 2007 - 08, 2008 - 09 AND 2009 - 10 AS THE SAID PROPRIETARY BUSINESS MADE LOSSES. WE ARE CONCERNED HERE WITH THE AY 2010 - 11. WE ALSO FIND THAT THE AGREEMENT DATED 13.10.2005 ENUMERATES THE FOLLOWING 1. THE PARTIES HERETO SHALL PREPARE A PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF MINAR EXPORTS AS AT 16.01.2006 AND SH A LL ARRIVE AT THE BALANCES STANDING TO THE CREDIT OF THE CAPITAL AND CURRENT ACCOUNT OF THE PARTIES. 2. OUT OF THE BALANCES STANDING TO THE CREDI T OF THE CAPITAL AND CURRENT ACCOUNT OF THE SECOND PARTY O.K. SUSHEELA NAMBIAR, SHE WILL BE ENTITLED TO TAKE AWAY FROM THE PARTNERSHIP BUSINESS OF MINAR EXPORTS, ITA NO 6788/MUM/2014 7 STOCK AND DEBTORS WORTH RS.280 LAKSH. (RUPEES TWO CRORE EIGHT LAKHS). 3. WITH THE ABOVE SAID AMO UNT OF RS.280 LAKHS, THE SECOND PARTY IS PERMITTED TO RUN A PROPRIETORSHIP BUSINESS IN THE NAME AND STYLE OF MINAR EXPORTS. 4. THE SECOND PARTYS LINE OF PROPRIETORSHIP BUSINESS WILL BE CONFI N ED TO THOSE ITEMS OF TEXTILE BUSINESS WHICH DO NOT DIRECTLY OR INDI RECTLY AFFECT THE BUSINESS INTERESTS OF THE COMPANY NOW BEING FORMED TO CONTINUE THE EXISTING BUSINESS OF MINAR EXPORTS. 5. THE PARTIES HERETO SHALL PREPARE A SEPARATE RESTATED BALANCE SHEET AS AT 16.01.2006 AFTER REVALUATION OF ASSETS AND LIABILITIES AND TH IS RESTATED BALANCE SHEET SHALL BE THE BASIS FOR THE ALLOTMENT OF SHARES TO THE PARTIES HERETO. 7.2 HAVING REGARD TO THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT AFTER VERIFYIN G THE RELEVANT DOCUMENTS AND GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DETAILS BEFORE THE AO. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN C OURT ON 24/08/2017. SD/ - SD/ - (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 24/08/2017 RAHUL SHARMA, SR. P.S. ITA NO 6788/MUM/2014 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI