DCIT, Bellary V. Sri. H.K. Marulusiddanagouda, Sandur

ITA 864/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8458 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 03-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 24-08-2009
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Source of fund; Reason to believe; Set aside
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER ITA NO.864(BNG)/09 (ASSESSMENT YEAR : 2006-07) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. VS. SRI H. K. MARULUSIDDANA GOWDA, CONTRACTOR, SIDDESWARA SADANA, NEAR SRINIVASA TALKIES, SANDUR. APPELLANT. RESPONDENT. APPELLANT BY : SMT. JACINTA ZIMIK VASHAI, ADDL. CO MMISSIONER OF INCOME TAX. RESPONDENT BY : SHRI S. RAMASUBRAMANIAN, CHARTERED ACCOUNTANT. O R D E R PER DR. O.K.NARAYANAN : THIS APPEAL IS FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), HUBLI DT.18.5.2009 AND ARISE S OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX AC T, 1961. 2. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER OBSERVED THAT THE ASSESSEE HAS RECORDED CASH CREDITS TOTALIN G TO RS.36,19,804 IN HIS BOOKS OF ACCOUNTS STATED TO BE OBTAINED FROM 12 PERSONS. THE ASSESSEE WAS DIRECTED TO FURNISH THE DETAILS REGARDING THESE CASH CREDITS. BUT THE ASSESSEE DID NOT OFFER ANY EXPLANATION REGARDING THE NATURE AND INCIDENCE OF THE CASH CREDITS POINTED ITA NO.864(BNG)/09 - 2 - OUT BY THE ASSESSING AUTHORITY. THEREFORE THE TOTA L SUM OFRS.36,19,804 WAS ADDED AS THE INCOME OF THE ASSESSEE BY WAY OF UNEX PLAINED CASH CREDITS COMING UNDER SECTION 68 OF THE INCOME TAX ACT, 1961. 3. IN FIRST APPEAL, THE ISSUE WAS FURTHER EXPLAINED BEFORE THE CIT(A). THE ASSESSEE DID PRODUCE CONFIRMATION LETTERS BEFORE TH E CIT(A) ALONG WITH WRITTEN SUBMISSIONS TO SUBSTANTIATE HIS ARGUMENT THAT THE C ASH CREDITS WERE GENUINE. THESE EVIDENCES WERE SENT TO THE ASSESSING AUTHORIT Y FOR HIS EXAMINATION. ON THE BASIS OF THE EXAMINATION OF THESE EVIDENCES, TH E ASSESSING OFFICER FILED A REMAND REPORT BEFORE THE CIT(A). AS PER THE REMAND REPORT, ALL THE 12 CREDITS WERE SUMMONED BY THE ASSESSING AUTHORITY. THE ASSE SSING OFFICER RECORDED THE SUBMISSIONS FROM M/S. DEVAPPA, KHAZA MOINUDDIN, KOK AN RAO, KUMAR SWAMY, HUSAIN, MUNIR AND A.S. PATIL ; 7 PERSONS ALT OGETHER. IN CASE OF THE SRI A.S. PATIL THE ASSESSING OFFICER ACCEPTED THE EXPLA NATION FOR A CREDIT OF RS.1,35,000. IN RESPECT OF OTHERS, HE DID NOT ACCE PT THE VERSIONS MADE OUT BY THOSE PERSONS FROM WHOM STATEMENTS WERE RECORDED. IN THE CASE OF SRI DEVAPPA, THE ASSESSING OFFICER FOUND THAT HE WAS A LORRY DRIVER HAVING A MONTHLY INCOME OF JUST RS.5,000 AND COULD NOT HAVE ADVANCED A SUM OF RS.3,05,500 TO THE ASSESSEE FOR THE PURPOSE OF PURC HASING IRON ORE. SRI KHAZA MOINUDDIN HAD ADVANCED RS.15 LAKHS WHO HAD NOT PROD UCED ANY EVIDENCE ITA NO.864(BNG)/09 - 3 - BEFORE THE ASSESSING AUTHORITY TO SUPPORT THE GENER ATION OF FUNDS TO THE EXTENT OF RS.15 LAKHS. SRI KOKAN RAO WAS A CIVIL CONTRACTO R IN NMDC FOR PAST 18 YEARS AND HAS NO PROOF OF ADVANCING THE AMOUNT OF RS.2 LA KHS. SRI KUMAR SWAMY HAD ADVANCED RS.6,25,000 FOR WHICH ALSO THERE WERE NO EVIDENCES. SRI HUSAIN ADVANCED A SUM OF RS.3,25,000; SRI MUNIR A SUM OF RS.4,40,000 AND BOTH THESE PERSONS DID NOT EXPLAIN THEIR RESOURCES TO ADVANCE THE AMOUNTS TO THE ASSESSEE FOR PURCHASE OF IRON ORE. MR. HUSAIN WAS THE OWNER OF A SINGLE LORRY AND MR. MUNIR WAS THE OWNER OF PAN BEEDA SHOP. IN THE LIGH T OF ABOVE CIRCUMSTANCES, THE ASSESSING AUTHORITY HELD IN THE REMAND REPORT T HAT THE CASH CREDITS REFLECTED IN THE ACCOUNTS OF ASSESSEE ARE NOT GENUINE. 4. BUT THE CIT(A) ACCEPTED THE CONTENTIONS OF THE A SSESSEE ON THE BASIS OF THE REMAND REPORT AND HELD THAT ALL THE PERSONS ARE HAVING SOURCES OF INCOME AND THE PRIMARY ONUS OF PROVING THE GENUINENESS OF THE CREDIT HAS BEEN DISCHARGED BY THE ASSESSEE. THE CIT(A) HELD THAT T HE IDENTITY OF THE CREDITS HAS BEEN ESTABLISHED AND THEREFORE IF AT ALL ANY CASH C REDIT IS NOT EXPLAINED, THE SAME SHOULD BE ADDED NOT IN THE HANDS OF THE ASSESSEE BU T IN THE HANDS OF THE SAID CREDITOR. THE CIT(A) RELIED ON THE DECISION OF GAU HATI HIGH COURT IN THE CASE OF SRI NEMICHAND KOTHARI VS. CIT (264 ITR 254) WHER E THE COURT HAS HELD THAT ITA NO.864(BNG)/09 - 4 - SOURCE OF SOURCES NEED NOT BE PROVED. ACCORDINGLY, HE DELETED THE ENTIRE ADDITION OF RS.36,19,804. 5. THE REVENUE IS AGGRIEVED AND THEREFORE THE SECON D APPEAL BEFORE US. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL READ AS FOLLOWS : THE CIT(A) ERRED IN DELETING THE ENTIRE ADDITION S OF RS.36,19,804 UNEXPLAINED CASH CREDITS ADDED IN THE ASSESSMENT. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FINDINGS OF FACT NARRATED BY THE ASSESSING OFFICER IN THE REMAND REP ORT SUBMITTED IN EACH OF THE CREDITORS AND FAILED TO APPRECIATE TRUE IMPART OF THE STATEMENT GIVEN BY EACH OF THE CREDITORS. THE CIT(A) OUGHT TO HAVE NOTICED THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS CAST UPON HIM TO ESTABLISH CREDI T WORTHINESS OF RESPECTIVE CREDITORS. THE CIT(A) ERRED IN ACCEPTING THE CONFIRMATION LET TERS SUBMITTED BY THE ASSESSEE IN RESPECT OF THE CREDITO RS WITHOUT VERIFYING THE CREDIT WORTHINESS OF THE CREDITORS. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT T HE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE CIT(A) M AY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE LEARNED ADDL. COMMISSIONER OF INCOME TAX, SM T. JACINTA ZIMIK VASHAI APPEARED ON BEHALF OF REVENUE. SHE CONTENDE D THAT BY SIMPLY IDENTIFYING CERTAIN CREDITORS, IT IS NOT SURE TO AR GUE THAT THE CREDIT WORTHINESS OF THE PERSONS ARE ESTABLISHED AND THEREFORE NO ADDITI ONS COULD BE MADE IN THE HANDS OF THE ASSESSEE. SHE CONTENDED THAT IT IS TH E PRIMARY DUTY OF THE ASSESSEE TO PROVE THAT THE CREDITORS ARE WORTH OF THEIR MEAN S OF INCOME AND THEY ARE IN A POSITION TO ADVANCE MONEY TO THE ASSESSEE TO THE EX TENT REFLECTED IN THE ITA NO.864(BNG)/09 - 5 - ACCOUNTS. BY SIMPLY FILING CONFIRMATION LETTERS OR STATEMENTS GIVING BEFORE THE ASSESSING OFFICER, CREDIT COULD NOT BE TREATED AS G ENUINE UNLESS IT IS BROUGHT ON RECORD THAT THE CREDITORS ARE HAVING REASONABLE SOU RCES OF INCOME TO SUPPORT THE CONTENTION OF CASH ADVANCES MADE TO THE ASSESSEE. THE LEARNED OFFICER CONTENDED THAT THE CIT(A) WAS CARRIED AWAY BY THE C ONFIRMATIONS AND THE STATEMENTS AND HE HAS OVERLOOKED THE CRUCIAL FINDIN GS RECORDED BY THE ASSESSING OFFICER IN THE REMAND REPORT. SHE THEREFORE SUBMIT TED THAT THE ORDER PASSED BY THE CIT(A) IS CONTRARY TO THE FACTS OF THE CASE, AR BITRARY IN NATURE AND HENCE NOT SUSTAINABLE IN LAW. 7. SHRI RAMASUBRAMANIAN, THE LEARNED CHARTERED ACCO UNTANT APPEARING FOR THE RESPONDENT-ASSESSEE, ON THE OTHER HAND, EXPLAIN ED THAT PRIMARY ONUS CAST ON THE ASSESSEE TO PROVE THE CASH CREDIT HAS BEEN DISC HARGED BY THE ASSESSEE. AS RIGHTLY HELD BY THE CIT(A), THE ASSESSEE COULD NOT BE CALLED UPON TO EXPLAIN THE SOURCE OF THE SOURCE OF CREDIT. AS FAR AS THE ASSE SSEE IS CONCERNED, HE WAS COLLECTING ALL THESE CASH CREDITS FOR THE PURPOSE O F RAISING MONEY TO DO TRADING IN IRON ORE BUSINESS WHICH WAS VERY MUCH POPULAR AN D PROMISING AT THE RELEVANT POINT OF TIME. ALL THE CREDITORS HAVE APPEARED BEF ORE THE ASSESSING OFFICER AND THEY HAVE CONFIRMED THAT THEY HAVE ADVANCED MONEY T O THE ASSESSEE. THEY HAVE ALSO EXPLAINED HOW THEY WERE ABLE TO COLLECT THE AM OUNT FOR THE PURPOSE OF ITA NO.864(BNG)/09 - 6 - MAKING ADVANCES TO THE ASSESSEE. WHEN THE IDENTIT Y OF THE CREDITOR IS ESTABLISHED AND THE ADVANCE OF CASH CREDIT IS CONFI RMED AND THE SOURCE IS EXPLAINED, THE ONUS OF THE CREDITOR IS DISCHARGED A ND HE CANNOT BE CALLED UPON FURTHER TO PROVE THE WORTHINESS OF THE PERSONS WHO HAD GIVEN MONEY ON CREDIT. THEREFORE THE LEARNED C.A. SUBMITTED THAT IT IS UNF AIR ON THE PART OF REVENUE TO ARGUE THAT THE ENTIRE CASH CREDIT SHOULD BE SUSTAIN ED AS ADDITION IN THE HANDS OF THE ASSESSEE. 8. WE HAVE HEARD BOTH SIDES IN DETAIL. IN FACT THE ASSESSING AUTHORITY HAD DIRECTED THE ASSESSEE TO FILE THE PARTICULARS OF TH E CASH CREDIT AT THE TIME OF ASSESSMENT ITSELF. IT IS TO NOTE THAT THE ASSESSEE DID NOT PRODUCE ANY PIECE OF EVIDENCE OR OFFERED ANY EXPLANATION BEFORE THE ASSE SSING AUTHORITY IN RESPECT OF THE HUGE AMOUNTS OF CASH CREDITS REFLECTED IN HIS A CCOUNT. IT IS ONLY BEFORE THE CIT(A) THE ASSESSEE HAS PRODUCED CERTAIN CONFIRMATI ON LETTERS. AS DIRECTED BY THE CIT(A), THE ASSESSING AUTHORITY HAD SUMMONED TH E CREDITORS AND OBTAINED STATEMENTS FROM THEM. ALL OF THEM HAVE CONFIRMED A DVANCING OF THE CREDIT TO THE ASSESSEE. 9. WE FIND THAT THE ABOVE TE CHNICAL COMPLIANCE ALONE IS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE CASH CREDITS AVAILED BY THE ASSESSEE. SRI DEVAPPA, ONE OF THE CREDITOR IS A LORRY DRIVER AND HE MUST BE ITA NO.864(BNG)/09 - 7 - GETTING INCOME OF RS.5,000 PER MONTH. HE WAS NOT A BLE TO EXPLAIN THE SOURCE OF INCOME AFTER MEETING HIS OWN EXPENSES. IN SUCH CIR CUMSTANCES, THERE IS NO JUSTIFICATION IN SAYING THAT SRI DEVAPPA WOULD BE I N A POSITION TO COLLECT MONEY FROM FRIENDS AND ADVANCE AN AMOUNT OF RS.3,05,500 T O THE ASSESSEE FOR THE PURPOSE OF IRON ORE TRADE. SRI DEVAPPA HAS NOT DIS CLOSED THE NAMES OF HIS FRIENDS FROM WHOM MONIES WERE COLLECTED. ANOTHER C REDITOR SRI KUMAR SWAMY HAD ADVANCED RS.15 LAKHS TO THE ASSESSEE. HE HAS A LSO STATED THAT THE AMOUNT WAS COLLECTED FROM HIS FRIENDS; BUT NO DETAILS WERE FURNISHED. IN THE CASE OF SRI A.S. PATIL, HE MADE THE PAYMENT BY CHEQUE AND HE HA S A BUSINESS HAVING TURN OVER OF RS.78 LAKHS. 10. EXCEPT IN THE CASE OF SRI A.S. PATIL, ALL ADVAN CES WERE MADE BY CASH. NO RECEIPTS WERE ISSUED; NO PROMISSORY NOTES WERE ISSU ED, NO SECURITIES WERE OFFERED BY THE ASSESSEE AND NO INTEREST WAS PAID T O THE CREDITORS. THERE IS NO EVIDENCE TO PROVE THAT THOSE PERSONS HAD OBTAINED A NY BENEFIT OUT OF TRADING IN IRON ORE. NONE OF THE CREDITORS HAVE REASONABLE RE SOURCES OF INCOME TO ADVANCE MONEY TO THE EXTENT OF RS.15 LAKHS AND THE LIKE. S UCH HUGE AMOUNTS ARE STATED TO BE ADVANCED TO THE ASSESSEE WITHOUT ANY SURETY O R SECURITY. EVERY CREDITOR HAS STATED THAT THE AMOUNTS WERE COLLECTED FROM THE IR FRIENDS. THE DETAILS OF ITA NO.864(BNG)/09 - 8 - FRIENDS HAVE NOT BEEN FURNISHED TO THE ASSESSING AU THORITY EVEN AT THE TIME OF REMAND PROCEEDINGS. 11. WHEN WE LOOK INTO ALL THESE ASPECTS TOGETHER, W E FIND THAT THE GENUINENESS OF THE CASH CREDITS AS EXPLAINED BY THE ASSESSEE IS A COCK AND BULL STORY. ALL THE EXPLANATIONS ARE PROVED TO BE MERE FORMALITIES FOR THE SIMPLE REASON THAT THE EXPLANATIONS OFFERED BY THOSE CREDI TORS COULD NOT BE ACCEPTED EVEN FOR THE FACE VALUE. THESE CREDITORS WERE NOT HAVING ANY SUBSTANTIAL RESOURCES AND THERE IS NO REASON TO BELIEVE THAT TH ESE PERSONS WOULD HAVE COLLECTED FROM THEIR FRIENDS IN ORDER TO ADVANCE MO NEY TO THE ASSESSEE WITHOUT ANY SURETY OR SECURITY. ANOTHER INTERESTING ASPECT IS THAT THESE CREDITORS DO NOT HAVE ANY EXPERIENCE IN TRADE OR BUSINESS. THEY HAV E NOT TAKEN ANY RISK IN BUSINESS IN THE PAST. THEY ARE A DRIVER OR A PAN B EEDA SHOP OWNER OR LORRY OWNER, ETC. HOW THESE PERSONS WHOSE INCOME IS VERY MEAGER COULD ADVANCE MONEY IN A RISKY BUSINESS THAT TOO WITHOUT ANY DOCU MENTS AND EVIDENCE FOR SURETY OR SECURITY ? 12. IN THE FACTS AND CIRCUMSTANCES, WE ARE NOT AT A LL INCLINED TO ENDORSE THE ORDER PASSED BY THE CIT(A). THE CIT(A) IS MISSING THE WOODS FOR TREES. HE WAS CARRIED AWAY BY THE TECHNICAL COMPLIANCE OF APP EARENCE OF THE CREDITORS ITA NO.864(BNG)/09 - 9 - BEFORE THE ASSESSING AUTHORITY AND CONFIRMING THE C REDITS. THE CIT(A) HAS NOT EXAMINED THE SUBSTANCE OF THE STATEMENTS GIVEN BY THE CREDITORS. 13. IN THE FACTS AND CIRCUMSTANCES, WE SET ASIDE TH E ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE ADDITION AND CASH CRE DITS MADE BY THE ASSESSING AUTHORITY EXCEPT IN THE CASE OF SRI A.S. PATILS CR EDIT OF RS.1,33,000. RS.1,33,000 IS DIRECTED TO BE ACCEPTED BY THE ASSES SING AUTHORITY. THE BALANCE AMOUNT OF RS.34,86,804 IS CONFIRMED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS SUBSTANTIALLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, 5 TH OF MARCH, 2010 AT BANGALORE. SD/- SD/- (SHAILENDRA KUMAR YADAV) (O.K.NARA YANAN) JUDICIAL MEMBER VICE PRESIDENT BANGALORE, DT.05-03-2010. COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, BANGALORE. 6. GUARD FILE, ITAT, BANGALORE. 7. GUARD FILE, ITAT, NEW DELHI. * GPR