M/s Kothari Constructions, Hyderabad V. ACIT, Hyderabad

ITA 861/HYD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3072 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 23-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V RAGHURAM
• Assessee Lawyers: R B NAIK
• Keywords: Unexplained cash credit; Income from undisclosed sources; Corroborative evidences; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.861/HYD/2009 : ASSTT. YEAR : 2000-2001 M/S KOTHARI CONSTRUCTIONS, HYDERABAD PAN AAEFK4889R VS. ASST.COMMISSIONER OF INCOME TAX,CIRCLE 5(1), HYDERABAD (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI R.B.NAIK, DR RESPONDENT BY : SHRI A.V.RAGHURAM, ADVOCATE O R D E R PER CHANDRA POOJARI , ACCOUNTANT MEMBER: THIS APPEAL BY THE ASESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, HYDERABAD DT.20- 5-2009 PERTAINING TO THE ASSESSMENT YEAR 2000-01. 2. THE ASSESSEE RAISED THE GROUND THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,65,000 AND RS.1,50,0 00 INVESTED BY PARTNERS PRAKASHCHAND KOTHARI AND SMT.RATNABAI KOTHAR I AS UNEXPLAINED CREDIT. FURTHER, THE ASSESSEE RAISED A GROUND THAT THE C IT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2,90,000 AS UNEXPLAINED WITHOUT APPRECIATING THE FACT THAT IT IS ADVANCE OF RENT RECEIV ED FROM THE TENANT WHO HAS CONFIRMED GIVING SUCH ADVANCE AND IT IS NOT A CRED IT BUT A REGULAR RECEIPT. 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTICED THAT DURING THE PREVIOUS YEAR, THERE WAS FRESH INTRODUCTION OF CAPITAL IN THE FORM OF CASH IN THE ACCOUNTS OF TWO PARTNERS NAMELY SMT.R ATAN BAI AND SRI PRAKASHCHAND KOTHARI. AS PER THE CAPITAL ACCOUNT OF SMT.RATAN BAI, THERE WAS INTRODUCTION OF CAPITAL FOR AN AMOUNT OF RS.3 ,50,000. IN THE ACCOUNT OF SRI PRAKASHCHAND KOTHARI, THERE WAS INTRODUCTI ON OF CAPITAL FOR AN AMOUNT OF RS.1,65,000. AS REGARDS THE FRESH CAP ITAL INTRODUCED IN THE CASE OF SMT.RATAN BAI IS CONCERNED, THE APPELLANT HA S SUBMITTED THAT SHE HAS BORROWED AN AMOUNT OF RS.2,00,000 FROM M /S PAAN FINANCE CORPORATION, IN SUPPORT OF WHICH COPY OF HER AMOUNT IN THE BOOKS OF THE SAID CONCERN WAS FILED. FOR THE BALANCE AMOUNT OF RS.1 ,50,000, IT WAS SUBMITTED THAT HER HUSBAND LATE SRI LAKSHMICHAND KOTHAR I WAS A BUSINESSMAN AND HE WAS HAVING ANCESTRAL PROPERTY IN VILLA GE PEEHEE, DIST.NAGAUR, RAJASTHAN AND OVER THE YEARS SHE HAD RECEI VED RENTAL INCOME FROM THOSE PROPERTIES. IT WAS FURTHER STATED THAT HER SONS HAVE ALSO PAID AMOUNTS TO HER PERIODICALLY DURING THE EARLI ER YEARS AND OUT OF HER SAVINGS SHE HAS MADE ADVANCE OF RS.1,50,000 ON 30-3-2 000. HOWEVER, IN ABSENCE OF ANY COPY OF HER BANK ACCOUNT OR A NY OTHER DOCUMENTARY EVIDENCE FURNISHED BY THE ASSESSEE IN THAT REG ARD, THE ASSESSING OFFICER DID NOT ACCEPT SUCH CREDIT TO THE EXTENT OF RS.1,50,000 IN CASH MADE IN HER ACCOUNT AS GENUINE AND ADDED THE SAID AMOUNT U/S 68 OF THE ACT TREATING THE SAME AS UNEXPLAINED CREDIT. AS REGARDS THE AMOUNT OF RS.1,65,000 INTRODUCED IN CASH IN THE ACCOUNT OF SRI PRAKASHCHAND KOTHARI IS CONCERNED, THE ASSESSEE HAS SUBMITTED THAT THE SAME WAS OUT OF PERSONAL SAVINGS OF THE SAID PARTNER. HOW EVER, IN THE ABSENCE OF ANY SUPPORTING EVIDENCE PRODUCED IN THAT REG ARD, THE ASSESSING OFFICER DID NOT ACCEPT SUCH CREDIT MADE IN HIS ACCOUN T AS GENUINE AND THUS ADDED THE SAID AMOUNT EATING AS UNEX PLAINED CREDIT U/S 68 OF THE ACT. THE ASSESSING OFFICER FURTHER NOTICED T HAT THE ASSESSEE PAID INCOME TAX OF RS.5,00,000 ON 30-4-1999. HOWE VER, HE NOTED THAT THE CASH BALANCE IN THE HANDS OF THE ASSESSEE A S ON 1-4- 3 1999 WAS ONLY RS.73,128 AND THERE WERE NO AMOUNTS RECE IVED DURING THE PERIOD FRO 1-4-1999 TO 20-4-1999. ON A QUERY R AISED BY THE ASSESSING OFFICER THE ASSESEE HAD SUBMITTED THAT ARREARS OF RENT OF RS.1,43,924 RELATING TO THE EARLIER YEAR WERE RECEIV ED IN APRIL, 1999, AND RENT DUE FOR APRIL, 1999 OF RS.36,427 WAS ALSO RECEIVED FROM THE TENANTS. THE ASSESSEE SUBMITTED THAT THEY RECEIVED ADVAN CE RENT OF RS.2,90,000 FROM THEIR TENANT M/S SRINIVSA LODGE. AS N OTED BY THE ASSESSING OFFICER, THE TENANT HAS FILED CONFIRMATION LETT ER, WHEREIN IT WAS STATED THAT SUCH ADVANCE WAS GIVEN FROM AGRICULTURAL INCOM E AND LODGE RECEIPTS. HOWEVER, IN THE ABSENCE OF ANY PROOF BY WAY O F BANK ACCOUNT OR ANY DOCUMENTARY EVIDENCE PRODUCED IN THAT REGARD, T HE ASSESSING OFFICER DID NOT ACCEPT SUCH CREDIT TO THE EXTENT OF RS.2 ,90,000 SHOWN FROM M/S SRINIVASA LODGE AS GENUINE AND THUS, ADDED THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. MAKING THESE ADDITIONS, T HE ASSESSING OFFICER THUS COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.8,50,290 VIDE HIS ORDER DT.24-12-2007. ON APPEAL, THE CIT(A) CONFIRMED THE ABOVE ADDITIONS, AGGRIEVED BY THE ORDER OF THE CI T(A), ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESEE SUBMITTED THAT CAPI TAL WAS INTRODUCED BY PARTNERS, IDENTITY WAS PROVED AND THERE ARE 14 PARTNERS IN ALL IN THE FIRM AND BY NO STRETCH OF IMAGINATION IT CA N BE TREATED AS UNEXPLAINED INCOME IN THE HANDS OF THE ASSESSEE. IF AT A LL IT HAS TO BE TREATED AS UNEXPLAINED INCOME IT IS ONLY TO BE DONE IN THE HANDS OF THE RESPECTIVE PARTNERS AND NOT IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER DID NOT DOUBT THAT IT WAS CONTRIBUTED BY PAR TNERS AND THEY HAVE ALSO FILED CONFIRMATION LETTERS AND ONCE THEY FILED THE CONFIRMATION LETTERS, THE ASSESSEE FIRM IS NOT REQUIRED TO PROVE THE S OURCE OF SOURCE. IT WAS SUBMITTED THAT THE PARTNER SHRI PRAKASH CHAND K OTHARI IS AN INCOME TAX ASSESSEE FOR A NUMBER OF YEARS IN THE PAST AND EVIDENCE IN THE SHAPE OF ACKNOWLEDGEMENTS OF FILING RETURNS OF INCOM E AND COPIES OF 4 P & L ACCOUNT, TRIAL BALANCE AND CAPITAL ACCOUNT WERE FUR NISHED WITH HIS INVESTMENT FOR THE EARLIER YEARS A.Y.1989-90TO 1993-9 4 BEFORE THE ASSESSING OFFICER. IT WAS STATED THAT THE PARTNER HAD ADE QUATE RESOURCES TO MAKE INVESTMENT OF RS.1,65,000 AND FROM THE MERE F ACT THAT HE COULD NOT PRODUCE BANK ACCOUNT, IT CANNOT BE SAID THAT TH E CREDIT WAS NOT GENUINE. AS REGARDS THE CREDITS SHOWN IN THE CAPITAL ACCOUNT OF SMT.RATAN BAI KOTHARI IS CONCERNED, THE ASSESSEES COUNSEL SU BMITTED THAT HER HUSBAND WAS CARRIED ON BUSINESS AND HAD HOUSE PRO PERTY WHICH FETCHED RENT. AFTER HIS DEATH, SHE WAS RECEIVING THE RE NTAL INCOME. BESIDES, HER SONS WHO WERE IN BUSINESS, WERE GIVING HER M ONEY FROM TIME TO TIME FOR HER USE. IT WAS STATED THAT THE SMT . RATAN BHAI MADE INVESTMENT OF RS.1.5 LAKHS IN THE FIRM DURING THE CUR RENT YEAR OUT OF THESE SOURCES. IT WAS CONTENDED THAT UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE CLAIM O F CAPITAL CONTRIBUTION BY BOTH THE PARTNERS. HE PRAYED FOR DELET ION OF THE ADDITIONS. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT NO RETURN OF INCOME HAS BEEN FILED BY S HRI KOTHARI PRAKASHCHAND FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND ALSO FOR THE CURRENT ASSESSMENT YEAR AND THERE WAS NO EVIDENCE REGARDING THE SOURCE OF INCOME MADE BY SMT. RATAIN BHAI. HE RELI ED ON THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIAL O N RECORD. AS PER SEC.68 OF THE ACT, THE ASSESSEE IS REQUIRED TO EXPLAIN THE IDENTITY, CAPACITY AND GENUINENESS OF THE CREDIT ENTRY EXISTING IN THE BOOKS OF ACCOUNT. THE PROVISIONS OF THIS SECTION APPLY TO PARTNER SHIP FIRMS ALSO. THERE IS NO DISTINCTION BETWEEN THE CAPITAL CONTRIBUTED BY THE PARTNER OR THIRD PARTY. IF THE CASH CREDIT, EVEN THOUGH IN THE CAPITAL ACCOUNT OF THE PARTNER, IS NOT SATISFACTORILY EXPLAINED, THE ASSESSING O FFICER IS JUSTIFIED 5 TO TREAT IT AS INCOME FROM UNDISCLOSED SOURCES. IF THE EXP LANATION IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE, THEN THE DEEMIN G FICTION CREATED BY SEC.68 IS SQUARELY APPLICABLE. SIMPLY BECAUSE T HE AMOUNT IS CREDITED IN THE BOOKS OF THE PARTNERSHIP FIRM, IT CANNO T BE SAID THAT IT IS NOT THE UNDISCLOSED INCOME OF THE ASSESSEE AND THAT IN ALL CASES, IT HAS TO BE ASSESSED AS INCOME OF THE PARTNERS. THE ABOVE POINT OF DESCRIPTION IS FORTIFIED BY THE RAJASTHAN HIGH COURT IN THE CASE OF CIT V KISHORILAL SANTOSHILAL (216 ITR 9) (RAJ) WHICH WAS FOL LOWED BY THE TRIBUNAL IN THE CASE OF M/S DURGA WINES IN ITA NO.25/HYD /2001 DT.14-9- 2007 FOR THE ASSESSMENT YEAR 1998-99. IT IS THE ONUS O F THE FIRM TO PROVE THE CAPACITY OF THE PARTNER TO INVEST THAT AMOUN T IN THE FIRM AS THEIR CAPITAL. IF THE ASSESSEE IS ABLE TO PROVE THE CREDI TWORTHINESS OF THOSE PARTNERS, THEN THE ONUS CAST UPON THE ASSESSEE WOULD BE DISCHARGED. THE JURISDICTIONAL HIGH COURT IN THE CASE OF R.B.MITTAL V. CIT 246 ITR 283 (AP), HELD THAT IN ORDER TO DISCHARGE THE ONUS CAST ON THE ASSESSEE U/S 68 THE ASSESSEE HAS TO ESTABLISH NOT ONLY THE IDE NTITY OF THE CREDITORS AND THE CONFIRMATION OF THE CREDITOR BUT ALSO THE CAPACITY OF THE CREDITORS TO ADVANCE THE MONEY AS WELL AS THE GENUIN ENESS OF THE TRANSACTION. IN THE INSTANT CASE, THE CREDITS WERE IN TH E NAME OF THE PARTNERS IN THEIR CAPITAL ACCOUNT. THUS, THE ONUS IS ON THE ASSESSEE TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. WHEN THE PARTNERS CONFIRM THE INVESTMENT BY WAS OF CONFI RMATION LETTERS, THE BURDEN CAST ON THE ASSESSEE TO PROVE THE IDE NTITY OF THE PARTNERS HAS BEEN DISCHARGED. THEN ONE OF THE CONDITION S REQUIRED U/S 68 OF THE ACT IS SATISFIED TO THAT EXTENT BUT THE CREDIT WORTHINESS OF THE PARTNERS AND THE GENUINENESS OF THE TRANSACTION IS FURTHE R REQUIRED TO BE PROVED BY THE ASSESSEE FIRM. THE ASSESSING OFFICER OBSERVED FROM THE CAPITAL ACCOUNT OF THE PARTNERS THAT THERE ARE CASH INTRO DUCTIONS IN THESE ACCOUNTS. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE F OR INTRODUCTION OF CASH IN PARTNERS ACCOUNT. THE ASSESSEE EXP LAINED THAT THEY ARE INCOME TAX ASSESSEES; BUT THE FACT IS THAT NO RET URN OF INCOME 6 HAS BEEN FILED BY SHRI PRAKASHCHAND KOTHARI FOR THE IM MEDIATELY PRECEDING AY AND CURRENT AY I.E. AY 1999-2000 AND 20 00-01. FURTHER, WITH REGARD TO SMT.RATNA BAI, IT WAS STATED THAT SHE W AS IN RECEIPT OF RENTAL INCOME FROM PROPERTY OWNED BY HER LATE HUSBAND BESIDES RECEIPT OF MONEY FROM HER SONS. BUT THERE WAS NO BANK ACCOUNT O R ANY DOCUMENTARY EVIDENCE FOR RECEIPT OF THESE AMOUNTS. THE ASSESSEE FAILED TO ADDUCE ANY SORT OF EVIDENCE TO SHOW THE HOLDING OF T HIS AMOUNT IN ANY FORM FOR WHICH NO ACCOUNT COPY OF BANK ACCOUNT WAS PRO DUCED. AS SUCH, THE ASSESSING OFFICER MADE AN ADDITION ON THIS COUNT . BEFORE THE CIT(A) DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FAILED TO FURNISH INFORMATION REGARDING THESE CREDITS ALONG WITH CERTAIN EVIDENCE TO EXPLAIN THE GENUINENESS OF THE TRANSACTION. BEING SO, WE ARE OF THE OPINION THAT THESE PARTNERS ARE HAVING NO CAPACITY TO INVEST THE IMPUGNED AMOUNT AS CAPITAL AND AS SUCH THIS ADDITION IS JU STIFIED. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) ON THI S ISSUE. 7. REGARDING THE SECOND GROUND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT RELATES TO AN ADDITION OF RS.2, 90,000 AND THAT THE SAID AMOUNT WAS RECEIVED BY WAY OF ADVANCE RENT B Y THE ASSESSEE. IT WAS STATED THAT THE TENANT HAS AFFIRMED THE FACT OF GIVING THE AMOUNT AS ADVANCE RENT. IN ITS LETTER, THE TENANT HAS EXPLAIN ED THAT THE SOURCE OF THE AMOUNT ADVANCED TO THE ASSESSEE WAS FROM OUT OF HI S AGRICULTURAL INCOME AND LODGE RECEIPTS. HOWEVER, THERE BEING NO SUPP ORTING EVIDENCE PRODUCED BY THE ASSESSEE THE AUTHORITIES BELOW RE JECTED THE CLAIM OF THE ASSESSEE AND THUS THIS ADDITION WAS SUSTAINED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE RECEIVED AN ADVANCE OF RS.2,90,000 FROM M/S SRINIVASA LO DGE AND THIS FACT HAS BEEN CONFIRMED BY THEM. THE TENANT HAS EXPLA INED IN ITS CONFIRMATION LETTER THAT THE SOURCE FOR MAKING THE ADV ANCE WAS ITS 7 AGRICULTURAL INCOME AND LODGE RECEIPTS. BEING SO, HE SUBMITTED THAT THE ADDITION MAY BE DELETED OR MAYBE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE CORRECT FACT. 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS, WHILE EX PLAINING THE SOURCE OF PAYMENT OF RS.5,00,000 MADE TOWARDS PAYMENT O F INCOME TAX ON 30-4-1969 , THE ASSESSEE HAS SUBMITTED THAT THEY HAVE RECEIVED ADVANCE RENT OF RS.2,90,000 FROM THEIR TENANT M/S SRIN IVASA LODGE. THE ASSESSEE HAS FILED A CONFIRMATION LETTER FROM THE TENANT WHEREIN IT WAS STATED THAT THE ADVANCE WAS MADE FROM OUT OF AGRICULTUR AL INCOME AND LODGE RECEIPTS. IN THE ABSENCE OF ANY SUPPORTING EVIDEN CE FORTHCOMING, THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF THE ASSESSE E AND THE SAME WAS REJECTED. THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUBMITTED THAT IN THE ABSENCE OF SUPPORTING EVIDENCE PR ODUCED BY THE ASSESSEE, THE ADDITION TO BE CONFIRMED. THE CONFIRMATION LETTER GIVEN BY THE TENANT IN TOKEN OF HAVING ADVANCED RS.2,90,000 IN CASH ON 15-4- 1999. HOWEVER, AS NOTICED BY THE ASSESSING OFFICER, THERE WERE NO RECEIPTS FOR THE PERIOD FROM 1-4-1999 TO 29-4-1999. HE SUBMITTED THAT RECEIPT OF ADVANCE OF RS.2,90,000 FROM TENANT ON 15-4- 1999 CANNOT BE BELIEVED. THUS, THE FACT REMAINS THAT THE ASSESSEE HAS NO LIQUID FUNDS AVAILABLE WITH HIM DURING THE SAID PERIOD. HE SUBMITT ED THAT THE ISSUE WAS ALREADY EXAMINED BY THE LOWER AUTHORITIES AND THE RE IS NO USEFUL PURPOSE WOULD BE SERVED BY SETTING ASIDE THE ISSUE FOR R E-EXAMINATION. 10. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATER IAL ON RECORD. THE CONTROVERSY BEFORE US ONLY WITH REGARD TO THE RECEI PT OF ADVANCE FROM THE TENANT AT RS.2,90,000 ON 15-4-1999. ADMITT EDLY, THERE IS A CONFIRMATION LETTER FROM THE TENANT. THE PLEA OF TH E DEPARTMENT THAT THERE IS NO RECEIPT OF MONEY FROM THE TENANT BETWEEN 1-4-1999 TO 29-4- 1999. HOWEVER, IN THE PRESENT CASE, NEITHER THE ASSESSING OFFICER NOR 8 THE CIT(A) TOOK ANY PAINS TO EXAMINE THE CONCERNED PAR TY TO FIND OUT THE REALITY. IN THE CIRCUMSTANCES, WE ARE OF THE OPINIO N THAT IT IS FAIR TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR A DECISION AFRESH AFTER CONDUCTING NECESSARY ENQUIRIES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON: 23.7.2 009. SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER. DT/- 23-7-2010. *VNR COPY FORWARDED TO: 1. M/S KOTHARI CONSTRUCTIONS, 5-2-58, HYDERABAD. 2 ACIT 5(1), HYDERABAD 3. 4 CIT(A)-, V, HYDERABAD CIT,AP., HYDERABAD. 5. THE D.R., ITAT, HYDERABAD.