DCIT, CHENNAI V. V.V.D.Murali, Chettur

ITA 84/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90387 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DAS GUPTA IRS
• Assessee Lawyers: S VIDYA
• Keywords: Unexplained cash credit; Unexplained investment; Capital asset; Business income
• Section: 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . !' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A. NO.84/MDS/2015 ( / ASSESSMENT YEAR : 2010-2011) THE DEPUTY COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 22, TAMBARAM, CHENNAI 600 045. ( &' /APPELLANT) VS SHRI. V.V.D. MURALI, NO.169, EAST STREET, VEDAL VILLAGE POST, CHETTUR, TAMILNADU 603 304. [PAN: AFLPM 3693R] ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. S. DAS GUPTA, IRS, JCIT. / RESPONDENT BY : MS. S. VIDYA, C.A., /DATE OF HEARING : 23.04.2015 /DATE OF PRONOUNCEMENT : 22.05.2015 * / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY REVENUE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNAI, D ATED 04.09.2014 FOR THE ASSESSMENT YEAR 2010-2011. I.T.A.NO.84/MDS/2015 :- 2 -: 2. THE FIRST GROUND RAISED BY THE DEPARTMENT FOR OUR CONSIDERATION IS WITH REGARD TO THE COMMISSIONER OF INCOME TAX (A PPEALS) ERRED IN DELETING THE DISALLOWANCE OF ?1,74,000/- MADE U/S.4 0(A)(IA) ON THE INTEREST EXPENSES, HOLDING THAT THE PROVISIONS OF S ECTION 40(A)(IA) IS APPLICABLE FOR THE AMOUNTS OUTSTANDING AS ON THE EN D OF THE FINANCIAL YEAR. 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE DURING THE ASSESSMENT YEAR 2010-11, DEBITED THE FOLLOWING THE EXPENSE IN THE PROFIT AND LOSS ACCOUNT:- (I) AUDIT FEE : ? 50,000/- (II) INTEREST PAYMENTS : ?1,74,000/- ---------------- TOTAL: ?2,24,000/- ---------------- THE ASSESSEE HAS NOT DEDUCTED/REMITTED ANY TDS ON T HESE EXPENSES. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT AND DISALLOWED THE SAME. AGGRIEVED, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS). ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED TH E APPEAL OF THE ASSESSEE. AGAINST THIS, THE REVENUE IS IN APPEAL BE FORE US. 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. IN THIS CASE ?1,74,000/- IS NOT OUTSTANDING AT THE END OF THE I.T.A.NO.84/MDS/2015 :- 3 -: CLOSE OF THE FINANCIAL YEAR. HENCE, IN OUR OPINION , THE ISSUE RAISED BY THE DEPARTMENT IS SQUARELY COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL (VIZAG) IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ACIT (2012) 136 ITD 23 (VISAKHAPATNAM) WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO THE EXPENSES THAT ARE PAYABLE AND OUTSTANDING AT THE END OF TH E CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEAR AND NOT TO THE AMOU NT ALREADY PAID. 4. THE SAME VIEW WAS TAKEN BY THE HIGH COURT OF ALLAH ABAD IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD IN ITA NO.122 OF 2013 DATED 09.7.2013 BY HOLDING THAT SEC 40(A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEAR A ND SLP FILED BY THE REVENUE IN SUPREME COURT OF INDIA IN CC NO.8068/20 14 DATED 02.07.2014 IS ALSO DISMISSED. BY RESPECTFULLY FOLLO WING THE DECISION OF ALLAHABAD HIGH COURT, WE INCLINE TO CONFIRM THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 5. THE NEXT GROUND IS WITH REGARD TO DELETION /ADDITION OF ?3,57,70,443/- MADE BY THE ASSESSING OFFICER U/S.68 OF THE ACT. I.T.A.NO.84/MDS/2015 :- 4 -: 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION (CONTRACT) ACTIV ITY IN THE NAME AND STYLE OF M/S. DECCAN CONSTRUCTIONS, A PROPRIETARY C ONCERN. THE BOOKS OF ACCOUNTS AND THE AUDIT REPORT UNDER SECTION 44AB OF THE ACT WERE FILED ALONG WITH THE RETURNS OF INCOME FILED. IN A DDITION TO THE BUSINESS OF CIVIL CONSTRUCTIONS/CONTRACTS, HE HAS C ERTAIN TRANSACTIONS AT HIS PERSONAL (INDIVIDUAL) LEVEL FOR WHICH SEPARA TE STATEMENT OF AFFAIRS (BALANCE SHEETS) WERE BEING PREPARED. HOW EVER, DURING THE FINANCIAL YEAR 2009-10, RELEVANT TO THE ASSESSMENT YEAR 2010-11, FOR THE PURPOSE OF AVAILING BETTER CREDIT FACILITIES FR OM THE BANKS, THE ASSESSEE WANTED TO SHOW A BETTER PICTURE OF HIS BUS INESS AND NET WORTH OF HIS CIVIL CONSTRUCTIONS/CONTRACTS. FOR TH IS PURPOSE, HE CONSOLIDATED THE BALANCE SHEET OF THE CIVIL CONSTRU CTIONS/CONTRACTS BUSINESS BY TRANSFERRING SOME OF THE ASSETS (AMOUNT ING TO ?3,57,70,443/-) FROM HIS PERSONAL (INDIVIDUAL) BALA NCE SHEET TO THE BALANCE SHEET OF CIVIL CONSTRUCTIONS/CONTRACTS BUSI NESS. THE ASSETS SO TRANSFERRED WERE SHOWN IN THE RESPECTIVE HEADS ON T HE ASSETS SIDE AND THE CORRESPONDING VALUE IS TAKEN TO THE CAPITAL ACCOUNT AS ADDITIONS TO THE CAPITAL ACCOUNT DURING THE YEAR. THE ASSESSEE ALSO EXPLAINED THAT HE HAD ALREADY FURNISHED ALL THE DET AILS BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEED INGS. IN SUPPORT I.T.A.NO.84/MDS/2015 :- 5 -: OF HIS CLAIM, THE ASSESSEE FURNISHED THE RELEVANT C OPIES OF THE BALANCE SHEETS OF THE BUSINESS AND ALSO THE PERSONAL (INDIV IDUAL) BALANCE SHEET. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEP T THE SUBMISSIONS OF THE ASSESSEE AND MADE ADDITION TOWARDS CAPITAL A CCOUNT. AGAINST THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE C OMMISSIONER OF INCOME TAX (APPEALS). 6.1 ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEA LS) OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE, BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE HIM, THAT THE ASSESSEE HAS BEEN DOING BUSINESS OF CIVIL CONSTRUCTIONS/CONTRACTS UND ER TWO CATEGORIES/DIVISIONS - ONE UNDER THE NAME AND STYLE OF M/S. DECCAN CONSTRUCTIONS (PROPRIETARY CONCERN) AND THE OTHER I N HIS OWN NAME (I.E. WITHOUT FORMING ANY CONCERN). THE PROPRIETARY CONCERN M/S. DECCAN CONSTRUCTIONS HAS BEEN FLOATED BY THE ASSESS EE MAINLY FOR THE PURPOSE OF OBTAINING CIVIL CONSTRUCTION CONTRACTS F ROM THE CPWD. ACCORDINGLY, THE ASSESSEE REGISTERED THE PROPRIETAR Y CONCERN, M/S. DECCAN CONSTRUCTIONS WITH THE CPWD. ALL THE CONTRAC T WORKS AWARDED BY THE CPWD ARE BEING CARRIED OUT BY THE ASSESSEE U NDER THE NAME OF M/S. DECCAN CONSTRUCTIONS AND ALL THE EXPENSES AND RECEIPTS IN RELATION TO THE CPWD CONTRACTS ARE, THEREFORE, INCLUDED IN T HE BOOKS OF I.T.A.NO.84/MDS/2015 :- 6 -: ACCOUNTS OF THE DECCAN CONSTRUCTIONS. AS THE ANNUAL TURNOVERS OF M/ S. DECCAN CONSTRUCTIONS ARE MORE THAN RS.40,00,000/-, THE ASSESSEE HAS BEEN SUBJECTING THE ACCOUNTS (OF M/S. DECCAN CONSTR UCTIONS) TO COMPULSORY AUDIT U/S.44AB OF THE ACT AND ENCLOSING THE NECESSARY AUDIT REPORT IN FORM NO.3CD, ALONG WITH THE RETURNS OF INCOME. 6.2 IN ADDITION TO THE CPWD CONTRACTS ETC, THE ASSESSEE'S FAMILY ALSO OWNS AGRICULTURAL LANDS FOR WHICH IT PU RCHASED TRACTORS ETC. THE ASSESSEE ALSO PURCHASED SEVERAL PLANT AND MACHI NERY, VEHICLES, OTHER ASSETS ETC IN VARIOUS EARLIER FINANCIAL YEARS WHICH WERE NOT INCLUDED IN THE BALANCE SHEET OF M/S DECCAN CONSTRU CTIONS . INSTEAD, THESE ITEMS WERE LYING HIS PERSONAL ACCOUNT STATEME NT OF AFFAIRS (BALANCE SHEET), THOUGHT MOST OF THESE ITEM S ARE BEING USED FOR THE CONSTRUCTION WORKS, UNDERTAKEN U NDER THE NAME DECCAN CONSTRUCTIONS. HOWEVER, FOR THE PURPOSE OF FILING THE RETURN OF INCOME, THE ASSESSEE HAS BEEN INCLUDING THE VARIOUS INCOMES DERIVED UNDER THE PERSONAL CAPACITY AND OFFERING TO TAX, IN ADDITION TO THE PROFITS DERIVED FROM THE PROPRIETARY CONCERN M/S. DECCAN CONSTRUCTIONS. IN F ACT, THIS FACT CAN BE EVIDENCED FROM THE DETAILS CONTAINED IN THE COMPUTATION OF TAXABLE INCOME STATEMENT ENCLOSED AL ONG I.T.A.NO.84/MDS/2015 :- 7 -: WITH RETURNS OF INCOME. THE DETAILS OF NET BUSINESS INCOMES OFFERED BY THE ASSESSEE UNDER 'DECCAN CONSTRUCTIONS ' NAME AND INDIVIDUAL NAME, IN THE RETURNS OF INCOME FILE D ARE AS UNDER:- ASSESSMENT YEAR NET INCOME FROM DECCAN CONSTRUCTIONS OTHER INCOMES (INCLUDING AGR. INCOME) TOTAL INCOME OF THE YEAR 2009 - 10 ?9,37,117 ?11,44,960 ?20,82,077 2008 - 09 ?20,01,197 ?10,39,340 ?30,40,537 2007 - 08 ?15,33,934 ?9,37,092 ?24,71,026 6.3 THE COMMISSIONER OF INCOME TAX (APPEALS) AL SO OBSERVED THAT THE ASSESSEE IN SUPPORT OF HIS CLAIM OF BUSINE SS ACTIVITIES UNDERTAKEN AT HIS INDIVIDUAL LEVEL(NAME), THE ASSES SEE, BEFORE THE ASSESSING OFFICER, HAS ALSO FILED THE DETAIL LIKE R ECEIPTS AND PAYMENT ACCOUNT, STATEMENT OF AFFAIRS, CAPITAL ACCOUNT OF T HE BUSINESS ACTIVITIES CARRIED ON BY HIM, FOR VARIOUS FINANCIAL YEARS. THE DETAILS OF ASSETS, LIABILITIES, CAPITAL ACCOUNT, ETC., OF THE ASSESSEE, AT HIS INDIVIDUAL LEVEL ON 31.03.2009, (I.E. BEFORE MERGIN G WITH THOSE OF THE DECCAN CONSTRUCTIONS ) ARE AS UNDER:- DETAILS OF PERSONAL ACCOUNTS RECEIPTS & PAYMENTS ACCOUNT FOR THE YEAR ENDED 31.0 3.2009. OPENING BALANCE 26,489 REPAYMENT OF CANARA BANK HOUSING LOAN 1,57,966 WITHDRAWALS FROM DECCAN CONSTRUCTIONS 10,35,080 INTEREST PAYMENT ON HOUSING LOAN 1,10,034 I.T.A.NO.84/MDS/2015 :- 8 -: DIVIDEND FROM CANARA BANK 44,960 HOUSEHOLD EXPENSES 1,50,000 AMOUNT FROM HUF - AGRICULTURE INCOME 11,00,000 AMOUNT DUE FROM SUNDRY DEBTORS 88,80,697 AMOUNT DUE TO SUNDRY CREDITORS 54,85,762 ADVANCES FROM CUSTOMERS 13,27,803 ----------- CLOSING BALANCE 2,139 ------------- 90,20,094 ------------- 90,20,094 ------------- STATEMENT OF AFFAIRS AS AT MARCH 31, 2009. CAPITAL ACCOUNT 66,78,081 CASH ETC 2,139 CREDITORS FOR FINANCE 83,15,000 SUNDRY DEBTORS 2,37,70,675 HOUSING LOAN FROM CANARA BANK 9,07,741 INVESTMENT IN DECCAN CONSTRUCTIONS 37,36,867 SUNDRY CREDITORS FOR BUSINESS 1,75,67,901 INVESTMENT IN SHARES 1,40,500 ADVANCES FROM CUSTOMERS 39,16,936 FIXED ASSETS 97,16,220 ---------------- 3,73,85,659 ----------------- --------------- 3,73,85,659 --------------- CAPITAL ACCOUNT OF V.V.D MURALI, OPENING BALANCE 59,56,037 INCOME FROM CONTRACTS 9,37,117 DIVIDEND FROM CANARA BANK 44,960 DIFFERENCE IN ROEUNDING OFF 1 DRAWINGS FOR HOUSEHOLD EXPENSES 1,50,000 INTREST PAYMENT ON HOUSING LOAN 1,10,034 -------------- 2,60,034 ------------ ---------------- 69,38,115/- ---------------- CLOSING CREDIT BALANCE 66,78,081 I.T.A.NO.84/MDS/2015 :- 9 -: -------------- THE YEAR-WISE DETAILS OF IMPORTANT ASSETS, CAPITAL ACCOUNTS OF THE ASSESSEE IN HIS INDIVIDUAL CAPACITY, FOR VARIOUS FI NANCIAL YEARS ARE AS UNDER:- FOR THE FINANCIAL YEARS ENDING ON PARTICULARS 31.03.09 31.03.08 31.03.07 31.03.06 31.03.05 CAPITAL ACCOUNT 66,78,081 59,59,037 41,81,804 28,33,381 22,53,200 IMPORTANT ASSETS 1 SUNDRY DEBTORS 2,37,70,675 1,51,89,978 95,78,206 59,92,751 44,22,742 2. FIXED ASSETS 97,16,220 97,16,220 84,06,220 76,41,280 52,01,680 3. INV. IN DECCAN CONSTRUCTIONS 37,36,867 38,34,829 27,80,985 13,50,884 8,97,075 4. INV. IN MARGADARSHI CHITS -- -- -- -- -- 6.4 THUS FROM THE ABOVE DETAILS, IT IS CLEAR THAT T HERE WERE OTHER ACTIVITIES CARRIED ON BY THE ASSESSEE, IN ADDITION TO THE BUSINESS ACTIVITIES CARRIED ON IN THE NAME OF M/S DECCAN CON STRUCTIONS. THE ABOVE DETAILS ALSO GOES TO PROVE THAT THERE WERE AS SETS AND LIABILITIES IN THE HANDS OF THE ASSESSEE IN HIS INDIVIDUAL NAME (CAPACITY). IN OTHER WORDS, THE AUDITED BALANCE SHEET AND (AND STA TEMENT) OF M/S. DECCAN CONSTRUCTIONS IS ONLY A PART OF THE ASSESSEE 'S OVERALL AFFAIRS. FURTHER ANALYSIS OF THE ASSETS SHOWN BY THE ASSESSE E, IN HIS INDIVIDUAL NAME, SOME OF THESE ASSETS ARE CLEARLY VERIFIABLE I N NATURE. FOR EXAMPLE, THE FIXED ASSETS SHOWN AT RS.97,16,220/- A S ON 31.03.2009 INCLUDED A FLAT AT ALWARPET (AN IMMOVABLE PROPERTY) PURCHASED IN F.Y. I.T.A.NO.84/MDS/2015 :- 10 -: 2005-06 FOR RS.22,34,600/- AND A VACANT SITE AT KAD APAKKAM PURCHASED PRIOR TO 31.03.2004, FOR RS.4,39,655/-. S IMILARLY. THE PLANT AND MACHINERY, WHICH ARE INCLUDED IN THE FIXED ASSE TS ALSO INCLUDED VIBRATORS AND MIXING MACHINES WORTH RS.5,76,000/- A NDRS.7,55,800/-, RESPECTIVELY, WHICH WERE PURCHASED IN THE FINANCIAL YEAR 2004-05 IN THE INDIVIDUAL NAME. IT WAS ALSO MENTIONED THAT THE VIBRATORS AND MIXING MACHINES ARE CLEAR MACHINERY TO BE USED IN T HE CONSTRUCTION BUSINESS. IT CANNOT BE USED FOR ANY PERSONAL PURPOS ES. NO PRUDENTIAL PERSON WILL BUY SUCH HEAVY MACHINERY AND KEEP THEM IDLE. IT IS ALSO CLEAR FACT THAT ALL THESE ITEMS ARE NOT INCLUDED IN THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS AS ON 31.03.2009. IT IS O NLY DURING THE CURRENT FINANCIAL YEAR 2009-10, RELEVANT TO THE CUR RENT A.Y. 2010-11, THESE ASSETS ARE BROUGHT INTO THE BOOKS (BALANCE SH EET) OF M/S DECCAN CONSTRUCTIONS, BY CONSOLIDATION. THIS FACT CLEARLY GOES TO PROVE THAT THE ASSESSEE HAS SOME MORE ACTIVITIES, W HICH ARE INDEPENDENT AND SEPARATE FROM THAT OF M/S. DECCAN C ONSTRUCTIONS. 6.5 HE ALSO OBSERVED THAT SOME OF THE FIXED ASSET S (NOW CONSOLIDATED WITH M/S. DECCAN CONSTRUCTIONS) LIKE F LAT AT ALWARPET (?.22,34,600/-), PLANT AND MACHINERY (VIBRATORS AND MIXING MACHINES), ETC. MENTIONED ABOVE, WERE NOT PURCHASED /ACQUIRED I.T.A.NO.84/MDS/2015 :- 11 -: DURING THE FINANCIAL YEAR 2009-10, RELEVANT TO THE CURRENT A.Y 2010- 11. THEY WERE ACQUIRED IN THE FINANCIAL YEARS PRIO R TO THE F.Y 2009- 10. HENCE , THESE ASSETS WERE CLEARLY OUTSIDE THE SCOPE OF THE PROVISIONS OF SECTION 68 (UNEXPLAINED CASH CREDITS) OR 69 (UNEXPLAINED INVESTMENTS) OF THE ACT. 6.6 THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THE ABOVE FACTS AND DETAILS CLEARLY ESTABLISHED THAT THE ASSESSEE HAS ACTIVITIES - ONE UNDERTAKEN U NDER THE NAME AND STYLE OF M/S. DECCAN CONSTRUCTION (A PROPR IETARY CONCERN), AND THE OTHERS ONE UNDER HIS OWN NAME (I. E. WITHOUT ANY SPECIFIC NAME) - UP TO THE END OF 31.03.2009. ALSO, IT WAS EVIDENT THAT THE BUSINESS AFFAIRS OR THE STATEMENT OF AFFAIRS (LIKE ASSETS AND LIABILITIES) OF THE IND IVIDUAL CAPACITY WERE NOT MIXED OR CONSOLIDATED WITH THOSE OF M/S. D ECCAN CONSTRUCTIONS, UPTO THE FINANCIAL YEAR 2008-09. ON THE OTHER HAND, THE ASSESSEE'S CAPITAL BALANCE IN THE DECCAN CONSTRUCTIONS HAS BEEN REFLECTED IN THE STATEMENT O F AFFAIRS OF INDIVIDUAL CAPACITY IN THE FORM OF INVESTMENT IN M/S. DECCAN CONSTRUCTIONS IN ALL THE YEARS. THEREFORE, THE ASSE SSING OFFICER WAS NOT JUSTIFIED IN COMING TO THE CONCLUSI ON THAT THE I.T.A.NO.84/MDS/2015 :- 12 -: ASSESSEE FAILED TO ESTABLISH THAT THE ADDITIONS TO THE CAPITAL ACCOUNT IN THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS, WAS ON ACCOUNT OF TRANSFER OF VARIOUS ASSETS FROM THE A SSESSEES INDIVIDUAL BALANCE SHEET (STATEMENT OF AFFAIRS). 6.7 THE OTHER ARGUMENT OF THE ASSESSEE WAS THAT THE ADDITION TO THE CAPITAL ACCOUNT IN THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS WAS NOT THE ACTUAL CAPITAL (CR EDITS) INTRODUCED DURING THE YEAR. WHAT WAS INTRODUCED INT O THE BUSINESS OF M/S. DECCAN CONSTRUCTIONS, WAS VARIOUS ASSETS LIKE DEBTORS, FIXED ASSETS, ETC. TRANSFERRED FROM THE IN DIVIDUAL BALANCE SHEET TO THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS. AS A RESULT OF THE NET INCREASE IN T HE ASSETS OVER LIABILITIES IN THE BALANCE SHEET OF M/S DECCAN CONSTRUCTIONS (I.E. EQUIVALENT TO THE AMOUNT OF ASS ETS TRANSFERRED FROM INDIVIDUAL BALANCE SHEET), BEING T HE BALANCING AMOUNT, IS CONSIDERED AND ADDED TO THE CA PITAL ACCOUNT. HOWEVER, THE ASSESSING OFFICER TREATED THE INCREASE IN THE CAPITAL ACCOUNT AS UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT AND BROUGHT TO TAX. I.T.A.NO.84/MDS/2015 :- 13 -: 6.8 ACCORDING TO COMMISSIONER OF INCOME TAX (APPE ALS) T HE PROVISIONS OF SECTION 68 OF THE ACT ARE WITH REFERE NCE TO ANY AMOUNT FOUND CREDITED INTO THE BOOKS OF ACCOUNT, FO R WHICH THE ASSESSEE FAILS TO FURNISH ANY SATISFACTORY EXPLANATION. THE PROVISIONS OF SECTION 68 OF THE ACT ARE AS UNDER CASH CREDITS. SEC.68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY. THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR 6.9 ACCORDING TO COMMISSIONER OF INCOME TAX (A PPEALS) F OR THE PURPOSE OF INVOKING SECTION 68, THE WORDS ANY AMOU NT FOUND CREDITED INTO THE BOOKS OF ACCOUNT SHOULD NOT BE R EAD IN ISOLATION. HERE ONE HAS TO SEE WHETHER THE AMOUNT CREDITED I S A FIRST DEGREE ENTRY IN THE BOOKS OR CONSEQUENTIAL TO SOME OTHER T RANSACTION, THAT IS, IF THE AMOUNT (BY WAY OF CASH OR OTHERWISE) IS FIRST BROUGHT INTO THE BOOKS BY WAY OF CREDIT, AND THEN FOLLOWED BY AP PLICATION, IT WILL AMOUNT TO FIRST DEGREE ENTRY OF 'CREDIT', WHERE THE PROVISIONS OF SECTION 68 CAN BE INVOKED. ON THE OTHER HAND, IF TH ERE IS ANY TRANSACTION RESULTING IN CREATION OF ANY ASSET ON T HE ASSET (DEBIT) SIDE OF THE BALANCE SHEET, SUCH TRANSACTION WILL HAVE A CONSEQUENTIAL CREDIT ENTRY IN THE LIABILITIES SIDE OF THE BALANCE SHEET. SUCH CREDITS, WHERE A I.T.A.NO.84/MDS/2015 :- 14 -: PRECEDING DEBIT ENTRY IS AVAILABLE, SHOULD NOT BE C ONSIDERED AS 'UNEXPLAINED CREDITS' UNDER SECTION 68 OF THE ACT. IN SUCH CASES, THE PROPER AND RIGHT APPROACH WILL BE TO EXAMINE THE AS SETS SO BROUGHT INTO THE BOOKS, BY INVOKING THE PROVISION OF SECTIO N 69 OF THE ACT, ETC . 6.10 HE OBSERVED THAT IN THE INSTANT CASE, AS STATED EAR LIER, THE ASSESSEE TRANSFERRED CERTAIN ASSETS (AMOUNTING TO ? 3,57,70,446/ -) FROM HIS INDIVIDUAL BALANCE SHEET TO THE BALANCE SH EET OF M/S. DECCAN CONSTRUCTIONS, DURING THE FINANCIAL YEAR 2009-10, R ELEVANT TO THE CURRENT ASSESSMENT YEAR 2010-11. THUS, IN THE BOOKS OF M/S. DECCAN CONSTRUCTIONS, IT IS THE CREATION (INTRODUCTION) OF THE ASSETS WHICH HAS TAKEN PLACE FIRST. ONLY THE CORRESPONDING VALUE OF THE ASSETS SO INTRODUCED HAS BEEN TAKEN TO THE LIABILITIES SIDE, AS A BALANCING ACT, AND CREDITED INTO THE CAPITAL ACCOUNT. HENCE, THE F IRST DEGREE TRANSACTION IN THE PRESENT CASE IS THE INTRODUCTION OF ASSETS (?3,57,70,443/-) AND THE CORRESPONDING CREDIT INTO THE CAPITAL ACCOUNT IS ONLY A CONSEQUENTIAL ENTRY. THEREFORE, IF AT ALL , THE TRANSACTIONS ARE TO BE EXPLAINED, IT IS THE SOURCES FOR ACQUIRING T HE ABOVE ASSETS OF ?3,57,70,443/- SO INTRODUCED DURING THE YEAR. AS FA R AS THE CREDIT ENTRY IN THE CAPITAL ACCOUNT IS CONCERNED, THE SOU RCE FOR SUCH CREDIT ENTRY IS THE INTRODUCTION (TRANSFER) OF THE ABOVE A SSETS FROM THE I.T.A.NO.84/MDS/2015 :- 15 -: INDIVIDUAL BALANCE SHEET INTO THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS. THEREFORE, THE ASSESSING OFFICERS A CTION OF INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT AND TREATIN G THE AMOUNT OF ?3,57,70,443/- AS UNEXPLAINED CASH CREDIT IS NOT J USTIFIED. 6.11. REGARDING THE APPLICABILITY OF THE PROVISIO NS OF SECTION 69 OF THE ACT TO THE ABOVE ASSETS OF RS.3,57,70,443/- INT RODUCED INTO THE BOOKS OF M/S. DECCAN CONSTRUCTIONS, HE OBSERVED THA T AS PER THE PROVISIONS OF SECTION 69 OF THE ACT, IF THE ASSESSE E IS FOUND TO HAVE INVESTED ANY AMOUNT IN ANY ASSETS AND THE ASSESSEE FAILS TO OFFER ANY SATISFACTORY EXPLANATIONS REGARDING THE SOURCES FOR ACQUIRING SUCH ASSETS, THE SAME CAN BE CONSIDERED AS UNEXPLAINED I NVESTMENTS U/S.69 OF THE ACT AND BROUGHT TO TAX. THE RELEVANT PROVISIONS OF SECTION 69 OF THE ACT AR E AS UNDER : UNEXPLAINED INVESTMENTS: SECTION.69 . WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDIN G THE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMEN TS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINE D BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS NO EXPLAN ATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS OR THE EXPLANA TION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SA TISFACTORY, THE VALUE OF THE INVESTMENTS MAY BE DEEMED TO BE THE INCOME O F THE ASSESSEE OF SUCH FINANCIAL YEAR. I.T.A.NO.84/MDS/2015 :- 16 -: 6.12 ACCORDING TO COMMISSIONER OF INCOME TAX (APP EALS) ASSETS ARE CLAIMED TO HAVE BEEN TRANSFERRED FROM THE ASSESSEE' S INDIVIDUAL BALANCE SHEET TO THE BALANCE SHEET OF M/S DECCAN CO NSTRUCTIONS. FURTHER, AS DISCUSSED IN DETAIL, ALL THESE ASSETS W ERE REFLECTED IN THE PERSONAL BALANCE SHEETS OF THE ASSESSEE AND MOST OF THEM WERE THE BROUGHT FORWARD AMOUNTS (ASSETS) FROM THE EARLIER Y EARS. FURTHER, SOME OF THE ASSETS LIKE LAND AND BUILDINGS, PLANT A ND MACHINERY WERE PURCHASED IN THE YEARS 2005-05 AND 2004-05 05, RESP ECTIVELY, AND THESE FACTS ARE VERIFIABLE FACTS. THE SOME OF THE O THER ASSETS INCLUDED IN THE SUNDRY DEBTORS WERE ALSO THE OPENING BALANCE S OF ASSETS IN THE INDIVIDUAL BALANCE SHEET OF THE ASSESSEE. IN OTHER WORDS, MOST OF THE ABOVE ASSETS OF RS. 3 ,57,70,443/ -, WHICH WERE CLA IMED TO HAVE BEEN TRANSFERRED FROM THE INDIVIDUAL BALANCE SHEET TO M/ R. DECCAN CONSTRUCTIONS, WERE THE OPENING BALANCES OF THE ASS ETS COMING FROM THE EARLIER FINANCIAL YEARS. MOST OF THESE ASSETS W ERE NOT ACQUIRED OR GENERATED DURING THE FINANCIAL YEAR 2009-10) RELEVA NT TO THE ASSESSMENT YEAR 2010-11, UNDER CONSIDERATION. THERE FORE, EVEN THE PROVISIONS OF SECTION 69 OF THE ACT HAVE NO APPLICA TION TO THE FACTS OF THE CASE, AS THE PROVISIONS OF THIS SECTION ARE APP LICABLE TO THE ASSETS ACQUIRED (INVESTMENTS MADE) DURING THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR, ONLY. I.T.A.NO.84/MDS/2015 :- 17 -: 6.13 FURTHER, THE COMMISSIONER OF INCOME TAX (APPE ALS) OBSERVED THAT THERE IS ANOTHER REASON FOR TRANSFERRING THE A BOVE ASSETS FROM THE PERSONAL BALANCE SHEET TO THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS. DURING THE YEAR, THE ASSESSEE WAS TR YING TO OBTAIN HIGHER LOAN / CASH CREDIT LIMITS FROM CANARA BANK F OR THIS PURPOSE, THE ASSESSEE WAS REQUIRED TO SHOW HIGHER NET WORTH. THEREFORE, THE ASSESSEE TRANSFERRED ALL THE ASSETS FROM THE INDIVI DUAL BALANCE SHEET TO THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS. IN THIS PROCESS, THE ASSESSEE TRANSFERRED ALL THE ASSETS FROM HIS I NDIVIDUAL BALANCE SHEET INTO THE BALANCE SHEET OF M/S. DECCAN CONSTRU CTIONS. SUCH CONSOLIDATION OF ASSETS OR BALANCE SHEETS IS A ROUT INE PRACTICE TO SUIT THE BUSINESS REQUIREMENTS AND IN ANY CASE, HAS NO I MPACT AS FAR AS THE LIABILITY UNDER THE PROVISIONS OF I.T. ACT IS CONCERNED. AS LONG AS ALL THE TRANSACTIONS OF THE ASSETS AND LIABILITIES ARE EXPLAINED, NO ADVERSE INFERENCE CAN BE DRAWN, ON ACCOUNT OF CONSO LIDATION OF THE ASSETS OR BALANCE SHEETS. 6.14 ACCORDING TO COMMISSIONER OF INCOME TAX ( APPEALS) IN VIEW OF THE ABOVE REASONS, THE ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE INCREASE OF ?3,57,70,443/- IN THE CAPITAL ACCOU NT IN THE BALANCE SHEET OF M/S. DECCAN CONSTRUCTIONS, WHICH IS A BALA NCING ENTRY ON I.T.A.NO.84/MDS/2015 :- 18 -: ACCOUNT OF THE ASSETS OF ?3,57,70,443/- TRANSFERRED FROM THE INDIVIDUAL BALANCE SHEET, AS UNEXPLAINED CASH CREDI T WITHIN THE PROVISIONS OF SECTION 68 OF THE ACT. THE ADDITION O F ?3,57,70,443/- MADE BY THE ASSESSING OFFICER IS, THEREFORE, DELETE D BY THE COMMISSIONER OF INCOME TAX (APPEALS). AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE HAS CONSOLIDATE D TWO BALANCE SHEETS, ONE IS MAINTAINED FOR BUSINESS AND OTHER IS FOR INDIVIDUAL. THE ASSESSEE CONSOLIDATED THE BALANCE SHEET BY GIVING CREDIT TO THE CAPITAL ACCOUNT AND CORRESPONDING DEBIT TO THE VARIOUS ASSE TS BY PASSING JOURNAL ENTRY THAT RESULTED IN INCREASE IN CAPITAL ASSET BY A SUM OF ?3,57,70,443/-. THE ASSESSEE HAD PROPERLY EXPLAINED THE REASONS FOR INCREASE IN CAPITAL ACCOUNT OF THE ASSESSEE IN HIS BALANCE SHEET. THE COMMISSIONER OF INCOME TAX (APPEALS), AFTER SATISFY ING THE EXPLANATION OFFERED BY THE ASSESSEE, DELETED THE AD DITION. HOWEVER, THE LD. DEPARTMENTAL REPRESENTATIVE ALLEGED ADMITT ING FRESH EVIDENCE WHEN THERE WAS NO OCCASION TO THE ASSESSING OFFICER TO CONSIDER THE SAME. IN OUR OPINION, THIS ARGUMENT OF THE LD. DEP ARTMENTAL REPRESENTATIVE IS MISPLACED. THE ASSESSEE HAS FIL ED ALL THE DOCUMENTS I.T.A.NO.84/MDS/2015 :- 19 -: BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) WHI CH WERE PLACED BEFORE THE ASSESSING OFFICER. THIS IS EVIDENT FROM THE LAST PARA OF PAGE NO.4 OF THE ASSESSMENT ORDER. IN OUR OPINION, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT COMMITTED ANY ERROR IN ACCEPTING THE EXPLANATION GIVEN BY THE ASSESSEE IN RECONCILIATION OF THE SAME WITH THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ACCORDINGLY , IN OUR OPINION, THE DELETION OF ADDITION MADE BY THE COMMISSIONER OF IN COME TAX (APPEALS) IS JUSTIFIED. THIS GROUND OF THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO .84/MDS/2015 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 22 ND DAY OF MAY, 2015, AT CHENNAI. SD/- SD/- ( . !' ) V. DURGA RAO # / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' /CHENNAI. #$ /DATED:22.05.2015. KV $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF. I.T.A.NO.84/MDS/2015 :- 20 -: