Shri Kubendrappa, Davangere V. ITO, Davangere

ITA 92/BANG/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9509 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 04-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: V SRINIVASAN
• Keywords: Gift; Period of limitation
• Section: 142(1); 68; 144; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI K.K. GUPTA, A.M. AND SHRI SHAILENDRA KUMAR YADAV, J.M. ITA NO.92(BNG)/08 (ASSESSMENT YEAR : 2004-05) SHRI M. R. KUBENDRAPPA, PROP. SRI LINGESHWARA JEWELLERY WORKS, VASANTHA ROAD, DAVANGERE. .. .. APPELLANT. VS. THE INCOME TAX OFFICER, WARD 2, DAVANGERE. ... .. RESPONDENT. APPELLANT BY : SHRI V.SRINIVASAN. RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI. O R D E R PER SHRI K.K. GUPTA, A.M. : THE ASSESSEE IS IN APPEAL AGI TATING THE CONFIRMATION OF ADDITIONS AND DISALLOWANCES BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AS COMPUTED BY THE ASSESSING OFFICER IN HIS ORDER U/S. 144. THE GROUN DS OF APPEAL READ AS UNDER : THE IMPUGNED ORDER PASSED PURPORTEDLY ON 29.12.2 006 IS BAD IN LAW AND BARRED BY LIMITATION IN AS MUCH AS THE SAME HAS NOT BEEN PASSED BEFORE THE EXPIRY OF THE PERIOD OF LIMITATION AND THEREFOR E THE ORDER PASSED IS LIABLE TO BE CANCELLED. WITHOUT PREJUDICE TO THE ABOVE, THE IMPUGNED ORDER PASSED UNDER SECTION 144 OF THE ACT IS BAD IN LAW IN AS MUCH AS THERE IS NO DEFAULT WARRANTING COMPLETION OF EX-PARTE ASSESSMENT AND CO NSEQUENTLY THE SAME DESERVES TO BE CANCELLED. WITHOUT PREJUDICE TO THE ABOVE, THE AUTHORITIES BE LOW ARE NOT JUSTIFIED IN MAKING AN ADDITION OFRS.2,33,923 AS UN EXPLAINED CASH CREDIT ITA 92(BNG)/08 2 UNDER SECTION 68 OF THE ACT UNDER THE FACTS AND CIR CUMSTANCES OF THE APPELLANTS CASE. THE ADDITION MADE ON AN ERRONEOU S APPRECIATION OF FACTS AND LAW DESERVES TO BE DELETED. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN MAKING AN ADDITION OF RS.4,20,783 DISBELIEVING THE CLAIM OF THE APPELLANT THAT THE SAME REPRESENT SALE OF AGRICULTURE PRODUCE UNDER THE FACTS AND CIR CUMSTANCES OF THE APPELLANTS CASE. THE ADDITION MADE PURELY ON SUSP ICION AND SURMISE, ASSUMPTIONS AND PRESUMPTIONS DESERVES TO BE DELETED . 2. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING THE ARGUMENTS SUBMITTED THAT THE ASSESSEE IS A RETAIL DEALER IN GOLD AND SILVER ORNAMENTS AND FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME O F RS.129768 AND AGRICULTURE INCOME OF RS.304503. NOTICES WERE ISSUED UNDER SEC TION143(2) AND 142(1) WHEN THE ASSESSING OFFICER DURING THE COURSE OF FRAMING ASSE SSMENTS VERIFIED THE BOOKS OF ACCOUNTS OF THE ASSESSEE TO CONSIDER THE EARNING OF INCOME FROM AGRICULTURE WHEN THE RECEIPTS OF THE AGRICULTURE PRODUCE SOLD WAS VERIFI ED FROM THE PURCHASERS ON DIFFERENT DATES IN HIS DETAILED AND ELABORATE ORDER. HE CAME TO THE CONCLUSION THAT THE ASSESSEE HAD INTRODUCED UNACCOUNTED CASH AVAILABLE TO HIM IN TO THE BOOKS OF ACCOUNTS VIS-A-VIS CASH RECEIVED FROM COMMISSION AGENTS FOR SALE OF AG RICULTURE PRODUCE. THE ASSESSING OFFICER BROUGHT TO TAX A SUM OF RS.420783 AS UNEXPL AINED CASH CREDITS UNDER THE PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT, 196 1. ANOTHER ADDITION IN THE FORM OF GIFT RECEIVED FROM NRI AMOUNTING TO RS.2,33,923 WAS TAXED BY THE ASSESSING OFFICER UNDER SECTION 68 BY HOLDING THE SAME AS A BOGUS GIF T. THE ASSESSEE IN APPEAL BEFORE THE LEARNED CIT(A) COULD NOT PUT FORTH FURTHER EXPL ANATIONS WHEN BOTH THESE ADDITIONS WERE CONFIRMED AS CAN BE PURSUED IN THE ORDER OF TH E LEARNED CIT(A). THE LEARNED ITA 92(BNG)/08 3 COUNSEL POINTED OUT THAT NO EFFORT HAS BEEN MADE BY THE LEARNED CIT(A) TO CONSIDER THE SUBMISSION OF THE ASSESSEE-APPELLANT BEFORE HIM WHEN HE CHOSE TO REITERATE THE CONTENTION OF THE ASSESSING OFFICER AS PER HIS ELAB ORATE ORDER OF MORE THAN 20 PAGES. HE POINTED OUT THAT THE VERY FACT THAT THE ASSESSME NT HAS BEEN FRAMED UNDER SECTION 144 SHOULD HAVE LEAD THE LEARNED CIT(A) TO BELIEVE THAT THE ASSESSEE HAS NOT BEEN HEARD AT LENGTH ON THE SUBMISSIONS IN SO FAR AS DEF ICIT CASH HAS BEEN TAXED IN SPITE OF THE ASSESSING OFFICER OBSERVING THAT THE LEDGER COP IES OF THE AMOUNT OF EARNING OF AGRICULTURE INCOME AMOUNTED TO RS.4,20,783 WHERE FR OM AFTER REDUCING EXPENSES AND RENDERED AS AGRICULTURE INCOME WAS ACCEPTED BY THE ASSESSING OFFICER AMOUNTING TO RS.3,04,503. THE ASSESSING OFFICER THEREFORE HOLDI NG THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AS PER THE INFORMAT ION PROVIDED IN FORM 3CD AND THE VERIFICATION OF SALES EFFECTED BY THE ASSESSEE WERE GENUINE SOUGHT TO CONSIDER ONLY THE RECEIPT OF CASH THERE FROM THROUGH THE COMMISSION A GENTS ON DIFFERENT DATES INCORPORATED IN THE BOOKS OF ACCOUNTS ONLY LEAD TO A FINDING OF A DEFICIT CASH BROUGHT TO TAX UNDER SECTION 68 ESPECIALLY WHEN THE RECEIPTS H AD BEEN ACKNOWLEDGED ON ACCOUNT OF SALE OF AGRICULTURE PRODUCE BUT IN THE NEXT FINANCI AL YEAR. HE ARGUED THAT BY NO STRETCH OF IMAGINATION COULD THE AMOUNT OF DEFICIT CASH BE MORE THAN THE AGRICULTURE INCOME SO RENDERED TO TAX AND AVAILABLE JUST BECAUS E THE ERROR IN NOTING THE DATE OF RECEIPT LEAD TO THE FINDING THAT THE WHOLE OF THE A GRICULTURE INCOME WAS EARNED BUT TO BE TAXED UNDER SECTION 68 ALONG WITH THE REMAINING ACKNOWLEDGED AGRICULTURE INCOME INCLUDED THEREIN AMOUNTING TO RS.3,04,503. HE PRAY ED THAT ON THIS ISSUE THE MATTER BE ITA 92(BNG)/08 4 RESTORED TO THE FILE OF ASSESSING OFFICER FOR VERIF YING THE DATES OF ACTUAL RECEIPT OF CASH FROM THE SALE PROCEEDS THROUGH THE COMMISSION AGENTS WHEN THE VARIOUS SUMMONS AND VERIFICATION BY THE ASSESSING OFFICER WAS CONDU CTED AT THE BACK OF THE ASSESSEE WITHOUT AFFORDING HIM AN OPPORTUNITY OF CROSS EXAMI NING WITH RESPECT TO THE DATES AVAILABLE INSCRIBED IN THE BOOKS. HE POINTED OUT T HAT ADEQUATE AMOUNTS ARE AVAILABLE AGAINST SALE OF AGRICULTURE PRODUCE IN MOFFUSIL TOW NS THROUGH AGENTS AND CASH PAID BY THE ACTUAL PARTIES MAY BE DIFFERENT THEREFORE WOULD RENDER INCORPORATING THE ACTUAL DATE OF RECEIPT OF CASH TO BE INCORPORATED IN THE B OOKS OF ACCOUNTS DIFFERENTLY. IN ANY CASE, THE AMOUNT THAT SHOULD BE BROUGHT TO TAX UNDE R THE PROVISIONS OF SECTION 68 COULD BE THE DIFFERENCE BETWEEN THE SUM OFRS.4,20,783 VIS --VIS RS.3,04,503 FOR WHICH THE ASSESSEE HAS SUFFICIENT EXPLANATION IN THE FORM OF INCURRING EXPENDITURE TO EARN THAT INCOME. BY NO STRETCH OF IMAGINATION CAN IT BE HEL D AS SURPLUS CASH AVAILABLE TO THE ASSESSEE TO BE TAXED UNDER SECTION 68. 3. ON THE SECOND ISSUE, HE ARGUED AND SUBMITTED BAN K STATEMENT OF THE DONOR BEING NRE ACCOUNT WHEN HE CHOSE TO GIVE BY CHEQUE A SUM OF RS.1 LAKH AND THE REMAINING AS PROCEEDS OF RESURGENT INDIA BONDS ISSU ED BY THE RBI OF US $ 1000 IN THE PAPER BOOK. HE POINTED OUT THE ENDORSEMENT OF THE DONOR WHEN THE SALE PROCEEDS IN INDIAN CURRENCY AMOUNTING TO RS.1,33,923 WERE CREDI TED IN THE ASSESSEES CAPITAL ACCOUNT AS GIFT FROM THE DONOR AND REQUIRED NO FURT HER VERIFICATION SO AS TO ITS IDENTITY, GENUINENESS AND CREDIT WORTHINESS. HE PR AYED THAT BOTH THESE ADDITIONS MAY ITA 92(BNG)/08 5 KINDLY BE CONSIDERED ALLOWABLE AS RETURNED BY THE A SSESSEE BY DIRECTING THE ASSESSING OFFICER ACCORDINGLY. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BY INDICATING THAT THE ASS ESSING OFFICER HAD VERIFIED THE SALE PROCEEDS BY VERIFYING THE COPY OF THE LEDGER ACCOUN T OF M.R. GUPTA IN THE ASSESSEES BOOKS OF ACCOUNTS ALONG WITH THE COPIES OF BILLS IS SUED TO M/S. MAMCOS, TARIKERE; HALAGAPPA ARECANUT COMPANY, SHIMOGA AND DORNAL G. P ARAMESHWARAPPA & COMPANY, SHIMOGA ATTACHED TO THE ASSESSMENT ORDER AS AN ANNEXURE. T HESE ACCOUNTS WERE VERIFIED BY THE ASSESSING OFFICER WHEN THE THIRD PA RTY EXTRACTS WERE OBTAINED TO ESTABLISH THE CASH TRANSACTIONS. THE CASH RECEIPTS DT.18.7.03, 22.2.04 AND 30.4.04 WERE VERIFIED WHICH WERE ISSUED BY THE ASSESSEE BEI NG THE PROPRIETOR OF M/S. LINGESHWARA JEWELLERY WORKS, DAVANGERE TO THREE PAR TIES M/S. MAMCOS, TARIKERE; HALAGAPPA ARECANUT COMPANY, SHIMOGA AND DORNAL G. P ARAMESHWARAPPA & COMPANY, SHIMOGA . THEREFORE NOW THE ARGUMENTS OF THE LEARNED COUNS EL AFTER THESE FACTS WOULD ONLY SUGGEST AN AFTER THOUGHT WHEN THE VERY SUBMISS IONS BEFORE THE ASSESSING OFFICER COULD NOT ESTABLISH THAT THE ASSESSEE HAD UNACCOUNT ED CASH INCORPORATED IN THE BOOKS OF ACCOUNTS AS AGAINST THE SALE PROCEEDS OF THE AGR ICULTURE PRODUCE TO BE ACCOUNTED FOR IN THE F.Y. 2004-05. SIMILARLY, THE CREDIT WORTHIN ESS OF THE NRI DONOR COULD NOT BE ESTABLISHED AS THE DONOR HAD NO RELATION TO THE ASS ESSEE THEREFORE WAS CONSIDERED AS BOGUS GIFT IN THE HANDS OF THE ASSESSEE. THE LEAR NED CIT(A) FULLY SUPPORTED THE CONTENTION OF THE ASSESSING OFFICER RELYING ON THE DECISION OF THE HON'BLE APEX COURT ITA 92(BNG)/08 6 IN THE CASE REPORTED IN 291 ITR 278. SHE FULLY SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HER PART OF SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND CI RCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) OUGHT TO HAVE TAKEN INTO CO NSIDERATION THE FACTS AS BROUGHT ON RECORD BY THE ASSESSING OFFICER AND REITERATED BY T HE LEARNED COUNSEL HEREIN BEFORE US. BY NO STRETCH OF IMAGINATION THE AMOUNT OF AGRI CULTURE RECEIPTS AMOUNTING TO RS.4,20,783 CAN BE TAXED UNDER THE PROVISIONS OF SE CTION 68 WHEN THE ASSESSING OFFICER HIMSELF PROPOSED TO ALLOW RS.3,04,503 ACCEP TABLE AS AGRICULTURE INCOME IN THE HANDS OF THE ASSESSEE. AT THE END OF THE DAY, THE ASSESSEE IS REQUIRED TO ESTABLISH EARNING OF INCOME WHICH THE ASSESSING OFFICER TRIED TO INFLATE BY DISALLOWING EXPENSES WHICH APPEARS AN EXERCISE CONDUCTED BY THE ASSESSIN G OFFICER WHEN THE DIFFERENCE BETWEEN THE TWO ALREADY SPENT AND CLAIMED BY THE AS SESSEE REQUIRED CONSIDERATION ON WHICH THERE IS NO FINDING. THEREFORE IT IS A PURE AND SIMPLE COMPUTATION OF INCOME UNDER THE DEEMING PROVISIONS OF SECTION 68 WHEN THE CASH DEPOSITED AND INSCRIBED IN THE BOOKS OF ACCOUNTS DIFFER FROM AS THAT NOTED BY THE THIRD PARTIES BEING THE PAYEES. THE LEARNED COUNSEL HAS SUBMITTED THAT THE PAYMENTS REQUIRED ROUTING THROUGH COMMISSION AGENTS WHICH ENTRIES MAY DIFFER ON ACCOU NT OF COMMISSION AGENT NOT REMITTING THE CASH IMMEDIATELY TO THE ASSESSEE THER EFORE ONLY STOOD VERIFIED BY THE THIRD PARTY CONFIRMATION WITHOUT CROSS EXAMINING BY THE ASSESSEE. THE INDICATION IN THE ITA 92(BNG)/08 7 ORDER UNDER SECTION 144 THEREFORE CLINCHES THE FACT THAT IN ORDER TO BRING TO TAX THE DEFICIT OR SURPLUS CASH TO BE TAXED UNDER SECTION 6 8 OR 69, THE ASSESSING OFFICER OUGHT TO HAVE AFFORDED AMPLE OPPORTUNITY TO EXPLAIN BY TH E ASSESSEE IN TERMS OF EXPLAINING WHEN THE LAW PROVIDES TO DEFINE THE SAME AS UNEXPL AINED. THEREFORE WE AGREE TO THE PRAYER OF THE LEARNED COUNSEL ON THIS ISSUE AND RES TORE THE MATTER TO THE FILE OF ASSESSING OFFICER IN THE LIGHT OF FACTUAL MATRIX WH ICH NOW HAS TO BE CONFIRMED TO ESTABLISH BEYOND DOUBT THE ADDITION TO BE FRAMED UN DER SECTION 68 OR 69. 6. HOWEVER, ON THE ISSUE OF ADDITION OFRS.2,33,923, WE ARE SATISFIED THAT THE SAID GIFT CANNOT BE TERMED AS BOGUS IN THE HANDS OF THE ASSESSEE. THE INGREDIENTS FOR HOLDING A GIFT AS BOGUS HAS TO BE IN THE LINES OF A CCUMULATION OF AMOUNT GIFTED IN THE HANDS OF THE DONOR BEING NRI AND THE AVAILABILITY O F AMOUNT WAY BACK IN 1998 THEREFORE WOULD ESTABLISH THAT THE CREDIT WORTHINESS WAS BEYO ND DOUBT WHEN THE BANK STATEMENT INCORPORATED MORE THAN RS.13 LAKHS RECEIPTS IN THE IMPUGNED ASSESSMENT YEAR IN THE HANDS OF THE NRI. FURTHER MORE THE IDENTITY AND GE NUINENESS HAS ALSO BEEN ESTABLISHED IN THE FORM OF AN AFFIDAVIT AND HOLDING A PAN THERE FORE WOULD NOT LEAD TO ANY DOUBT FOR VERIFYING THE CREDIT WORTHINESS ETC. WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW MISDIRECTED THEMSELVES TO HOLD TH AT IT WAS THE ASSESSEES OWN MONEY AND ROUTED THROUGH THE CAPITAL ACCOUNT VIA NRE ACCO UNT AS GIFT. FINDING NO INFIRMITY IN THE CONTENTION OF THE ASSESSEE AND THE LEARNED COUN SEL, WE ARE INCLINED TO HOLD THAT THIS AMOUNT OF RS.2,33,923 CANNOT BE TAXED IN THE H ANDS OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 68. THE SAME IS DIRECTED TO BE DELETED. ITA 92(BNG)/08 8 7. TO SUM UP, THE ISSUE WITH RESPECT TO ADDITION OF RS.4,20,783 IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFRESH IN THE LIGHT OF OUR FINDINGS ABOVE. THE ADDITION OF RS.2,33,923 IS DIRECTED TO BE DELET ED. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11 TH SEPT., 2009. SD/- SD/- (SHAILENDRA KUM AR YADAV) (K.K.GUPTA) JUDICIAL MEMBER ACC OUNTANT MEMBER BANGALORE, DT.11.09.2009. 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* BY ORDER ASSISTANT REGISTRAR, ITAT