Shri Mukeshkumar Keshvlal Desai, Dahod V. The Income tax Officer, Ward-1, Dahod

ITA 877/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6135 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 26-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Keywords: Gift; Onus to prove; Capital expenditure; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.877/AHD/2007 A. Y.: 2004-05 MUKESHKUMAR KESHAVLAL DESAI, PROP. SHREE KRISHNA SWEET MART, NEAR POST OFFICE, DAHOD 389 151 PA NO. ACPPD 3539 M VS THE INCOME TAX OFFICER, WARD -1, DAHOD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SAKAR SHARMA, AR RESPONDENT BY SMT. NEETA SHAH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-VI, BARODA DATE D 01-12-2006 FOR ASSESSMENT YEAR 2004-05. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL ON RECORD. 3. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUND NO.1 OF THE APPEAL. THE SAME IS DISMISSED AS WITHDRAWN. 4. ON GROUND NO.2, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.1,08,850/- U/S 68 OF THE IT ACT ON ACCOUNT OF UN EXPLAINED CASH CREDIT AND INTEREST. THE AO NOTICED THAT DURING THE RELEVA NT ASSESSMENT YEAR THE ASSESSEE HAD SHOWN UNSECURED DEPOSIT OF RS.1,00 ,000/- FROM SMT. SONALIBEN ASHISHKUMAR DESAI. IN THE CONFIRMATION LE TTER FILED ALONG WITH COPY OF THE BANK ACCOUNT, IT WAS CLAIMED THAT RS.20 ,000/- WAS FROM HER SAVINGS AND RS.80,000/- WAS GIFT RECEIVED FROM HER HUSBAND SHRI ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 2 ASHISHKUMAR DESAI. IT WAS NOTICED BY THE AO FROM TH E BANK ACCOUNT THAT RS.40,000/-, RS.40,000/- AND RS.20,000/- WERE DEPOSITED BY HER ON 18-07-2003 AND ON THE SAME DAY RS.1,00,000/- WAS GI VEN TO THE ASSESSEE. IN RESPONSE TO THE SUMMONS ISSUED, SHE CO ULD NOT ATTEND DUE TO PERSONAL REASONS BUT IT WAS STATED THAT RS.1,00, 000/- WAS PAID OUT OF HER SAVINGS, AS WELL AS GIFT RECEIVED FROM HER HUSB AND. IT WAS ALSO STATED THAT SHE HAS NOT TAXABLE INCOME AND SHE WAS NOT FIL ING ANY RETURN OF INCOME. IT WAS ALSO CLAIMED THAT ON EXPIRY OF HIS F ATHER IN LAW, THE BUSINESS OF UTENSIL SHOP WAS HANDLED BY HER HUSBAND . THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND OPINED TH AT THE GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE DEPOSIT OR WAS NOT ESTABLISHED. ACCORDINGLY, DEPOSIT OF RS.1,00,000/- ALONG WITH INTEREST OF RS.8,850/- WAS DISALLOWED. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT IN THE BUSINESS OF SWEETS AND FARSAN CASH IN H AND IS REQUIRED TO MEET THE LIABILITY ON ACCOUNT OF LABOUR AND SMALL P URCHASES AND DURING THE YEAR DUE TO URGENT REQUIREMENT OF CASH, RS.1,00 ,000/- WAS BORROWED FROM THE FAMILY FRIEND SMT. SONALIBEN ASHISHKUMAR D ESAI AS LOAN AND INTEREST WAS ALSO PAID ON THE SAME AMOUNT. IT WAS C ONTENDED THAT IDENTITY OF THE DEPOSITOR AND CREDITWORTHINESS HAVE BEEN ESTABLISHED, THEREFORE, CASH CREDIT OF RS.1,00,000/- IS GENUINE. THE LEARNED CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BECAUSE T HE HUSBAND OF THE DEPOSITOR WAS RUNNING A SMALL SET UP WHOSE TURNOVER NEVER EXCEEDED RS.5,00,000/- AND HAS NO TAXABLE INCOME. THEREFORE, GIFT BY THE HUSBAND OF THE DEPOSITOR WAS NOT PROVED. THE LEARNED CIT(A) , THEREFORE, NOTED THAT CREDITWORTHINESS OF THE DEPOSITOR IS NOT PROVED AND ACCORDINGLY CONFIRMED THE ADDITION. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO THE COPY OF THE CONFIRMATION OF THE ACCOUNT OF THE DEPOSITOR PB-2 IN WHICH INTEREST PAYMENT IS ALSO SHOWN. HE HAS REFERRED TO PB-4 WHIC H IS AFFIDAVIT OF THE ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 3 DEPOSITOR AND SUBMITTED THAT THE ASSESSEE HAS DISCH ARGED THE ONUS IN PROVING THE IDENTITY OF THE DEPOSITOR, HER CREDITWO RTHINESS AND GENUINENESS OF THE TRANSACTION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE WOULD FILE COPY OF THE BANK ACCOU NT OF THE DEPOSITOR FOR PERUSAL OF THE TRIBUNAL. 6. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THE ASSESSEE HAS FA ILED TO PROVE CREDITWORTHINESS OF THE DEPOSITOR AND GENUINENESS O F THE TRANSACTION IN THE MATTER. THE LEARNED DR SUBMITTED THAT CASH WAS DEPOSITED IN THE BANK ACCOUNT OF THE DEPOSITOR AND ON THE SAME DAY L OAN WAS GIVEN TO THE ASSESSEE. THE LEARNED DR SUBMITTED THAT THE GENUINE NESS OF THE GIFT BY HUSBAND OF THE DEPOSITOR IS NOT PROVED; THEREFORE, TOTALITY OF THE FACTS AND CIRCUMSTANCES PROVES THAT THE ASSESSEE HAS FAILED T O PROVE CREDITWORTHINESS OF THE DEPOSITOR AND GENUINENESS O F THE TRANSACTIONS IN THE MATTER. THEREFORE, AUTHORITIES BELOW WERE JUSTI FIED IN DRAWING ADVERSE INFERENCE AGAINST THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE DEPOSITOR SMT. SONALIBEN ASHISHKUMAR DESAI MADE DEPOSIT OF RS.40,000/-, RS.4 0,000/- AND RS.20,000/- IN HER BANK ACCOUNT BY CASH ON 18-07-2 003 AND ON THE SAME DAY SAME AMOUNT OF RS.1,00,000/- WAS GIVEN AS LOAN TO THE ASSESSEE. THE AO IN ORDER TO ASCERTAIN THE IDENTITY , CREDITWORTHINESS OF THE CREDITOR AND THE GENUINENESS OF THE TRANSACTION ISSUED SUMMONS TO THE DEPOSITOR FOR HER PERSONAL EXAMINATION. THE DEP OSITOR DID NOT APPEAR BEFORE THE AO AND FILED HER AFFIDAVIT EXPLAINING TH AT DUE TO DELIVERY OF CHILD SHE COULD NOT APPEAR PERSONALLY. HOWEVER, NO REQUEST WAS MADE BY THE ASSESSEE FOR HER EXAMINATION ON COMMISSION THRO UGH THE OFFICER OF THE INCOME TAX DEPARTMENT. THE DEPOSIT OF THE CASH IN 3 INSTALLMENTS ON THE SAME DAY IN THE ACCOUNT OF THE DEPOSITOR CREATE S DOUBT ABOUT THE ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 4 GENUINE DEPOSIT IN HER ACCOUNT. THE DEPOSITOR CLAIM ED THE SOURCES OF CASH DEPOSITED IN HER BANK ACCOUNT OUT OF PERSONAL SAVINGS AND GIFT GIVEN BY HER HUSBAND. THE HUSBAND OF THE DEPOSITOR WAS NOT HAVING ANY GOOD BUSINESS AND HIS SALES TURNOVER NEVER EXCEEDED RS.5,00,000/-. THEREFORE, HE WAS NOT A MAN OF MEANS TO HAVE GIFTED RS.80,000/- TO HIS WIFE I.E. THE DEPOSITOR. NO EVIDENCE OF EARNING OF STREEDHAN OF RS.20,000/- AND GENUINE RECEIPT OF GIFT OF RS.80,00 0/- HAS BEEN FILED ON RECORD. THE DEPOSITOR IN HER AFFIDAVIT CLAIMED THAT DUE TO DEATH OF HER FATHER IN LAW BUSINESS WAS TAKEN OVER BY HER HUSBAN D WHO COULD NOT SUCCEED IN THE BUSINESS. IT WAS ALSO CLAIMED THAT G IFT OF RS.80,000/- WAS GIVEN WHICH WAS THE AMOUNT INHERITED BY HER HUSBAND FROM HER FATHER IN LAW. THE EXPLANATION OF THE ASSESSEE AND THE DEPOSI TOR WOULD SHOW THAT IT IS AFTERTHOUGHT MADE UP STORY. WHEN THE BUSINESS WAS NOT GETTING GOOD RESPONSE AND EVEN THE HUSBAND OF THE DEPOSITOR COUL D NOT SUCCEED IN THE BUSINESS, THERE WAS NO REASON FOR HER HUSBAND TO MA KE GENUINE GIFT OF RS.80,000/-. NO PROOF OF INHERITANCE OF RS.80,000/- BY THE HUSBAND OF THE DEPOSITOR IS FILED ON RECORD. THE ABOVE EXPLANA TION IS ALSO CONTRARY TO THE EARLIER EXPLANATION MADE ABOVE. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE, IT IS CLEAR THAT THE HUS BAND OF THE DEPOSITOR WAS NOT HAVING ANY MEANS TO HAVE MADE A GENUINE GIF T TO HIS WIFE I.E. THE DEPOSITOR. THEREFORE, THERE WAS NO REASON FOR THE D EPOSITOR TO MAKE A DEPOSIT OF RS.40,000/-, RS.40,000/- AND RS.20,000/- IN CASH IN HER BANK ACCOUNT. THE DEPOSIT OF THE CASH ITSELF IS HIG HLY DOUBTFUL. THEREFORE, EXPLANATION OF THE ASSESSEE WAS RIGHTLY REJECTED BY THE AUTHORITIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE MADE A STATEME NT DURING THE COURSE OF ARGUMENT THAT HE WOULD FILE COPY OF THE B ANK ACCOUNT OF THE DEPOSITOR WITHIN 2 DAYS; HOWEVER, HE HAS NOT FILED ANY COPY OF THE BANK ACCOUNT FOR PERUSAL OF THE BENCH. THEREFORE, THE EA RLIER DEPOSITS MADE BY THE DEPOSITOR IN HER BANK ACCOUNT COULD NOT BE VERI FIED. IT, THEREFORE, STANDS PROVED THAT THE SOURCE OF INCOME OF THE DEPO SITOR AND HER HUSBAND ARE NOT PROVED BY THE ASSESSEE TO HAVE MADE DEPOSITS IN CASH IN ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 5 HER BANK ACCOUNT ON THE DATE OF ISSUE OF CHEQUE FOR LOAN TO THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL ON RECORD, THE ASSES SEE HAS FAILED TO PROVE THE CREDITWORTHINESS OF THE DEPOSITOR AND THE GENUI NENESS OF THE TRANSACTION IN THE MATTER. 8. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED AB OVE AND IN THE ABSENCE OF ANY ADEQUATE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW WERE JUSTIFIED IN HOLDING THAT TH E ASSESSEE HAS FAILED TO PROVE THE CREDITWORTHINESS OF SMT. SONALIBEN ASHISH KUMAR DESAI AND THE GENUINENESS OF THE TRANSACTION IN THE MATTER. THUS, THE ASSESSEE HAS FAILED TO DISCHARGE ONUS TO PROVE GENUINENESS CREDI T U/S 68 OF THE IT ACT. RESULTANTLY, ADDITION WAS RIGHTLY MADE BY DISALLOWI NG THE CREDIT AND INTEREST AS WELL. AS A RESULT, GROUND NO.2 OF THE A PPEAL OF THE ASSESSEE IS DISMISSED. 9. ON GROUNDS NO.3 AND 4, THE ASSESSEE CHALLENGED D ISALLOWANCE OF RS.15,400/- OUT OF TELEPHONE EXPENSES AND DISALLOWA NCE OF RS.14,563/- OUT OF CAR EXPENSES. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED TELEPHONE EXPENSES IN RESPECT OF 5 TELEPHONES AND O NE OF THEM WAS INSTALLED AT THE RESIDENCE OF THE ASSESSEE. THE AO NOTED THAT PERSONAL USER OF THE TELEPHONE IS NOT RULED OUT. THE ASSESSE E WAS REQUIRED TO EXPLAIN WHY ONE FOURTH OF THE TELEPHONE EXPENSES SH OULD NOT BE DISALLOWED ON ACCOUNT OF PERSONAL USE. THE EXPLANAT ION OF THE ASSESSEE WAS REJECTED BECAUSE THE ASSESSEE HAS FAILED TO JUS TIFY THE 5 TELEPHONES USED FOR THE BUSINESS PURPOSES ONLY. THE AO ACCORDI NGLY DISALLOWED ONE FOURTH OF THE TELEPHONE EXPENSES FOR PERSONAL USER. SIMILARLY, DISALLOWANCE WAS MADE IN RESPECT OF CAR EXPENSES WH ICH WERE TREATED AS CAPITAL EXPENDITURE AS WELL AS POSSIBILITY OF PERSO NAL USE OF THE VEHICLE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT COMPLE TE BILLS AND VOUCHERS WERE SUBMITTED BEFORE THE AO AND THE EXPENDITURE WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LE ARNED CIT(A) HOWEVER, ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 6 DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BECAU SE NO RECORD OF TELEPHONE CALLS HAS BEEN MAINTAINED AND NO LOG BOOK FOR UTILISATION OF THE CAR IS MAINTAINED. THEREFORE, BOTH THE ABOVE FACILI TIES HAVE BEEN USED BY THE ASSESSEE FOR PERSONAL PURPOSED. ADDITIONS WERE ACCORDINGLY CONFIRMED. 10. THE COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT REA SONABLE DISALLOWANCE MAY BE MADE OUT OF THE DISALLOWANCE OF THE EXPENDIT URE. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A SSESSEE IS AN INDIVIDUAL AND ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SWEET MAKIN G. THE ASSESSEE HAS 5 TELEPHONE CONNECTIONS OUT OF WHICH ONE IS INSTALL ED AT THE RESIDENCE OF THE ASSESSEE. THE ASSESSEE HAS NOT MAINTAINED ANY R ECORD OF CALLS MADE FOR BUSINESS PURPOSES. SIMILARLY, NO RECORD IS MAIN TAINED FOR USER OF THE CAR FOR PERSONAL PURPOSES. CONSIDERING THE BUSINESS OF THE ASSESSEE AND HIS INDIVIDUAL STATUS, IT IS CLEAR THAT THE ASSESSE E WOULD HAVE USED THESE FACILITIES FOR PERSONAL PURPOSE ALSO. THE AUTHORITI ES BELOW WERE, THEREFORE, JUSTIFIED IN DISALLOWING ONE FOURTH OF THE AFORESAI D EXPENSES WHICH WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ACCORDINGLY D ISMISSED. 12. ON GROUND NO.5, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.35,000/- ON ACCOUNT OF SUPPRESSED VALUATION OF C LOSING STOCK OF FINISHED GOODS. ON VERIFICATION OF THE TRADING ACCO UNT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS SHOWN CLOSING SOCK OF RAW MATERIAL OF RS.4,70,000/- AND NO VALUE OF FINISHED GOODS CLOSIN G STOCK WAS INDICATED. THE ASSESSEE SUBMITTED THAT CLOSING STOC K WAS INCLUSIVE OF FINISHED GOODS AND THERE WAS A TYPOGRAPHICAL ERROR IN THE PROFIT & LOSS ACCOUNT. THE CONTENTION OF THE ASSESSEE WAS NOT ACC EPTED BY THE AO ON ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 7 THE GROUND THAT THE ENTRY CLEARLY SHOWS THAT THERE WAS CLOSING STOCK OF RAW MATERIAL AND THUS ESTIMATED ADDITION ON ACCOUNT OF FINISHED GOODS ON THE BASIS OF TWO DAYS AVERAGE SALES @ RS.17,600/ - PER DAY AND ADDITION OF RS.35,000/- WAS MADE. SAME SUBMISSIONS WERE REITERATED BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT INVENTORY WAS PREPARED ON THE LAST DAY OF THE ASSESSMENT YEAR BUT NO DETAIL OF CLOSING STOCK WAS FURNISHED. THE LEARNED CIT(A) ACCORDINGLY CONFIRMED THE ADDITION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAN D, THE LEARNED DR RELIED UPON THE ORDER OF THE AO. 14. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT IT IS AN AD HOC ADDITION ON ESTIMATE BASIS AND AS S UCH SAME IS NOT JUSTIFIED. THE ASSESSEE CLAIMED BEFORE THE AO THAT DUE TO TYPOGRAPHICAL ERROR HE HAS SHOWN IN THE PROFIT & LOSS ACCOUNT WHO LE CLOSING STOCK AS STOCK OF THE RAW MATERIAL. THE AO WITHOUT VERIFYING THE FACT AND WITHOUT BRINGING ANY MATERIAL ON RECORD NOTED THAT SINCE TH E ASSESSEE HAS NOT MAINTAINED INVENTORY OF THE STOCK, THEREFORE, THERE IS UNDER VALUATION OF THE CLOSING STOCK BY NOT INCLUDING THE VALUE OF THE FINISHED PRODUCTS WHILE WORKING OUT THE VALUE OF THE CLOSING STOCK. T HE AO WORKED OUT TWO DAYS SALES AND MADE THE AO. IN THE ABSENCE OF ANY A DEQUATE MATERIAL ON RECORD BROUGHT ON BY THE AO, WE DO NOT FIND IT TO B E PROPER TO ASSUME CERTAIN FACTS THAT THE ASSESSEE HAS UNDER VALUED TH E CLOSING STOCK BY NOT INCLUDING VALUE OF THE FINISHED PRODUCTS. THE ASSES SEE CLAIMED VALUE OF CLOSING STOCK AT RS.4,70,000/- AND THE AO SUBSTANTI ALLY ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND ONLY MADE ADDITION OF RS.35,000/- ON ESTIMATE BASIS WITHOUT BRINGING ANY EVIDENCE ON REC ORD THAT THE ASSESSEE HAD UNDER VALUED THE CLOSING STOCK. IN THE ABSENCE OF ANY ADEQUATE MATERIAL BROUGHT ON RECORD BY THE AO, ESTIMATED ADD ITION CANNOT BE ITA NO.877/AHD/2007 MUKESHKUMAR KESHAVLAL DESAI VS ITO, DAHOD 8 MADE ON ACCOUNT OF UNDER VALUATION OF THE CLOSING S TOCK. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THIS ADDIT ION. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW. AS A RES ULT, GROUND NO.5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 15. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-06-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 04-06-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD