K CHANDRASEKHAR (LATE) REP. BY L/H C KARTHIKEYAN, ANNUR V. ITO NON CORPORATE WARD 3 (2), COIMBATORE

ITA 800/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2688 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 07-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Onus to prove
• Section: 143(3); 143(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , ! ' # , $ #% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.800/CHNY/2018 & '& /ASSESSMENT YEAR: 2014-15 SHRI K. CHANDRASEKAR (LATE) REP. BY LEGAL HEIR MR. C.KARTHIKEYAN, 18/1, SRIDEVINAGAR, KOVAI ROAD, ANNUR 641 653. VS. INCOME TAX OFFICER, NON-CORPORATE WARD-3(2), COIMBATORE. [PAN: ACVPC 7767P] ( () /APPELLANT) ( *+() /RESPONDENT) () , - / APPELLANT BY : SHRI N.DEVANATHAN, ADVOCATE SHRI R.K. VARADARAJ, TCA *+() , - /RESPONDENT BY : SHRI SANAT KUMAR RAHA, JCIT . , /$ /DATE OF HEARING : 16.01.2019 01' , /$ / DATE OF PRONOUNCEMENT : 18.02.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -3, COIMBATORE (HEREINAFTER CALLED AS CIT(A)) DATED 24.01.2018 F OR THE ASSESSMENT YEAR (AY) 2014-15. 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE ORDER OF THE LEARNED CIT (A) IS CONTRARY TO LAW, EVIDENCE ON RECORD AND OPPOSED TO PRINCIPLES OF NATURAL JUSTICE , FAIR PROCEDURE, LEGITIMATE EXPECTATION AND PERVERSE IN LAW. 2. THE ADDITION OF RS. 17,44,050 UIS. 41(1) OF IT A CT. THE LEARNED CIT (A) HAVING ACCEPTED THE CREDIT FROM ONE MR. SHANMUG HAM REPRESENTS ITA NO.800/CHNY/2018 (AY: 2014-15) :- 2 -: TRADING LIABILITY, HAS ERRED IN INVOKING THE PROVIS IONS OF SECTION 41(1) OF THE ACT. 3. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THE APPELLANT HAS BEEN CONTINUING THE TRADE TRANSACTION WITH THE APPELLANT FOR SUBSEQUENT YEARS. AND HENCE GROSSLY ERRED IN HOLDIN G THAT THE SAID CREDIT LIABILITY FROM MR.SHANUMUGHAM HAD CEASED WIT HOUT ANY IOTA OF EVIDENCE AND FURTHER OUGHT TO HAVE APPRECIATED THAT SAID CREDIT IS BASED ON THE RUNNING ACCOUNT WITH MR. SHANMUGHAM AN D IT IS REFLECTED IN THE BALANCE SHEET IN THE BOOKS OF THE APPELLANT. 4. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THE CREDITOR IS CREDIT WORTHY SINCE HE HAS BEEN CARRYING ON THE BUS INESS FOR THE LAST 3 DECADES AND WELL KNOWN & REPUTED PERSON IN THE CO TTON MARKET. 5. THE LEARNED CIT (A) FUNDAMENTALLY FAILED TO APPR ECIATE THAT THE CREDIT INCLUDES CONTINUATION OF EARLIER YEAR CREDIT TO THE EXTENT 10,76,620!- WHICH TRANSACTION HAD ATTAINED FINALITY IN THE CASE OF MR. SHANMUGHAM. 6. THE LEARNED CIT (A) FUNDAMENTALLY HAVING CORRECT LY APPRECIATED DIFFERENCE BETWEEN CASH CREDIT VS. TRADE LIABILITY, OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD TRANSACTION IN TH E SUBSEQUENT YEARS AS HAS BEEN ACCEPTED BY THE DEPARTMENT AND OU GHT NOT HAVE ADOPTED THAT THE LIABILITY WAS CEASED WITHOUT ANY R HYME, REASON OR MATERIAL AND THE SAME WAS AGAINST EVIDENCE ON RECOR D. 7. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDE R ON THE BASIS OF SUSPICION, SURMISES, CONJECTURES AND CLAIRVOYANCE O F REASONING AND UPHELD THE ORDER OF THE AO WITHOUT NOTICING THE VIT AL FACTS OF CONTINUATION OF TRADE RELATIONSHIP BETWEEN THE ASSE SSEE AND MR. SHANMUGHAM. 8. THE LEARNED CIT (A) FUNDAMENTALLY FAILED TO APPR ECIATE THAT THE PURCHASES AND SALES RECORDED IN THE BOOKS OF THE AC COUNT OF THE ASSESSEE WAS ACCEPTED BY VAT AUTHORITIES AND HENCE THE LEARNED ASSESSING OFFICER WAS WRONG IN ASSUMING AS CASH CRE DIT AS PER THE BINDING DECISION OF THE JURISDICTIONAL HIGH COURT A ND FAILED TO NOTICE THAT THE SAID SUM OF CREDIT FROM MR. SHANMUGHAM HAD BEEN UTILISED FOR ITS TRADE AND INCOME EMANATING FROM THE UTILISA TION OF THE SAID FUNDS WAS OFFERED AND PAID TAX ON IT. 9. THE LEARNED ASSESSING OFFICER FUNDAMENTALLY FAIL ED TO APPRECIATE THE LAW COMPELS THAT THE DUTY OF THE AO IS TO GIVE CATEGORICAL FINDING IN REGARD TO SOURCE FOR THE CREDIT EMANATED FROM T HE ASSSSEE WHICH WAS NOT PROVED BY THE DEPARTMENT [SEE VICTORY SPIIN NING MILLS (MAD)] AND HENCE THE ADDITION IS ILLEGAL. 10. THE LEARNED AO HAD ASSUMED THE JURISDICTIONAL F ACT IN REGARD TO FORMATION OF OPINION ON CREDIT WITHOUT SUFFICIENTLY MAKING ANY SORT OF ITA NO.800/CHNY/2018 (AY: 2014-15) :- 3 -: ENQUIRY REGARDING THE BUSINESS INCOME OF MR. SHANMU GHAM WHO CARRIED ON BUSINESS FOR MORE THAN 30 YEARS (227 IT R 900) 11. THE LEARNED ASSESSING OFFICER PROCEEDED THE CAS E ON SUSPICION, SURMISES AND CONJECTURES WITHOUT NOTICING THE FACT THAT THE APPELLANT HAD OFFERED CREDIT TO THE EXTENT 23,03,800!- AND PA ID THE TAX VOLUNTARILY. 12. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE APP RECIATED THAT THE APPELLANT HAD PROVED ITS CASE BEYOND REASONABLE DOU BT IN REGARD TO GENUINENESS OF THE TRANSACTION, CREDIBILITY AND THU S DISCHARGED THE BURDEN OF PROOF. HENCE THE ORDER OF CIT(A) IS PERVE RSE AND NULLITY IN LAW. 13. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED T HAT A SUM OF RS 10,76,620 IS THE OPENING BALANCE OF CREDIT FROM MR. SHANMUGHAM AND IN ANY EVENT, THE SAID SUM IS NOT THE CREDIT OF THE IMPUGNED ASSESSMENT YEAR AND HENCE THE SAME IS NOT TAXABLE. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT IS AN INDIVIDUAL CARRYING ON THE BUS INESS OF GINNING COTTON IN THE NAME AND STYLE OF OM KALEESWARA GINN ING MILLS. THE RETURN OF INCOME FOR THE AY 2014-15 WAS FILED ON 29 .10.2014 DECLARING TOTAL INCOME OF RS.9,64,720/-. AFTER PROCESSING TH E RETURN OF INCOME U/S. 143(1) OF THE INCOME TAX ACT, 1961, (IN SHORT THE ACT), THE CASE WAS TAKEN UP FOR SCRUTINY ASSESSMENT AND THE SAME WAS C OMPLETED BY INCOME TAX OFFICER, NON-CORPORATE WARD-3(2), COIMBA TORE AFTER ISSUING OF NOTICE U/S. 143(2) OF THE ACT VIDE ORDER DATED 3 0.12.2016 PASSED U/S. 143(3) OF THE ACT AT A TOTAL INCOME OF RS. 50,12,57 0/-. WHILE DOING SO, THE AO BROUGHT TO TAX A SUM OF RS. 40,47,850/- ON A CCOUNT OF UNPROVED CREDITORS. FROM THE PERUSAL OF THE ASSESSMENT ORDER , IT IS CLEAR THAT THE AO HAD COME TO CONCLUSION THAT THE TWO PARITIES NAM ELY M/S. VINAYAGA TRADERS AND ONE SHRI SENTHIL KUMAR IN THE CHEQUES I SSUED IN FAVOUR OF ITA NO.800/CHNY/2018 (AY: 2014-15) :- 4 -: THEM IN THE SUBSEQUENT YEAR I.E., ON 19.03.2015 WER E ENCASHED BY THE APPELLANT BY HIS NOMINEE. SIMILARLY, IN RESPECT OF SUNDRY CREDITORS SHRI SHANMUGHAM, WHO IS THE PROPRIETOR OF M/S. SRI BHAGY ALAKSHMI TRADERS, THE AO HAD COME TO CONCLUSION THAT THE SUNDRY CREDI TORS WERE BOGUS ON THE GROUND THAT THEY WERE NOT RESPONDED TO THE SUMM ONS ISSUED OR HAD DENIED HAVING ANY OUTSTANDING BALANCE WITH THE APPE LLANT. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), WHEREIN IT WAS CONTENDED INTER ALIA THAT WHEN THE AO HAS ACCEPTED THE PURCHASES MADE, THE CREDITORS CANNOT BE DOUBTED. H OWEVER, THE LD. CIT(A) HAD NOT AGREED THE CONTENTION OF THE APPELLA NT AND DISMISSED THE APPEAL. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. NO DOUBT, THE AO HAD BROUGHT ON RECORD MAT ERIAL TO SHOW THAT THE SUNDRY CREDITORS ARE BOGUS. THE NORMAL PRESUMPT ION COULD BE THAT THE PURCHASES WERE MADE OUT OF UNACCOUNTED MONEY. T HEREFORE, THE ADDITION, IF ANY, CAN BE MADE ONLY IN THE YEAR IN W HICH THE CREDITS WERE INTRODUCED IN THE BOOKS FOR THE FIRST TIME OR IN TH E YEAR, IN WHICH PURCHASES WERE MADE THEREFORE, THE ADDITION CANNOT BE MADE IN THE SUBSEQUENT YEAR UNDER CONSIDERATION. HOWEVER, WE MA KE IT CLEAR APPROPRIATE ACTION CAN BE INITIATED TO TAX THE AMOU NT IN THE YEAR, IN WHICH ITA NO.800/CHNY/2018 (AY: 2014-15) :- 5 -: PURCHASES WERE MADE / IN THE SUBSEQUENT YEAR IN WHI CH THE CREDITS WERE SQUARED OFF BY ADOPTING THE PROCESS KNOWN TO THE LA W. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 18 TH DAY OF FEBRUARY, 2019 IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! ' # ) (INTURI RAMA RAO) $ /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 18 TH FEBRUARY, 2019. EDN, SR. P.S , */34 54'/ /COPY TO: 1. () /APPELLANT 4. . 6/ /CIT 2. *+() /RESPONDENT 5. 47 */ /DR 3. . 6/ ( )/CIT(A) 6. 8& 9 /GF