RAJ ENTERPRISES, MUMBAI V. ITO WD 3(2), KALYAN

ITA 7304/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75878 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 01-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K GOPAL JITENDRA SINGH; SA TENDRA KUMAR PANDEY
• Keywords: Presumptive income
• Section: 44AD; 69C; 68; 69

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI [ , [ , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDIC IAL MEMBER ./ ITA NO. 7304/ M/ 2011 ( [ [ / ASSESSMENT YEAR : 2006 - 07 ) M/S. RAJ ENTERPRISES C/O SHRI ISHWAR SHIVGAN PATEL, A/504, GREENASH BUILDING, VASANT GARDEN, NEAR SAPNA NAGARI , GOLDEN TOWER, MULUND - 400080 PAN: AABFF1632Q / VS. INCOME TAX OFFICER, WARD 3(2), KALYAN INCOME TAX OFFICE, RANI MANSION, BURBAD ROAD, KALYAN (W) ( / APPELLANT) ( / RESPONDENT) ASSESSEE BY : S/ SHRI K. GOPAL , JITENDRA SINGH & SA TENDRA KUMAR PANDEY RE VENUE BY : SHRI SANJEEV JAIN, D.R. / DATE OF HEARING : 25.02.2014 / DATE OF PRONOUNCEMENT : 12.03.2014 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 15.06.11. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE REPRODUCED AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN SUSTAINING THE ADDITION OF RS.6,85,000/ - MADE TO THE RETURNED INCOME OF THE APPELLANT FIRM BY THE ASSESSING OFFICER U/S.68 OF THE ITA NO . 7304/M/2011 M/S. RAJ ENTERPRISES 2 INCOME TAX ACT, 1961, BEING INTRODUCTION OF CAPITAL BY A PARTNER NAMELY SHRI SHIVGAN JETHA PATEL. 2. THE LEARNED COMMISS IONER OF INCOME - TAX (APPEALS) ALSO ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST ON CAPITAL OF ONE OF THE PARTNERS, NAMELY SHRI SHIVGAN JETHA PATEL , U/S.69 OF THE INCOME TAX ACT, 1961. 3. THE APPELLANT PRAYS THAT THE ADDITION OF RS.6,85,000/ - AND DIS ALLOWANCE OF INTEREST THEREON AS ABOVE MADE TO THE RETURNED INCOME OF THE APPELLANT FIRM BY THE ASSESSING OFFICER U/S.68 & 69C OF THE INCOME TAX ACT, 1961, BE DELETED. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTER, DELETE, AND/OR MODIFY THE AB OVE GROUNDS OF APPEAL. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE, A FIRM ENGAGED IN THE CONTRACT/CONSTRUCTION BUSINESS FILED ITS RETURN OF INCOME ADMITTING A TOTAL INCOME OF RS.31,888/ - ESTIMATED ON THE BASIS OF PROVISIONS OF SECTION 44AD OF THE INC OME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT). DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED FROM THE CAPITAL ACCOUNT OF THE PARTNERS OF THE FIRM NAMELY SHRI ISHWAR SHIVGAN PATEL AND SHRI SHIVGA N JETHA PATEL THAT A SUM OF RS.4,45,000/ - AND RS.6,85,000/ - RESPECTIVELY WAS CREDITED IN THEIR CAPITAL ACCOUNTS. THE ASSESSEE COULD NOT SATISFY THE AO ABOUT THE GENUINENESS OF THE SOURCE OF INDUCTION OF FUNDS AS CAPITAL. SO THE AO TREATED THE SAME AS UNE XPLAINED CASH OF THE FIRM WHICH WAS CREDITED TO THE CAPITAL ACCOUNT OF THE PARTNERS BY TH E FIRM HENCE ADDED BACK THE SAME INTO THE INCOME OF THE ASSESSEE FIRM UNDER SECTION 68 OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION IN RESPECT OF C ASH CREDIT IN THE CAPITAL ACCOUNT OF SHRI ISHWAR SHIVGAN PATEL BEING SATISFIED FROM THE EXPLANATION OFFERED BY THE ASSESSEE REGARDING THE SOURCE OF CREDITS. HOWEVER, HE FOUND THAT THE ASSESSEE HAD FAILED TO FURNISH ANY DETAILS/EXPLANATION ITA NO . 7304/M/2011 M/S. RAJ ENTERPRISES 3 REGARDING THE CA SH INTRODUCTION OF RS.6,85,000/ - MADE IN THE CAPITAL OF SHRI SHIVGAN JETHA PATEL. HE OBSERVED THAT THE COPY OF BANK ACCOUNT OF SAID SHRI SHIVGAN JETHA PATEL DID NOT REFLECT IN A NY CASH WITHDRAWAL. ACCORDINGLY , HE SUSTAINED THE ADDITION OF RS.6,85,000/ - I N THE HANDS OF THE ASSESSEE. THE ASSESSEE IS THUS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE FIRST CONTENTION OF THE LD. A.R HAS BEEN THAT SINCE THE ASSESSEE HAD FURNISHE D THE RETURN OF INCOME UNDE R PROVISIONS OF SECTION 44AD HENCE , THERE WAS NO NECESSITY TO MAINTAIN BOOKS OF ACCOUNT. THE INCOME UNDER SECTION 44AD IS OFFERED ON ESTIMATION BASIS AT THE RATE OF 8% OF THE TOTAL TURNOVER . FOR I NVOKING OR MAKING ADDITIONS UN DER SECTION 68, THE MAINTAINING OF BOOKS OF ACCOUNTS IS NOT NECESSARY. SINCE THE ASSESSEE HAD NOT BEEN MAINTAINING ANY BOOKS OF ACCOUNT HENCE THE ADDITIONS MADE BY THE AO UNDER SECTION 68 WERE NOT SUSTAINABLE. THE SECOND CONTENTION RAISED BY THE LD. A.R HAS BEEN THAT EVEN THE ADDITIONS , IF ANY , COULD HAVE BEEN MADE BY THE AO AT THE HANDS OF THE PARTNERS AND NOT AT THE HANDS OF FIRM AS THE CAPITAL WAS ALLEGEDLY INTRODUCED IN THE CAPITAL ACCOUNTS OF THE PARTNERS AND IT WAS THE PARTNERS WHO HAD TO E XPLAIN T HE SOURCE OF INCOME. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TAJ BOREW ELLS 299 ITR 232 (MAD.) AND FURTHER UPON ANOTHER DECISION OF HONBLE MADHYA PRADESH HIGH COURT IN THE CAS E OF CIT VS. METACHEM INDUSTRIES (2000) 245 ITR 160 (MP). 5. ON THE OTHER HAND , THE LD. DR HAS SUBMITTED THAT MERELY BECAUSE THE ASSESSEE FIRM HAS FURNISHED RETURN OF INCOME UNDER SECTION 44AD THAT DOES NOT MEAN THAT THE ASSESSEE FIRM IS FREE TO INTRO DUCE ANY CAS H IN ITS BOOKS OF ACCOUNT OR OTHERWISE . I F ANY UNACCOUNTED CASH, MONEY OR OTHER SECURITY IS FOUND WITH THE ASSESSEE , THE ASSESSEE IS B OUND TO OFFER AN EXPLANATION FOR THE SAME AND IN ITA NO . 7304/M/2011 M/S. RAJ ENTERPRISES 4 THE ABSENCE OF ANY EXPLANATION , THE AO WOULD BE JUSTIFI ED IN TREATING THE SAID UNEXPLA INED MONEY AS THE UNEXPLAINED INCOME OF THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES. ADMITTEDLY THE ASSESSEE HAS FILED RETURN OF INCOME UNDER SECTION 44AD OF THE ACT. A CAREFUL PERUSAL OF THE PROVISIONS OF SECTION 44AD REVEALS THAT IN CASE OF AN ELIGIBLE ASSESSEE DOING ELIGIBLE BUSINESS AS DEFINED UNDER SECTION 44AD OF THE ACT , IF THE TOTAL TURNOVER OR GROSS RECEIPTS IN THE PREVIOUS YEAR DOES NOT EXCEED THE PRESCRIBED LIMIT UNDER THIS SECTION, T HEN A SUM EQUAL TO 8% OF THE TOTAL TURNOVER OR GROSS RECEIPTS OF THE ASSESSEE OR A SUM HIGHER THAN THE AFORESAID SUM CLAIMED TO HAVE BEEN EARNED BY THE ELIGIBLE ASSESSEE SHALL BE DEEMED TO BE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS OF THE ASSESSEE. SO FROM THE PROVISIONS OF SECTION 44AD , IT REVEALS THAT IN THE ABSENCE OF BOOKS OF ACCOUNT AND SUBJECT TO SATISF ACTION OF THE REQUIREMENTS OF SECTION 44AD , THE INCOME WILL BE ASSESSED ON PRESUMPTIVE BASIS AT THE RATE OF 8% OF THE GROSS RECEIPTS OR TOTAL T URNOVER. HOWEVER, IF THE ASSESSEE ADMITS OR CLAIMS THAT IT HAS RECEIVED MORE INCOME THAN 8% OF THE TURNOVER, IT IS FREE TO OFFER THE SAME AT A HIGHER RATE. NOW COMING TO THE QUESTION OF UNEXPLAINED MONEY, CASH ETC., W E MAY OBSERVE THAT THE LIMIT OF GROS S RECEIPTS/TURNOVER HAS BEEN FIXED UNDER THE PROVISIONS OF SECTION 44AD WHICH IN THIS CASE FOR ASSESSMENT YEAR 2006 - 07 WAS RS.40,00,000/ - . HENCE THE INCOME TO BE ASSESSED ON PRESUMPTIVE BASIS MUST BE IN CONSONANCE WITH THE GROSS RECEIPTS OF TOTAL TURNOVER WHICH ACCORDING TO THE PROVISIONS OF THE SECTION 44AD IS TAKEN AT 8%. THE CONCLUSION IS THAT THOUGH THE ASSESSEE MAY CLAIM THAT IT HAS EARNED THE INCOME LESS THAN THE 8% OF THE TOTAL TURNOVER YET , IF IT DOES NOT MAINTAIN ANY BOOKS OF ACCOUNT , STILL IT IS BOUND TO OFFER THE INCOME AT THE RATE OF 8% OF THE TOTAL TURNOVER /GROSS RECEIPTS . HOWEVER, THE ASSESSEE IS PRECLUDED FROM CLAIMING THAT IT HAS IN FACT EARNED THE INCOME HIGHER THAN 8% AND IT HAS BEEN SO DECLARED BY I T ALSO, BUT IT IS ABSOLVED ITA NO . 7304/M/2011 M/S. RAJ ENTERPRISES 5 OF ANY LIAB ILITY OF PAYING THE TAX ON THE ADDITIONAL INCOME BUT ONLY ON THE INCOME ARRIVED AT THE RATE OF 8% OF THE TOTAL TURNOVER. IF FROM THE RECORDS OR FROM ANY OTHER EVIDENCE , THE AO FINDS THAT THE ASSESSEE IS THE OWNER OR HAS INTRODUCED MONEY WHICH IS NOT IN CO NSONANCE WITH THE PRESUMPTIVE INCOME OF 8% OF THE TURNOVER AND FURTHER THE ASSESSEE HAS NOT OFFERED ANY HIGHER INCOME OR HAS FAILED TO EXPLAIN THE SOURCE OF UNEXPLAINED MONEY , THEN HE WILL BE JUSTIFIED IN TREATING THE SAME OR ADDING SUCH SUM INTO THE INCOM E OF THE ASSESSEE. THOUGH THERE IS NO NECESSITY TO MAINTAIN ACCOUNTS IN CASE OF FURNISHING RETURN UNDER SECTION 44AD YET , IF THE ASSESSEE HAS MAINTAINED ANY ACCOUNTS AND HAS FURNISHED THE SAME WITH THE RETURN OF INCOME , LIKE THE CAPITAL ACCOUNT OF THE PA RTNERS IN THE CASE IN HAND , THE AO CAN EXAMINE SAID ACCOUNTS AND IF HE FINDS THAT THERE IS AN INTRODUCTION OF UNEXPLAINED CASH IN THE CAPITAL ACCOUNTS OF THE ASSESSEE , H E WOULD BE JUSTIFIED TO ASK THE ASSESSEE TO EXPLAIN THE SOURCE OF SUCH CREDITS AND IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION , THE AO WILL BE JUSTIFIED IN ADDING SUCH SUM INTO THE INCOME OF THE ASSESSEE. 7. IN THE CASE IN HAND, THE AO FOUND UNEXPLAINED CASH INTRODUCED IN THE CAPITAL ACCOUNT OF THE PARTNERS. THE SAID CAPITAL ACCOUNTS WERE ALSO FILED WITH THE RETURN OF INCOME FURNISHED UNDER SECTION 44AD. THE LD. CIT(A) FROM THE EXPLANATION OFFERED IN THE CASE OF SHRI ISHWAR SHIVGAN PATEL WAS SATISFIED REGARDING THE SOURCE OF CASH INTRODUCED INTO THE CAPITAL ACCOUNT OF THE PARTNERS OF THE FIRM AND HENCE HE DELETED THE ADDITIONS. HOWEVER, THE ASSESSEE FIRM SINCE HAVE FAILED TO EXPLAIN REGARDING THE INTRODUCTION OF CASH IN THE ACCOUNT OF SHRI SHIVGAN JETHA PATEL, HENCE HE RIGHTLY CONFIRMED THE ADDITION ON ACCOUNT OF UNEXPLAINED INTRODUC TION OF CASH IN THAT ACCOUNT. 8. SO FAR THE CONTENTION OF THE LD. A.R. THAT SECTION 68 CANNOT BE INVOKED IN A CASE WHERE THE RETURN IS FURNISHED UNDER SECTION 44AD, WE ARE NOT INCLINED TO ITA NO . 7304/M/2011 M/S. RAJ ENTERPRISES 6 ACCEPT THIS CONTENTION OF THE LD. A.R. , SO FAR SO THE FACTS OF THI S CASE ARE CONCERNED. IN THE CASE IN HAND, THE ASSESSEE FIRM HAD SUBMITTED THE CAPITAL ACCOUNTS OF THE PARTNERS OF THE FIRM AND THE AO OBSERVED FROM THE CAPITAL ACCOUNT OF THE PARTNERS THAT THERE WAS INTRODUCTION OF THE UNEXPLAINED CASH AND AS SUCH HE WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 68. EVEN OTHERWISE THERE ARE CORRESPONDING SECTIONS LIKE SECTION 69 AND SECTION 69A WHICH DEALS WITH THE UNEXPLAINED CASH/INVESTMENTS/MONEY/EXPENDITURE ETC. WHEN WE READ SECTION 68 ALONG WITH SECTION 69 AN D 69A THEN THE CONCLUSION WILL BE THAT IF THERE IS SOME INTRODUCTION OF ANY CASH OR THE ASSESSEE IS FOUND TO BE OWNER OF ANY MONEY OR ANY INVESTMENTS HAVE BEEN MADE DURING THE YEAR BY THE ASSESSEE , THE SOURCE OF WHICH ASSESSEE FAILS TO EXPLAIN, THEN THE AD DITIONS CAN BE MADE INTO THE INCOME OF THE ASSESSEE UNDER THE RELEVANT SECTIONS. SO FAR THE CONTENTION THAT THE ADDITIONS , IF ANY , CAN BE MADE IN THE HANDS OF THE PARTNERS IS CONCERNED, THE SAID CONTENTION WILL COME INTO OPERATION ONLY WHEN THE ASSESSEE FIRM EXPLAINS THE SOURCE OF CREDIT. HOWEVER, IN THE CASE IN HAND THE ASSESSEE FIRM HAS FAILED TO EXPLAIN THE SOURCE OF CASH EVEN FROM THE PARTNERS. UNDER SUCH AN EVENT THE AO IS JUSTIFIED IN ADDING THE SAME INTO THE INCOME OF THE ASSESSEE FIRM. SO FAR THE CASE LAWS RELIED UPON BY THE LD. A.R. ARE CONCERNED, IN THE CASE OF CIT VS. TAJ BOREWELLS (SUPRA) , THE HONBLE HIGH COURT HAS OBSERVED THAT IT IS THE ASSESSEE FIRM TO EXPLAIN AND PROVE THE SOURCE OF THE MONEY. ONCE THE ASSESSEE FIRM HAS OFFERED AN E XPLANATION AND ESTABLISHED THAT THE CAPITAL WAS CONTRIBUTED BY THE PARTNERS ONLY THEN THE SAME CAN NOT BE CONSIDERED FOR ADDITION IN THE HANDS OF THE FIRM. HOWEVER, IF THE EXPLANATION OFFERED BY THE ASSESSEE FIRM IS NOT SATISFACTORY OR THE ASSESSEE FIRM C OULD NOT ESTABLISH THAT THE CAPITAL WAS CONTRIBUTED BY THE PARTNERS THEN IN THAT EVENT THE AO WOULD BE JUSTIFIED IN TREATING THE SAME AT THE HANDS OF THE ASSESSEE. SIMILAR IS THE PROPOSITION LAID DOWN BY THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE ITA NO . 7304/M/2011 M/S. RAJ ENTERPRISES 7 O F CIT VS. METACHEM INDUSTRIES (SUPRA) I.E. THE EXPLANATION GIVEN BY THE FIRM REGARDING THE CREDIT ENTRIES MUST BE SATISFACTORY. HOWEVER, IN THE CASE IN HAND THE ASSESSEE FIRM HAS FAILED TO SATISFACTORILY EXPLAIN THE CASH CREDITS IN THE ACCOUNT OF THE SH RI SHIVGAN JETHA PATEL AND AS SUCH THE LD. CIT(A) IN OUR VIEW RIGHTLY SUSTAINED THE ADDITION TO THAT EXTENT. IN VIEW OF OUR OBSERVATIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 .03. 201 4 . 12 .03.2014 SD/ - SD/ - ( / RAJENDRA ) ( [ / SANJAY GARG) / ACCOUNTANT MEMBE R / JUDICIAL MEMBER / MUMBAI ; / DATED 12 .03. 2014 * KISHORE / 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