PARVEZ ABDULKADAR KHATRI, MUMBAI V. ADDL CIT RG 13(1), MUMBAI

ITA 982/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59890 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A PRASAD
• Assessee Lawyers: D M SHAH
• Keywords: Unexplained investment; Capital asset; Gift; Earning of tax free income
• Section: 131; 68; 69; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA SINGH, A.M. ITA NO. : 982/MUM/2009 ASSESSMENT YEAR : 2005-2006 SHRI PARVEZ ABDULKADAR KHATRI 17- TOPIWALA MANSION 93-97 MOHD. ALI ROAD MUMBAI-400 003. PAN NO: AAGPK 6484 J ADDL. COMMISSIONER OF INCOME TAX , RANGE-391) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI D.M. SHAH RESPONDENT BY : SHRI A. PRASAD DATE OF HEARING : 29.02.2012 DATE OF PRONOUNCEMENT : 16.3.2012 O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 1.12.2008 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. T HE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES ON FOUR DIFFERENT GRO UNDS. 2. THE FIRST DISPUTE IS REGARDING ADDITION ON ACCOUNT OF CERTAIN CREDIT BALANCES APPEARING IN THE BALANCE SHEET OF THE ASS ESSEE UNDER SECTION 41(1) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF THREE DIFFERENT PARTIES. THE AO NOTED THAT THE SUNDRY CREDI TORS INCLUDED A ITA NO. 982/M/09 A.Y.05-06 2 SUM OF RS.2,88,764/- BEING CREDIT IN THE NAME OF KOTH ARI PRODUCTS LTD. HOWEVER ENQUIRY WITH KOTHARI PRODUCTS LTD. SHOWE D THAT IN THE BOOKS OF THE SAID PARTY NO AMOUNT WAS RECEIVABLE FROM T HE ASSESSEE AS ON THE BALANCE SHEET DATE AND INSTEAD A SUM OF RS.88,6 23/- WAS PAYABLE TO THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE DI FFERENCE COULD BE DUE TO THE TRANSFORMATION OF ACCOUNT FROM MANU AL ACCOUNTS TO COMPUTERIZED ACCOUNTS. IT WAS ALSO SUBMITTED THAT TH E ASSESSEE WAS NOT HAVING ANY BUSINESS TRANSACTIONS WITH THE SAID PAR TY. THE DISCREPANCY WAS HOWEVER NOT EXPLAINED. THE AO OBSERVED THAT EXTRACT OF NEXT YEAR ACCOUNT SUBMITTED BY THE ASSESSEE SHOWED THAT PURCHASES MADE WERE DULY PAID BUT THE CREDIT BALANCE WAS NOT EXPLAINED WHICH WAS THEREFORE TREATED BY THE AO AS LCE ASED LABILITY AND ACCORDINGLY TREATED AS INCOME UNDER SECTION 41(1). 2.1 SIMILARLY THE SUM OF RS.88,623/- RECEIVABLE BY TH E ASSESSEE FROM KOTHARI PRODUCTS LTD. AS PER THEIR STATEMENT WAS AL SO NOT EXPLAINED AND THUS ADDED BY THE AO AS UNACCOUNTED INVEST MENT. SIMILARLY IN CASE OF VIDYA SNUFF CO., THERE WAS OUTSTAN DING LIABILITY OF RS.2,07,025/- AT THE END OF THE YEAR. BUT THE INFOR MATION OBTAINED BY THE AO FROM THE SAID PARTY SHOWED THAT SUM OF RS.22,500 /- WAS RECEIVABLE BY THE ASSESSEE FROM SAID PARTY AS PER THEIR BO OKS. AGAIN THE ASSESSEE GAVE A GENERAL EXPLANATION THAT DISCREPANCY C OULD BE DUE TO TRANSFORMATION FROM MANUAL SYSTEM TO COMPUTERIZED SYST EM BUT THE ITA NO. 982/M/09 A.Y.05-06 3 SAME COULD NOT BE SUBSTANTIATED BY SUBMITTING ANY EVIDEN CE. THE AO THEREFORE ADDED THE SUM OF RS.2,07,025/- AS INCOME OF T HE ASSESSEE UNDER SECTION 41(1) AND SUM OF RS.22,500/- WAS ADDED AS UNACCOUNTED INVESTMENT UNDER SECTION 69 OF THE INCOME TAX ACT. SIMILAR DISCREPANCY OF RS.4,07,638/- WAS FOUND BY AO IN CASE OF BHARAT BEEDI WORKS LTD. AND ADDED BY AO UNDER SECTION 41(1). 2.2 ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFO RE CIT(A) THAT THERE WAS OPENING CREDIT BALANCE OF RS.1,93 ,764/- AS ON 1.4.2004 IN CASE OF KOTHARI PRODUCTS LTD. AND CLOSING BA LANCE RS.2,88,764/- BECAUSE OF PURCHASES MADE DURING THE YEAR W HICH WERE CARRIED FORWARD. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO CONTROL OVER THE MANNER IN WHICH KOTHARI PRODUCTS WAS MA INTAINING THE ACCOUNT AND THERE WAS THUS NO JUSTIFICATION FOR ADDITION . IT WAS ALSO SUBMITTED THAT THE ADDITION OF RS.88,623/- WAS NOT JUST IFIED UNDER SECTION 69 AS ADDITION WAS MADE ON ACCOUNT OF PURCHASES WHI CH WERE EVEN CONFIRMED BY KOTHARI PRODUCTS LIMITED. CIT(A) H OWEVER DID NOT ACCEPT THE EXPLANATION. IT WAS OBSERVED BY HIM THAT TH E ASSESSEE WAS SHOWN OPENING CREDIT BALANCE OF RS.1,93,764/- WHEREAS KO THARI PRODUCTS LIMITED WAS SHOWING A SUM OF RS.1,78,873/- AS PAY ABLE TO THE ASSESSEE AS OPENING BALANCE. THE DISCREPANCY COULD NOT BE EXPLAINED BY THE ASSESSEE. CIT(A) THEREFORE CONFIRMED THE ADDITION OF RS.1,93,764/- UNDER SECTION 41(1). AS REGARDS THE REMA INING BALANCE ITA NO. 982/M/09 A.Y.05-06 4 OF RS.95,000/-, CIT(A) OBSERVED THAT THIS WAS OBVIOUSLY ON ACCOUNT OF PURCHASES MADE DURING THE YEAR WHICH WERE ACCOUNTED BY TH E SAID PARTY. HE THEREFORE, DELETED THE ADDITION OF RS.95,0 00/-. CIT(A) ALSO HELD THAT A SUM OF RS.88,623/- ADDED BY AO AS UNACCOUNT ED INVESTMENT ALSO REPRESENTED PURCHASES WHICH HAD BEEN CONFIR MED BY BOTH PARTIES AND THEREFORE, THIS AMOUNT WAS ALSO DELETE D. 2.3 IN RELATION TO VIDYA SNUFF CO. CIT(A) OBSERVED T HAT A SUM OF RS.2,07,025/- WAS SHOWN AS LIABILITY PAYABLE BY THE ASSESSE E TO THAT PARTY WHICH DENIED ANY SUCH LIABILITY AND THEREFORE AD DITION OF RS.2,07,025/- UNDER SECTION 41(1) WAS JUSTIFIED. THE ASSE SSEE COULD ALSO NOT EXPLAIN THE SUM OF RS.22,500/- SHOWN BY THE SAI D PARTY AS PAYABLE TO THE ASSESSEE AND THEREFORE, ADDITION UNDER SECTION 69 OF THAT AMOUNT BY THE AO WAS ALSO UPHELD. THE AO HAD A LSO ADDED A SUM OF RS.4,07,638/- UNDER SECTION 41(1) ON ACCOUNT OF BH ARAT BEEDI WORKS WHICH WAS ALSO CONFIRMED BY CIT(A) AS NO PROPER EXP LANATION HAD BEEN GIVEN. AGGRIEVED BY THE SAID DECISION OF TH E CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.4 THE LD. AR FOR THE ASSESSEE DID NOT PRESS THE GROUND RELATING TO SUM OF RS.4,07,638/- ON ACCOUNT OF BHARAT BEEDI WORKS LI MITED. IN RELATION TO OTHER TWO PARTIES, IT WAS SUBMITTED THAT THE AMOUNTS ADDED UNDER SECTION 41(1) REPRESENTED OPENING BALANCE A ND THEREFORE, ITA NO. 982/M/09 A.Y.05-06 5 THESE COULD HAVE BEEN ADDED IN THE EARLIER YEAR AND N OT THIS YEAR. AS REGARDS THE SUM OF RS.22,500/- ADDED UNDER SECTION 69 ON ACCOUNT OF VIDYA SNUFF THE LD. AR, REFERRED TO THE COPY OF THE ACCOUNT OF ASSESSEE COMPANY IN THE BOOKS OF SAID PARTY AT PAGE 36 IN WHICH OPENING CREDIT BALANCE WAS SHOWN AT RS.22,500/- AND AFTER CONSIDERING TH E TRANSACTIONS DURING THE YEAR THE CLOSING BALANCE REMAINED SAME I.E. RS.22,500/-. IT WAS POINTED OUT THAT THE ASSESSEE HAD NOT RECEIVED ANY AMOUNT FROM THE SAID PARTY AND, THEREFORE, THE SAME SHOULD NOT BE ADDED. THE LD. DR ON THE OTHER HAND STRONGLY SUPPO RTED THE ORDER OF CIT(A). IT WAS ARGUED THAT THE ASSESSEE HAD SHOWN CER TAIN CREDIT BALANCES IN THE NAME OF TWO PARTIES WHICH ON VERIFICATIO N WAS FOUND TO BE BOGUS AND THEREFORE, LIABILITY HAD CEASED AND RIGH TLY ADDED UNDER SECTION 41(1). SIMILARLY THE ADDITION UNDER SECTION 69 B IN CASE OF VIDYA SNUFF WAS ALSO JUSTIFIED AS THE ASSESSEE COULD NOT EXP LAIN THE CREDIT BALANCE IN ITS NAME IN THE BOOKS OF THE SAID PART Y. 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITIO N OF RS.1,93,764/- AND RS.2,07,025/- UNDER SECTION 41(1) ON ACCOUNT OF KOTHARI PRODUCTS LTD. AND VIDYA SNUFF COMPANY. THER E IS NO DISPUTE THAT IN THE BOOKS OF THE ASSESSEE, THE SAID AMOUNTS WERE SH OWN AS PAYABLE TO THE ABOVE TWO PARTIES, BOTH IN THE OPENI NG BALANCE AND CLOSING BALANCE. IT IS ALSO NOT IN DISPUTE THAT THE TWO PARTIES HAD ITA NO. 982/M/09 A.Y.05-06 6 DENIED THAT ANY SUM PAYABLE TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES THE SAID LIABILITIES CAN NOT BE SAID TO EXIST . THESE HAVE OBVIOUSLY CEASED WHICH WAS FOUND DURING THE COURSE OF ASSESSME NT PROCEEDINGS FOR THE YEAR UNDER REFERENCE. THE ARGUMEN T OF THE LD. AR THAT SINCE LIABILITIES APPEARED IN THE OPENING BALANCE THESE COULD BE ADDED IN THE EARLIER YEAR, CAN BE ACCEPTED AS THERE WA S NO MATERIAL PLACED ON RECORD IN THE EARLIER YEAR SHOWING THAT THESE LIABILITIES HAD CEASED. ONLY DURING PROCEEDINGS THIS YEAR, IT WAS FOUND T HAT LIABILITY HAD CEASED AND WAS NOT IN EXISTENCE. THEREFORE, ADDITI ON UNDER SECTION 41(1) IS JUSTIFIED AS THE SAID LIABILITIES WERE ON ACCOUNT OF PURCHASES MADE DURING THE EARLIER YEARS. AS REGARDS THE ADDITION OF RS.22,500/- UNDER SECTION 69B ON ACCOUNT OF VIDYA SNUFF COMPANY IT IS CLEAR FROM THE COPY OF THE ACCOUNT OF THE SAID PARTY THAT THE SAID AMOUNT WAS SHOWN AS PAYABLE TO THE ASSESSEE AS ON 1.4.2004 WHICH ALSO REMAINED IN THE CLOSING BALANCE. NO SUCH AMOUNT IS SH OWN RECEIVABLE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE ASSESSEE HAS ALSO CATEGORICALLY STATED THAT IT HAD NOT RECEIVED SAID AMOUNT SUBSEQUENTLY AND THIS CLAIM HAS ALSO NOT BEEN CONTROVERTED BEFORE US. ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT OF O THER PARTIES SHOWING THE SUM PAYABLE TO THE ASSESSEE WHEN THE SAME HAD NOT BEEN ACTUALLY RECEIVED NOR ACCOUNTED IN THE BOOKS OF THE ASSESSEE ITA NO. 982/M/09 A.Y.05-06 7 ADDITION MADE UNDER SECTION 69 WILL NOT BE JUSTIFIED. WE, THEREFORE, DELETE THE ADDITION MADE OF RS.25,000/-. 3. GROUNDS NO.2 AND 3 RELATE TO ADDITIONS OF RS.6,37,0 00/- ON ACCOUNT OF COMMISSION EXPENSES AND RS.15,000/- ON ACCOUNT OF CONVEYANCE EXPENSES WHICH HAD BEEN CONFIRMED BY CIT(A). T HE LD. AR HOWEVER, AT THE TIME OF HEARING OF THE APPEAL DID N OT PRESS THESE GROUNDS. THESE GROUNDS ARE, THEREFORE, DISMISSED AS NOT P RESSED. 4. THE FOURTH DISPUTE RELATES TO ADDITION OF RS.1,74,7 8,972/- MADE BY THE AO AS UNEXPLAINED ADDITION TO CAPITAL ACCOUNT U NDER SECTION 68 OF THE ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS NO TED THAT BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE AS ON 31.3.2 005 WAS SHOWN AT RS.4,25,74,638/- WHEREAS CAPITAL BALANCE AS ON 31.3.2004 WAS RS.2,47,29,547/-. THE ASSESSEE HAD NOT FILED COPY OF THE CAPITAL ACCOUNT ALONG WITH RETURN OF INCOME OR WITH THE AUDITE D STATEMENTS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED EXTR ACT OF CAPITAL ACCOUNT ONLY FOR PART OF THE YEAR TILL 31.12.2 004 AS PER WHICH THERE WAS BALANCE OF RS.2,13,39,323/- AS ON 18.12.2004. THE AO THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE CLOSING CAPITA L BALANCE OF RS.4,25,74,638/- AS ON 31.3.2005. THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY EXPLANATION. THEREAFTER STATEMENT OF THE ASSESSEE UNDER SECTION 131 WAS RECORDED ON 10.12.2007 IN THE PRESENCE OF SHRI ITA NO. 982/M/09 A.Y.05-06 8 AKSHAY MEHTA, TAX CONSULTANT AND D.M. SHAH, ADVOCATE, I N WHICH THE ASSESSEE IN RESPONSE TO Q.NO.11 STATED THAT HE DID NOT UND ERSTAND AS TO HOW THE FIGURES OF RS.4,25,74,638/- HAD BEEN ARRIV ED AT. THE ASSESSEE ALSO STATED THAT HE HAD NOT PURCHASED ANY PROPERTY NOR TAKEN /GIVEN ANY GIFTS OR LOANS. THE AO, THEREFORE, OBSERVE D THAT THE ASSESSEE DESPITE BEING GIVEN FULL OPPORTUNITY AND DESPITE THE ASSISTANCE OF TAX EXPERTS, COULD NOT EXPLAIN THE CAPITAL B UILT UP OF RS.4,25,74,638/-. THE ASSESSEE ONLY STATED THAT DUE TO CO RRUPTION OF DATA IN COMPUTER, HE WAS NOT IN A POSITION TO GIVE BASI S OF ADDITION TO THE CAPITAL ACCOUNT COMPARED TO RS.2,13,39,323/- AS ON 1 8.12.2004. THE AO THUS CONCLUDED THAT THE ASSESSEE HAD NO EXPLANATION TO THE INCREASE IN CAPITAL ACCOUNT IN RESPECT OF BALANCE AS ON 18.1 2.2004. HE COMPUTED UNEXPLAINED DIFFERENCE IN CAPITAL ACCOUNT AS UN DER :- BALANCE UNDER CAPITAL ACCOUNT AS ON 31.3.2005 RS.4,2 5,74,638.00 LESS NET PROFIT FOR THE YEAR ENDING 31.3.2005 RS.37,56,343.00 LESS BALANCE OF CAPITAL AS ON 18.12.2004 RS.2,13,3 9,323.00 TOTAL RS.1,74,78,972.00 4.1 THE AO THUS HELD THAT ADDITION TO CAPITAL ACCOUNT T O THE TUNE OF RS.1,74,78,972/- WAS NOT EXPLAINED BY THE ASSESSEE AND, T HEREFORE, HE TREATED THE SAME AS INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE INCOME TAX ACT. ITA NO. 982/M/09 A.Y.05-06 9 4.2 THE ASSESSEE DISPUTED THE DECISION OF THE AO AND SUBMIT TED BEFORE CIT(A) THAT THE ASSESSEE WAS DEALING IN TOBACCO AND ITS PRODUCTS AND HAD ITS PURCHASE OFFICE AT PETLAD. THE ACCOUNT REGARDING PURCHASE AND REMITTANCE FOR PAYMENTS FOR PURCHASES AND OT HER EXPENDITURE WERE BEING PREPARED BY THE LOCAL ACCOUNTAN T AT PETLAD. IT WAS FURTHER SUBMITTED THAT THE ACCOUNTANT AT PETLAD HAD PASSED JOURNAL ENTRY ON 31.3.2004 TO BALANCE THE DIFFERENCE IN THE BOOKS OF ACCOUNT AT PETLAD OFFICE AND MUMBAI OFFICE AS UNDER :- I) RS.73,14,009.00 ON 31.3.2004 II) RS.1,01,64,963.00 ON 31.3.2004 TOTAL RS.1,74,78,972/- 4.3 IT WAS ALSO SUBMITTED THAT THE SAID DIFFERENCE OF RS.1,74,78,972/- BEING BALANCING FIGURE WAS PART OF RS. 4,25,74,638/-. IT WAS POINTED OUT IN PASSING SAID BALANCING ENTRY, THE RE WAS NO INCREASE IN ANY OF THE ASSETS AND THEREFORE BY PASSING SAID ENTRY THERE WAS NO INCOME GENERATED. THE JOURNAL ENTRY HAD BEEN PASSED BY THE ACCOUNTANT WHO WAS SINCE DECEASED. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT BA LANCE IN CAPITAL ACCOUNT AS ON 18.12.2004 WAS RS.2,13,39,323/- WHICH HAD INCREASED TO RS.4,25,74,638/-. THE ASSESSEE WAS THEREFORE REQUIRED TO EXPLAIN THE INCREASE IN CAPITAL ACCOUNT WHICH THE ASSESSEE COULD NOT D O DESPITE ITA NO. 982/M/09 A.Y.05-06 10 REPEATED OPPORTUNITIES. CIT(A) FURTHER OBSERVED THAT EVEN DURING THE APPELLATE PROCEEDINGS, ASSESSEE FAILED TO FURNISH ANY EXPL ANATION WITH DOCUMENTARY EVIDENCE FOR SUCH INCREASE IN CAPITAL ACCOUNT. THEREFORE, ADDITION UNDER SECTION 68 OF THE ACT WAS JUSTIFIED WHICH WAS SUPPORTED BY SEVERAL DECISIONS OF THE TRIBUNAL AND COURTS. CIT(A ) ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO AGGRIEVED BY W HICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.4 BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT INCREASE IN CAPI TAL ACCOUNT WAS DUE TO BALANCING ENTRIES PASSED BY THE ACCOUNTANT WHO WAS SINCE DECEASED. HE REFERRED TO CAPITAL ACCOUNT OF THE ASSESSEE IN HIS PROPRIETARY CONCERN NIMEX TRADING CORPORATION PLACED A T PAGES 8-9 OF THE PAPER BOOK IN WHICH THE OPENING BALANCE WAS SHOWN AT RS.2,47,29,597/- AND CLOSING BALANCE WAS SHOWN AT RS.4,25, 74,638/-. IN THE SAID COPY, THE BALANCING ENTRIES OF RS.73,14,009 /- AND RS.1,01,64,692/- HAD BEEN SHOWN ON 31.3.2005 TO BALAN CE THE ACCOUNT. THE ADDITION IN THE CAPITAL ACCOUNT WAS THUS E XPLAINED BY THE BALANCE ENTRIES. IT WAS ALSO SUBMITTED THAT NO CASH HAD B EEN INTRODUCED IN THE CAPITAL ACCOUNT NOR ANY PAYMENT HAD BEEN RECEIVED BY THE ASSESSEE AND, THEREFORE, SIMPLY ON THE BASIS OF CRE DIT ENTRIES, NO ADDITION COULD BE MADE UNDER SECTION 68 OF THE I.T. ACT. HE ALSO REFERRED TO THE COPY OF THE BALANCING ENTRIES PASSED BY THE ACCOUNTANT ITA NO. 982/M/09 A.Y.05-06 11 AS ON 31.3.2005 ON ACCOUNT OF DIFFERENCES AT PETLAD OFFI CE PLACED AT PAGE- 10 & 12 OF THE PAPER BOOK. IT WAS THUS ARGUED THAT ON THE BASIS OF ACCOUNTING ENTRIES ADDITION MADE WAS NOT JUSTIFIED AS THERE WAS NO REAL INCOME. THE LD. AR ALSO PLACED RELIANCE ON THE F OLLOWING JUDGMENTS IN SUPPORT OF THE PLEA:- I) 57 ITR 630(SC) IN CASE OF CIT VS. KALOORAM GOVINDRAM II) 75 ITR 191 (SC) IN THE CASE OF CIT VS. INDIA DISCOUNT CO . LTD.; III) 167 TAXMANN 81 (ITAT) IN THE CASE OF SHIRISH S. MANIA R IV) 61 ITD 227 IN CASE OF SUNFLOWER BUILDER PVT. LTD. VS. DCIT 4.5 THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER S OF AUTHORITIES BELOW. IT WAS ARGUED THAT, FOR ADDITION UNDER SECTION 68, IT WAS NOT NECESSARY THAT CASH SHOULD BE RECEIVED BY THE ASSESSEE. THE SAID SECTION MADE IT CLEAR THAT ANY SUM CREDITED IN THE BOO KS OF ACCOUNT IF NOT EXPLAINED SATISFACTORILY HAS TO BE TREATED AS INCOME OF THE ASSESSEE. IN THIS CASE, THERE WAS CAPITAL ADDITION IN THE ACCOUNTS OF THE ASSESSEE WHICH WAS DEFINITELY A CREDIT ENTRY AND THER EFORE THE SAME HAS BEEN RIGHTLY TREATED AS INCOME AS IT WAS NOT EX PLAINED SATISFACTORILY. THE ASSESSEE HAS NOT EXPLAINED AS TO HOW A ND ON WHAT ACCOUNT BALANCING ENTRY HAD BEEN MADE AND, THEREFORE, INCREASE IN CAPITAL ACCOUNT COULD NOT BE EXPLAINED BY PASSING ANY BA LANCING ENTRY IF SAME ITSELF IS NOT EXPLAINED. ITA NO. 982/M/09 A.Y.05-06 12 4.6 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITIO N OF RS.1,74,78,972/- UNDER SECTION 68 OF THE INCOME TAX ACT BEING UNEXPLAINED ADDITION TO CAPITAL ACCOUNT. THE ASSESSEE WAS PROPRIETOR OF NIMEX TRADING CORPORATION. THE OPENING BALANCE IN THE CAPITAL ACCOUNT OF THE PROPRIETARY CONCERN AS ON 1.4.2004 WAS RS.2,47,29,597/- . DURING THE ASSESSMENT PROCEEDINGS ASSE SSEE FILED COPY OF THE CAPITAL ACCOUNT ONLY FOR PART OF THE YEAR I .E. 1.4.2004 TO 31.12.2004 AS PER WHICH BALANCE ON 18.12.2004 WAS RS.2,1 3,39,323/- . THEREAFTER AS ON 31.3.2005 ASSESSEE HAD SHOWN CLOSING B ALANCE OF RS.4,25,74,638/-. EVEN AFTER CONSIDERING THE NET PROFI T OF THE YEAR OF RS.37,56,343/-, THERE WAS DIFFERENCE OF RS.1,74,78,972/ - IN THE CAPITAL ACCOUNT WHICH WAS UNEXPLAINED. THE STATEMENT OF THE ASSE SSEE HAD ALSO BEEN RECORDED UNDER SECTION 131 DATED 10.12. 2007 IN THE PRESENCE OF TAX CONSULTANT BUT THE ASSESSEE COULD NOT EXPLA IN AS TO HOW CAPITAL ACCOUNT HAS BEEN INCREASED TO RS .4,25,74,638/-. THE AO THEREFORE ADDED A SUM OF RS.1,74,78,972/- AS UNEXPLAI NED CASH CREDIT UNDER SECTION 68 OF THE ACT. THE ASSESSEE DURING THE PRO CEEDINGS BEFORE CIT(A) EXPLAINED THAT THE PROPRIETARY CONCERN HAD PURCHASE OFFICE AT PETLAD WHERE THE ACCOUNTS WERE BEING PREPARED LOCALLY BY THE ACCOUNTANT WHO HAD PASSED JOURNAL ENTRIES OF RS.73,14,009 /- AND RS.1,01,64,963/- AGGREGATING TO RS.1,74,78,972/- TO B ALANCE THE ITA NO. 982/M/09 A.Y.05-06 13 DIFFERENCE IN THE ACCOUNT AT PETLAD OFFICE AND MUMBAI O FFICE. BUT THE ASSESSEE COULD NOT SUBSTANTIATE THE DIFFERENCE BY ANY DOCUM ENTARY EVIDENCE. CIT(A), THEREFORE, DID NOT ACCEPT THE EXPLAN ATION AND CONFIRMED THE ADDITION MADE BY THE AO. ON CAREFUL CON SIDERATION, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF CIT(A). 4.7 A COPY OF THE CAPITAL ACCOUNT OF THE ASSESSEE HAS BEEN PLACED AT PAGE 8-9 OF THE PAPER BOOK WHICH SHOWS OPENING CAPITAL AS ON 1.4.2004 AT RS.2,47,29,597/- AND THEREAFTER THE BALA NCE AS ON 31.12.2004 HAD BEEN SHOWN AS RS.2,13,39,323/-. THERE IS NO CAPITAL ACCOUNT FOR THE PERIOD 1.1.2005 TO 30.3.2005. ON 31. 3.2005, THE ASSESSEE HAD CREDITED THE CAPITAL ACCOUNT BY PROFIT OF RS.37 ,56,343/- AND THERE ARE FURTHER TWO CREDIT ENTRIES ON THE SAME D AY I.E. RS.73,14,009/- AND RS.1,01,64,962/-. THE LATTER TWO ENTRIES ARE BEING EXPLAINED BY THE ASSESSEE AS JOURNAL ENTRIES PASSED BY THE ACCOUNTANT AS ON 31.3.2005, COPIES OF WHICH HAVE BEEN PLACED AT PAG E-10 AND 12 OF THE PAPER BOOK TO BALANCE ACCOUNT OF PETLAD OFFICE A ND MUMBAI OFFICE. IT HAS BEEN EXPLAINED BEFORE CIT(A) THAT TH E JOURNAL ENTRIES HAD BEEN PASSED ON 31.3.2004 BUT THE COPIES OF THE JOUR NAL ENTRIES PLACED AT PAGE 10 AND 12 OF THE PAPER BOOK SHOW THAT THE ENTRIES WERE PASSED ON 31.3.2005. FURTHER, IN CASE THESE JOURNAL ENT RIES HAD BEEN PASSED ON 31.3.2004, THE OPENING BALANCE AS ON 1.4.2004 WOULD HAVE INCREASED BY THAT AMOUNT WHICH IS NOT SO AS THE OPENING CAPITAL ITA NO. 982/M/09 A.Y.05-06 14 REMAINED AT RS.2,47,29,407/-. IT IS THEREFORE CLEAR T HAT THE ASSESSEE HAD MADE ADDITION TO CAPITAL ACCOUNT BY PASSING TWO JOUR NAL ENTRIES AGGREGATING TO RS.1,74,78,972/- ON THE LAST DATE OF A CCOUNTING PERIOD WHICH ARE NOT EXPLAINED SATISFACTORILY. THE LD. AR HAS ARGUED THAT THESE DISCREPANCIES RELATE TO THE PRIOR PERIOD AND THERE FORE NO ADDITION COULD BE MADE IN THIS YEAR. THERE IS HOWEVER NO EVIDE NCE TO SUGGEST THAT THESE CREDIT ENTRIES RELATE TO THE EARLIER PERIOD BECAUSE THESE ARE NOT APPEARING AS PART OF THE OPENING CAPITAL AS IS CLE AR FROM THE CAPITAL ACCOUNT PLACED AT PAGE 8-9 OF THE PAPER BOOK. FURTHER IF CAPITAL ACCOUNT HAD BEEN SHOWN BY THE ASSESSEE LOWER BY RS .1,74,78,972/- IN THE EARLIER PERIOD BY MISTAKE, THEN THERE SHOULD HAV E BEEN SIMILAR MISTAKE IN THE BALANCE SHEET OF THE EARLIER YEAR ON TH E ASSET SIDE ALSO BY EQUAL AMOUNT BUT NO EVIDENCE HAS BEEN PRODUCED TO E XPLAIN WHETHER THE ASSETS IN THE EARLIER PERIOD HAD BEEN SHOWN LOWER. IN OTHER WORDS, THERE IS NO EVIDENCE TO SUBSTANTIATE THAT INCREASE IN CAPITAL ACCOUNT IN CURRENT YEAR IS DUE TO MISTAKE COMMITTE D IN THE EARLIER YEAR. ANY ADDITION TO THE CAPITAL ACCOUNT IF NOT EXPLAINED SUBSTANTIALLY HAS TO BE TREATED AS INCOME OF THE ASSESSEE UN DER SECTION 68 OF THE I.T ACT. 4.8 THE LD. AR FOR THE ASSESSEE HAS ALSO ARGUED THAT SECTIO N 68 REFERS TO CASH CREDIT AND, THEREFORE, ADDITION UNDER SECT ION 68 CAN BE ONLY WHEN THERE IS ANY CASH RECEIVED BY THE ASSESSEE. WE FIND NO ITA NO. 982/M/09 A.Y.05-06 15 MERIT IN THE ARGUMENT. THE LANGUAGE OF SECTION 68 IS VERY CLEAR AS PER WHICH ANY SUM CREDITED IN THE BOOKS OF ACCOUNT OF THE ASSESSE E IF NOT EXPLAINED SATISFACTORILY HAS TO BE TREATED AS INCOME AND IT IS NOT NECESSARY THAT THERE SHOULD BE ACTUAL RECEIPT OF ANY AMOU NT BY CASH OR CHEQUE. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF DHARMAVAT PROVISION STORES VS. CIT (139 ITR 700) , IN WHICH THE HONBLE HIGH COURT HELD THAT THOUGH THE MARGINAL NOTE IN SECTION 68 REFERS TO CASH CREDIT, THE SECTION CAN B E INVOKED TO ANY ENTRY TO ASSESSEES CAPITAL ACCOUNT. IN THAT CASE, AGGR EGATE OF CREDIT ENTRIES WERE FOUND MORE THAN THE AGGREGATE OF DEBIT ENTRIES IN THE CAPITAL ACCOUNT OF THE ASSESSEE BY RS.26,000/-. THE ISSUE WAS WHETHER ADDITION COULD BE MADE UNDER SECTION 68. HONB LE HIGH COURT UPHELD THE ADDITION MADE AND ALSO OBSERVED THAT THE F ACT THAT SOME OF THE ENTRIES IN THE CAPITAL ACCOUNT RELATED TO COST OF ANY CAPITAL ASSET, IT WILL MAKE NO DIFFERENCE. THUS ANY CREDIT ENTRY IN THE BOOKS OF ACCOUNT IF NOT EXPLAINED SATISFACTORILY HAS TO BE ADDED AS INCOME UNDER SECTION 68. 4.9 THE LD. AR FOR THE ASSESSEE HAS RELIED ON CERTAIN JUD GMENTS AS MENTIONED IN PARA 4.4 EARLIER WHICH ARE DISTINGUISHAB LE AND NOT APPLICABLE TO THE FACTS OF THE CASE. THE JUDGMENT IN TH E CASE OF KALOORAM GOVINDRAM (SUPRA), DID NOT RELATE TO CASH CRE DIT UNDER SECTION 68. THE ASSESSEE HUF IN THAT CASE WAS MEMBER OF AN ITA NO. 982/M/09 A.Y.05-06 16 ASSOCIATION DOING SAME BUSINESS. THE ASSOCIATION HAD SUFFER ED HUGE LOSS. IT HAD CREDITED THE INTEREST IN THE NAME OF MEMBE RS IN ITS BOOKS BUT NO INTEREST WAS ACTUALLY PAID. IT WAS HELD BY THE HON'BLE SUPREME COURT THAT THE INTEREST ENTRIES WERE PASSED ONLY FOR AP PORTIONMENT OF LOSS SUFFERED BY THE ASSOCIATION AND THERE WAS NO REAL INCO ME BY THE HUF. IT WAS ALSO OBSERVED THAT MERELY BECAUSE THE ASSOCIA TION HAD CLAIMED DEDUCTION ON ACCOUNT OF INTEREST WRONGLY, IT COUL D NOT BE THE BASIS TO ASSESS INTEREST INCOME IN CASE OF HUF WHEN THERE WAS N O REAL INCOME. THE CASE IS OBVIOUSLY DISTINGUISHABLE. THE JU DGMENT OF HON'BLE SUPREME COURT IN CASE OF CIT VS. INDIA DISCOUNT C O. LTD. (SUPRA), RELIED UPON BY THE LD. AR IS ALSO NOT APPLICA BLE TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE IN THAT CASE HAD PURCHASED CERT AIN SHARES ALONGWITH ARREARS OF DIVIDEND. THE DIVIDEND IN COME HAD BEEN WRONGLY CREDITED AS INCOME OF THE ASSESSEE. HON'BLE SUPRE ME COURT NOTED THAT THE ASSESSEE HAD MADE PAYMENT BOTH FOR THE SH ARES AS WELL AS ARREAR OF DIVIDEND. THE DIVIDEND WAS THEREFORE NOT RECEIVED BY THE ASSESSEE FROM SHARES PURCHASED AND THEREFORE COULD NOT BE ASSE SSED AS INCOME. THE CASE OBVIOUSLY IS DIFFERENT. IN CASE OF SH IRISH S. MANIAR (SUPRA), ENTRY HAD BEEN MADE BY A THIRD PART Y IN THE NAME OF THE ASSESSEE. HOWEVER, ASSESSEE DID NOT RECEIVE ANY AMOUNT. IT WAS THEREFORE HELD BY THE TRIBUNAL THAT THE AMOUNT COULD NOT BE ASSESSED IN THE NAME OF THE ASSESSEE ON THE BASIS OF ENTRY MADE BY THIRD PARTY. ITA NO. 982/M/09 A.Y.05-06 17 THERE WAS NO CASH CREDIT IN THE BOOKS OF THE ASSESSEE. SIMI LARLY, DECISION OF THE TRIBUNAL IN CASE OF SUNFLOWER BUILDER P VT. LTD. (SUPRA), IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE SA ID CASE RELATED TO LEVY OF PENALTY FOR VIOLATIONS OF PROVISI ONS OF SECTION 269 SS AS PER WHICH THE ASSESSEE IS PROHIBITED TO TAKE LOAN OR ACC EPT DEPOSIT IN EXCESS OF RS. 20,000/- OTHERWISE THAN BY WAY OF CHEQU E. THE TRIBUNAL NOTED THAT THE ASSESSEE DURING THE RELEVANT YE AR HAD NOT RECEIVED ANY CASH AMOUNT. THE CASH HAD BEEN RECEIVED IN THE EARLIER YEAR AND ONLY ENTRIES HAD BEEN MADE IN THE CURRENT Y EAR AND, THEREFORE IT WAS HELD THAT PROVISIONS OF SECTION 269 SS WERE NOT APPLICABLE. THE PROVISIONS OF SECTION 269 ARE OBVIOUSLY D IFFERENT AS IT APPLIES ONLY WHEN CASH IS RECEIVED CONTRARY TO SECTION 68 I N WHICH ADDITION CAN BE MADE WHEN A SUM IS CREDITED IN THE BOO KS IRRESPECTIVE OF THE FACT WHETHER CASH IS RECEIVED OR NOT. THUS ALL T HE ABOVE CASES CITED ARE NOT APPLICABLE TO FACTS OF THE PRESENT CASE. 4.9 IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE RE ASONS GIVEN EARLIER, WE ARE OF THE CONSIDERED VIEW THAT THE CREDIT ENTRY IN THE CAPITAL ACCOUNT OF THE ASSESSEE WHICH WAS NOT EXPLAINED SATISF ACTORILY HAS BEEN RIGHTLY ASSESSED AS INCOME OF THE ASSESSEE UNDER SECTI ON 68. ORDER OF CIT(A) IS ACCORDINGLY UPHELD. ITA NO. 982/M/09 A.Y.05-06 18 5. THE FIFTH DISPUTE IS REGARDING DISALLOWANCE OF EXP ENSES UNDER SECTION 14A RELATING TO EXEMPT INCOME. THE ASSESSEE HAD R ECEIVED DIVIDEND INCOME OF RS.2,96,671/- WHICH WAS EXEMPT FROM TAX BUT THE ASSESSEE HAD NOT DISALLOWED ANY EXPENSES RELATING TO THE SA ID INCOME. THE AO THEREFORE ESTIMATED SUCH EXPENSES AT RS.50,000/- A ND DISALLOWED THE SAME UNDER SECTION 14A. IN APPEAL CIT(A) OBSERVED THAT UNDER SECTION 14A BOTH DIRECT AND INDIRECT EXPENSE S WERE COVERED AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF M/S. DAGA CAPITAL MANAGEMENT. HE, THEREFORE, CONFIRMED TH E DISALLOWANCE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE T RIBUNAL. 5.1 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE DIVIDEND INCOME WAS BEING COLLECTED THROUGH ECS BANKING SYSTEM. T HEREFORE, THERE WERE HARDLY ANY EXPENSES. IT WAS THUS ARGUED TH AT DISALLOWANCE WAS EXCESSIVE. THE LD. DEPARTMENTAL REPRESENTATIVE ON T HE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EX PENSES RELATING TO EXEMPT DIVIDEND INCOME. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ AND BOYCE MFG. CO. VS. DCIT (328 ITR 8 1), HAVE RECENTLY HELD THAT DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME BOTH DIRECT AND INDIRECT HAS TO BE MADE ON REASONABLE B ASIS AFTER ITA NO. 982/M/09 A.Y.05-06 19 ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. IN TH IS CASE, THE AO HAS ESTIMATED THE EXPENSES AT RS.50,000/- WHICH HAS BEEN CO NFIRMED BY THE CIT(A). THE LD. AR HAS ARGUED THAT DIVIDEND HAD BEEN COLLECTED BY THE BANK AND THEREFORE THERE ARE HARDLY ANY DIRE CT EXPENSES. HOWEVER AS HELD BY HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ AND BOYCE MFG. CO. (SUPRA), INDIRECT EXPENSES H AVE ALSO TO BE CONSIDERED. THE ASSESSEE HAD RECEIVED DIVIDEND INCOME FRO M SEVERAL COMPANIES AS IS CLEAR FROM DETAILS GIVEN AT PAGE 30 OF TH E PAPER BOOK. THERE ARE INDIRECT EXPENSES IN THE FORM OF ESTABLISHMENT AND SALARY OF OFFICIALS WHO MUST BE MONITORING THE INVESTMENT AND FO R KEEPING ACCOUNTS. IN OUR VIEW A SUM OF RS .25,000/- CAN BE REASONABLY ATTRIBUTED TOWARDS SUCH EXPENSES. WE, THEREFORE CONFIRM THE DISALLOWANCE TO THE EXTENT OF RS.25,000/- AND THE BALA NCE ADDITION IS DELETED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.3.2012. SD/- SD/- (B.R. MITTAL) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 16.3.2012. JV. ITA NO. 982/M/09 A.Y.05-06 20 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.