Hospet Foods Pvt. Ltd., Hospet V. DCIT, Bellary

ITA 925/BANG/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1539 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMRITA RANJAN
• Assessee Lawyers: CHYTHANYA K K
• Keywords: Unexplained expenditure; Search and seizure; Onus to prove; Revised return
• Section: 69C; 143(2); 131; 132

Judgement Text

PAGE 1 OF 9 ITA NO.925/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M ITA NO.925/BANG/2010 (ASSESSMENT YEAR 2007-08) HOSPET FOODS PVT. LTD., FLAT NO.405, RAMANAND RESIDENCY, N C COLONY, HOSPET-583 203. - APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, BELLARY. - RESPONDENT APPELLANT BY : SHRI CHYTHANYA, K K, ADVOCATE RESPONDENT BY : SMT. AMRITA RANJAN, ADDL. CIT ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF LEARNED CIT(A), HUBLI DATED 27 /5/2010. THE ASST. YEAR CONCERNED IS 2007-08. 2. THE ASSESSEE HAS RAISED EIGHT GROUNDS OF APPEAL . THE FIRST GROUND IS GENERAL IN NATURE AND THEREFORE, NO ADJUDICATION IS CALLED FOR. HENCE, THE SAME IS DISMISSED. 3. FOR THE SECOND GROUND, NO ARGUMENT WAS RAISED I N THE COURSE OF HEARING. HENCE, THE SECOND GROUND OF APP EAL RAISED HEREIN IS DISMISSED. PAGE 2 OF 9 ITA NO.925/BANG/2010 2 4. THE OTHER GROUNDS OF APPEAL, NAMELY, GROUND NOS. 3 TO 8 RELATE TO THE ISSUE OF ADDITION U/S 69C AMOUNTING T O RS.12,18,000/-. 5. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A PRIVATE LIMITED COMPANY. FOR TH E CONCERNED ASST. YEAR, RETURN OF INCOME WAS FILED ON 26/10/2007 DECLARING A TOTAL INCOME OF RS.11,73,730/-. THE RE TURN WAS PROCESSED U/S 143(1). LATER, THE ASSESSMENT WAS TA KEN UP FOR SCRUTINY BY ISSUANCE OF NOTICE U/S 143(2) AND ASSESSM ENT WAS COMPLETED VIDE ORDER DATED 24.12.2009. THE A.O. AD DED A SUM OF RS.12,18,000/- U/S 69C OF THE ACT. THE REASON FOR THE ADDITION, ACCORDING TO THE A.O., WAS THAT THE ASSESSEE HAD PA ID INTEREST TO ONE MR. CHARUCHANDRA AND HIS FAMILY MEMBERS ON ACCOU NT OF CERTAIN MONEY BORROWED FROM THE AFORESAID PARTIES. 6. THE ADDITION U/S 69C WAS CHALLENGED BEFORE THE FIRST APPELLATE AUTHORITY. 7. THE CIT(A), FOR HIS ELABORATE REASONS MENTIONED IN PARA 4 OF HIS ORDER, DISMISSED THE APPEAL FILED BY T HE ASSESSEE. 8. THE ASSESSEE, BEING AGGRIEVED, IS IN SECOND APP EAL BEFORE US. 9. THE LEARNED AR SUBMITTED THAT THE PROVISIONS OF SECTION 69C CAN BE INVOKED ONLY SUBSEQUENT TO THE FU LFILLMENT OF CERTAIN CONDITIONS WHICH ARE AS FOLLOWS:- PAGE 3 OF 9 ITA NO.925/BANG/2010 3 (I) THE ASSESSEE HAS INCURRED CERTAIN EXPENDITURE DURING THE FINANCIAL YEAR; (II) THE ASSESSEE: (A) OFFERS NO EXPLANATION ABOUT THE SAID EXPENDITURE INCURRED; OR (B) HAVING OFFERED CERTAIN EXPLANATION THE SAME IS NOT SATISFACTORY IN THE OPINION OF THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE SAID SECTION HAS TWO LIMB S AND THE SAME COULD BE INVOKED PRIMARILY WHERE EXPENDITURE HAS BEE N INCURRED AT THE OUTSET. IT WAS FURTHER SUBMITTED THAT THE LEAR NED CIT(A) HAS FAILED TO APPRECIATE THAT THE CONTENTIOUS ADDITION MADE BY THE AO WAS NEITHER DEBITED IN THE BOOKS OF ACCOUNT NOR PAI D. HE HAS FAILED TO APPRECIATE THAT SECTION 69C PROVIDES FOR DISALLO WANCE ONLY IN CASES WHERE THE ASSESSEE HAS INCURRED ANY EXPENDITU RE. IT WAS SUBMITTED THAT THE LEARNED CIT(A) HAS FAILED TO APP RECIATE THAT INCURRED MEANS ACTUALLY SPENT AS HELD BY THE HONBL E SUPREME COURT IN THE CASE OF LAKSHMINARAYAN V RETURNING OFFI CER (1974) 3 SCC 425. 9.1 IT WAS CONTENDED THAT THE LEARNED CIT(A) HAS F AILED TO APPRECIATE THAT THE AO HAS NOT BROUGHT ON RECORD ANY CONCRETE EVIDENCE AGAINST THE ASSESSEE COMPANY WHICH COULD VO UCH THE FACT OF THE INCURRENCE OF THE SAID EXPENDITURE. IN THIS REGARD, IT WAS SUBMITTED THAT THE LEARNED CIT(A) IS NOT JUSTIFIED IN DOUBTING THE AUTHENTICITY OF THE SWORN STATEMENT MADE BY THE MANAG ING DIRECTOR OF THE ASSESSEE COMPANY, WHEREIN IT WAS CLA RIFIED THAT NO INTEREST HAS BEEN PAID BY THE ASSESSEE. PAGE 4 OF 9 ITA NO.925/BANG/2010 4 9.2 IT WAS FURTHER SUBMITTED THAT THE LEARNED CIT( A) HAS FAILED TO APPRECIATE THAT THE AO HAS NOT FOUND ANY D OCUMENTS IN THE COURSE OF SEARCH IN THE PREMISES OF THE BORROWE R PURPORTED TO HAVE BEEN EXECUTED/SIGNED BY THE ASSESSEE PROVING TH E PAYMENT OF INTEREST. THE ACTION OF THE AO IN MAKING THE ADDIT ION ONLY ON THE BASIS OF STATEMENT MADE BY THE BORROWER AND THE RETU RN SUBSEQUENTLY FILED BY HIM POST SEARCH COULD NOT HAVE BEEN UPHELD BY THE LEARNED CIT(A). IT WAS SUBMITTED THAT THE LE ARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF INTER EST WHEN THE ONUS TO PROVE THAT THE ASSESSEE PAID/INCURRED THE INTERE ST HAS NOT BEEN DISCHARGED BY THE REVENUE, WHICH IS A NECESSARY PREC ONDITION FOR INVOKING SECTION 69C. 10. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED T HAT THE SEARCH PROCEEDINGS WERE CONDUCTED IN THE PREMISES O F THE LENDER, NAMELY SHRI CHARUCHANDRA AND HIS FAMILY MEMBERS. IT WAS SUBMITTED THAT IN THE COURSE OF SEARCH, THE RECEIPT S OF THE ASSESSEE FOR HAVING RECEIVED THE AMOUNTS FROM SHRI CHARUCHANDRA WERE SEIZED. IN THE RECEIPTS, IT WAS SUBMITTED THAT IT IS CLEARLY MENTIONED THAT THE ASSESSEE WAS LIABLE TO PAY INTERE ST AT THE RATE OF 24%. THE LEARNED DR ALSO PLACED ON RECORD THOSE RECEIPTS, WHICH WERE SEIZED. 11. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. SEARCH AND SEIZURE ACTION U/S 132 WAS CONDUCTED ON 25/3/2008 IN THE CASE OF SHRI CHARUCHA NDRA, PROP. OF PAGE 5 OF 9 ITA NO.925/BANG/2010 5 SHREE NIDHI MINES, HOSPET. IT WAS NOTICED THAT THE ASSESSEE HAD ACCEPTED CASH LOANS EXCEEDING RS.20,000/- IN CASH A S HAND LOANS FROM SHRI CHARUCHANDRA AND HIS FAMILY MEMBERS AND PA ID INTEREST AT THE RATE OF 18% TO 24%. BLANK UNDATED CHEQUES W ITH THE MENTION OF AMOUNT WERE GIVEN BY THE ASSESSEE COMPANY TO SHRI CHARUCHANDRA AND FAMILY MEMBERS TOWARDS SECURITY OF T HE LOANS TAKEN. COPIES OF THE PROMISSORY NOTE AND SECURITY CH EQUES WERE SEIZED DURING THE COURSE OF SEARCH. SHRI CHARUCHAN DRA (LENDER) WAS CONFRONTED WITH THE SEIZED MATERIALS ANNEXED AS A/ RCC/1. IN REPLY TO Q.NO.10 OF HIS SWORN STATEMENT RECORDED ON OATH U/S 132(4), SHRI CHARUCHANDRA STATED THAT THE FOLDER CO NTAINING THE SEIZED MATERIALS MARKED AS A/RCC/1 CONTAINS THE P ROMISSORY NOTES AND OTHER DETAILS OF CERTAIN LOANS WHICH HAS BEEN A DVANCED BY HIM TO M/S HOSPET FOODS PVT. LTD., FOR A PERIOD OF TIME @ 24% P.A. WHICH IS MENTIONED ON EACH PROMISSORY NOTES. FURTHE R, VIDE REPLY TO Q.NO.11, SRI R CHARUCHANDRA CONFESSED THAT THE AMOU NTS ADVANCED TO M/S HOSPET FOODS PVT. LTD. ARE NOT RECORDED IN T HE BOOKS, HENCE, NOT DECLARED IN THE RETURN OF INCOME FILED BY HIM FO R THE RELEVANT YEAR. 11.1 BASED ON THE SEIZED MATERIALS, THE REVENUE WO RKED OUT THE INTEREST THAT WAS PAID BY THE ASSESSEE COMPANY TO SHRI CHARUCHANDRA AND FAMILY AND ESTIMATED INCOME ON THE BASIS OF SUCH PAYMENT ARE AS FOLLOWS:- PAGE 6 OF 9 ITA NO.925/BANG/2010 6 SL. NO. PARTICULARS ADMITTED INCOME ASST. YEAR ESTIMATED INCOME ASST. YEAR 1. UNACCOUNTED EXPENDITURE ON ACCOUNT OF INTEREST ON DEPOSITS PAID TO SHRI R CHARUCHANDRA AND HIS FAMILY MEMBERS. NIL NIL 26,600 2002-03 2. -DO- NIL NIL 2,51,000 2003-04 3. -DO- NIL NIL 2,97,900 2004-05 4. -DO- NIL NIL 3,63,000 2005-06 5. -DO- NIL NIL 5,19,000 2006-07 6. -DO- NIL NIL 12,18,000 2007-08 7. -DO- NIL NIL 36,47,000 2008-09 TOTAL NIL NIL 63,22,500 SHRI R CHARUCHANDRA AND HIS FAMILY MEMBERS DID ACCEP T THE ABOVE INCOME OF RS.63,22,500/- AS THEIR UNDISCLOSED INCOM E. ACCORDINGLY THEY DECLARED THE SAME IN THE RESPECTIVE ASSESSMENT YEAR IN THE HANDS OF RESPECTIVE PERSONS AND HAVE PAID THE TAXED ON THE SAME. 11.2 THE DETAILS OF LOANS ACCEPTED BY M/S HOSPET FO ODS PVT. LTD. ARE AS UNDER:- SL. NO. NAME OF THE PERSON FROM WHOM LOAN ACCEPTED F.Y. IN WHICH THE LOAN ACCEPTED TOTAL AMOUNT OF LOAN ACCEPTED 1. SHRI R CHARUCHANDRA 2001-02 2,00,000 2. -DO- 2002-03 5,50,000 3. -DO- 2003-04 2,50,000 4. -DO- 2004-05 2,25,000 5. -DO- 2005-06 23,00,000 6. -DO- 2006-07 20,00,000 7. -DO- 2007-08 34,50,000 8. MRS. BHANUMATI R CHARUCHANDRA 2007-08 10,00,000 9. MISS R C SHREE VIDYA 2007-08 50,000 TOTAL 1,00,25,000 11.3 THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDI NGS HAD PROVIDED COPIES OF THE SEIZED MATERIALS, STATEMENT OF SHRI CHARUCHANDRA, COPY OF THE CASH RECEIPT AND BLANK SIG NED UNDATED PAGE 7 OF 9 ITA NO.925/BANG/2010 7 CHEQUES, WHICH ARE THE EVIDENCES USED BY THE AO FOR CHARGING INTEREST ON LOANS AND ON DEPOSITS. THE ASSESSEE C OMPANY WAS ALSO PROVIDED WITH AN OPPORTUNITY TO CROSS EXAMINE THE LE NDER, NAMELY SHRI CHARUCHANDRA, WHICH WAS REFUSED. A STATEMENT U/S 131 WAS RECORDED FROM THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY ON 24.12.2009. THE MANAGING DIRECTOR ADMITTED FOR HAV ING BORROWED MONEY FROM SHRI CHARUCHANDRA IN CASH. HOWEVER, HE S TATED THAT THE AMOUNTS ARE RECEIVED FOR THE SALE OF FACTORY ASS ET. THE MANAGING DIRECTOR ALSO DENIED HAVING PAID ANY INTERE ST ON THE ABOVE SAID AMOUNT. 11.4 THE RECEIPT OF THE ASSESSEE COMPANY FOR ACKNOWLEDGING THE RECEIPT OF THE LOAN AMOUNT FROM S HRI CHARUCHANDRA CLEARLY STIPULATE THAT THE ASSESSEE ALS O AGREES TO PAY INTEREST AT THE RATE OF 18% TO 24%. THOUGH THE ASS ESSEE COMPANYS MANAGING DIRECTOR IN THE STATEMENT RECORDE D U/S 131 HAD STATED THAT HE HAD BORROWED MONEY, THERE IS A CONTRA DICTION IN HIS STATEMENT BY SAYING THAT THE AMOUNTS ARE RECEIVED FOR THE SALE OF FACTORY ASSET. THE ASSESSEE HAS NOT BEEN ABLE TO PR OVE THIS FACT BY PLACING ANY MATERIAL ON RECORD. IT IS ADMITTED IN THE COURSE OF HEARING BY LEARNED AR THAT THERE HAS BEEN NO SALE OF FACTORY ASSET BY THE ASSESSEE COMPANY TO SHRI CHARUCHANDRA. THERE FORE, THE ASSESSEE HAS TAKEN AN INCONSISTENT STAND. 11.5 FROM THE MATERIAL SEIZED FROM THE PREMISES OF SHRI CHARUCHANDRA CLEARLY SHOW THAT THE ASSESSEE HAS REC EIVED THE PAGE 8 OF 9 ITA NO.925/BANG/2010 8 AMOUNTS AS LOAN AND THE ASSESSEE COMPANY HAD FURTHER AGREED TO PAY INTEREST ON THOSE LOANS. THE EVIDENCE OF RECEIP T OF THE ASSESSEE, HAVING ACKNOWLEDGED THE RECEIPT OF THE AM OUNT AS LOAN AND ALSO FOR PAYMENT OF INTEREST ON THE SAME, IS ADE QUATE PROOF THAT INTEREST EXPENDITURE HAS BEEN INCURRED BY THE A SSESSEE FIRM. THIS FACT IS ALSO STRENGTHENED WITH THE ADMISSION O F SHRI CHARUCHANDRA, THE LENDER AND HIS FAMILY MEMBERS FOR HAVING RECEIVED INTEREST FROM THE ASSESSEE FIRM AND THEY HA VE DULY DISCLOSED THE SAME IN THE REVISED RETURN FILED FOR THE ASST.YEARS 2002-03 TO 2008-09. 11.6 THE ALTERNATIVE CONTENTION OF THE ASSESSEE TH AT INTEREST AT THE RATE OF 24% ON RS.34,50,000/- IS R S.8,28,000/- AND NOT RS.12,18,000/- IS ALSO TO BE REJECTED. THE ASSESSEE WAS RECEIVING LOANS NOT ONLY FROM SHRI CHARUCHANDRA BUT ALSO FROM HIS FAMILY MEMBERS. THE AMOUNTS WERE RECEIVED FROM FINAN CIAL YEARS 2001-02 TO 2007-08 IN TOTAL AMOUNTING TO RS.1,00,25 ,000/-. THE INTEREST WAS WORKED OUT NOT ONLY FOR THE AMOUNTS THA T ARE DUE TO SHRI CHARUCHANDRA BUT ALSO TO OTHER FAMILY MEMBERS. FURTHER INTEREST IS PAID NOT ONLY ON THE LOAN TAKEN DURING T HE YEAR BUT ALSO ON THE OUTSTANDING LOAN TAKEN IN THE PAST YEARS. 11.7 IN THE LIGHT OF THE ABOVE REASONING, WE ARE O F THE VIEW THAT THE ADDITION MADE U/S 69C IS JUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE UPHOLD THE IMPUGNED ORDERS OF THE INCOME TAX AUTHORITIES. PAGE 9 OF 9 ITA NO.925/BANG/2010 9 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED ON FRIDAY, THE 18 TH DAY OF FEBRUARY, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/17.2. BY ORDER ASST. REGISTRAR, ITAT, BANGALO RE.