Times Tracon (P) Ltd, Kolkata V. ACIT, Bhubaneswar

ITSSA 76/CTK/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8760 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 30-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: M K SAHUA RAO ARS
• Keywords: Search and seizure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T (SS) A.NO. 76/CTK/2012 / ASSESSMENT YEAR 2009 - 10 TIMES TACON (P) LTD.,TODI CHAMBERS , 2 LAL BAZAR STREET, 1 ST FLOOR, KOLKATA 700 001 PAN:AABCT 0266 B - - - VERSUS - ASST.CO MMISSIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI M.K.SAHU/A.RAO, ARS / FOR THE RESPONDENT: / SMT. PARAMITA TRIPATHY, CIT - DR / DATE OF HEARING: 30.01.2013 / DATE OF PRONOUNCEMENT: 14.02.2013 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THIS APPEAL BY THE ASSESSEE RAISES THE FOLLOWING GROUNDS. 1. THAT THE LEARNED ASSESSING OFFICER H AS CORRECTLY MENTIONED THAT THE CAPITAL RESERVE OF RS 40,39,638 REPRESENTS SHARE PREMIUM AMOUNT BUT HE HAS WRONGLY LINKED WITH INVESTMENTS. THIS SHARE PREMIUM ACCOUNT WHICH RESULTED IN CAPITAL RESERVE IS RELATED TO SHARE CAPITAL AND SO SHOULD NOT BE ADDED BACK. 2. THAT THE SUM OF RS. 30,85,000 BEING COMMISSION PAYABLE IS ADDED BUT THE ASSESSEE HAS CREDITED A SIMILAR AMOUNT FOR WHICH THE ASSESSEE CLAIMED THAT THE COMMISSION RECEIVABLE. THE LAO HAS ERRED IN DISALLOWING THE COMMISSION PAYABLE WHILE THE ASSESSEE HAS OFFERED THE SAME TO TAX CORRESPONDINGLY. 3. THAT THE SUM OF RS.83,94,000 BEING SUNDRY DEBTORS HAS ADDED BY LAO STATING BECAUSE OF LACK OF CONFIRMATION, BUT CONFIRMATION OF SUNDRY DEBTORS CANNOT BE ADDED AS THE SOURCE OF THE SAME HAS ALREADY BEEN EXPLAINE D IN THE LIABILITY SIDE OF BALANCE SHEET. 4. THAT THE ASSESSEE IS NOT LIABLE FOR ANY PENALTY IMPOSITION AS THE BASIC ADDITION BASING ON WHICH PENALTY PROCEEDING HAS BEEN INITIATED DO NOT STAND THE SCRUTINY AND THERE IS NO CONCEALMENT I.T(SS)A.NO. 76/CTK/2012 2 OF PARTICULARS OF INCOME OR INACCURATE FURNISHING OF PARTICULARS OF INCOME. 5. IN VIEW OF THE ABOVE FACTS ADDITIONAL TAX AND PENALTY OF 100% OF RS. 6,88,58,280 IS NOT JUSTIFIED, HENCE NOT PAYABLE BY THE ASSESSEE. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT A SEARCH AND SEIZURE OPERATION WAS CONDUCTED IN SUDHA DEVI GROUP OF CASES ON 26.3.2009 CONSEQUENT TO WHICH THE ASSESSEE WAS COVERED IN THE SEARCH AND WARRANT WAS ISSUED AND SERVED AT THE BANK ACCOUNT AND THE PREMISES OF THE ASSESSEE. THE CASE WAS CENTRALIZED AND NO TICES WERE ISSUED UNDER THE PROVISIONS OF SECTION 143(2) AND 153(B) OF THE I .T.ACT. THE ASSESSEE WAS SUBJECT ED TO SEIZURE OF CASH AMOUNTING TO RS.10 CRORES FROM THE BANK ACCOUNTS AND THE ASSESSING OFFICER ON THE ASSESSEES FILING OF RETURN INCLUDING THE SA ID INCOME OF THE AMOUNT SEIZED FILED THE RETURN OF INCOME DISCLOSING RS.12,80,67,217. THE ASSESSEE BEING A PRIVATE LIMITED COMPANY HAD INCORPORATED THE LIQUIDATION OF THE INVESTMENT IN CASH WHICH THE ASSESSING OFFICER OBSERVED AND PERUSED THE FINANCIAL STA TEMENTS WHEN HE OBSERVED THAT THE ASSESSEE HAD SHOWN COMMISSION PAYABLE WHICH COMMISSION HE HAD CLAIMED AS EXPENDITURE AND DISALLOWED THE SAME. HE ALSO OBSERVED THAT THE COMMISSION PAYABLE AND RECEIVABLE BEING CONTRA ENTRIES THE RATE WHICH VARIED WAS BETWE EN 2.5% TO 3% WHEN HE PROPOSED TO ENHANCE THE SAME BY 0.5% MAKING AN ADDITIONAL INCOME OF RS.6,17,000. HE OBSERVED THAT THE ASSESSEE HAD SHOWN LOANS AND ADVANCES AMOUNTING TO RS.4,33,94,527 BEING APPLICATION OF THE FUNDS WHEN THE MAJOR ADVANCE WAS TO SUDHA DEVI FOUNDATION AMOUNTING TO RS.5.5. CRORES. AS THE ASSESSEE HAD FAILED TO OBTAIN CONFIRMATIONS FROM THE DEBTORS HE PROPOSED TO TAX THE SUM OF RS.83,94,527 BEING UNAVAILABLE. IN THE LIABILITY SIDE OF THE BALANCE SHEET CAPITAL RESERVE OF RS.40,39,630 WAS L YING WHICH AMOUNT HE HELD WAS SHARE PREMIUM ACCOUNT I.T(SS)A.NO. 76/CTK/2012 3 BEING THE INVESTMENT BY SHARE HOLDERS TO WHICH THE ASSESSEE COULD NOT GIVE A BEFITTING REPLY. HE FURTHER MADE ADDITION OF RS.40,39,638. 3. AGGRIEVED THE ASSESSEE APPE ALED BEFORE THE FIRST APPELLATE AUTHOR I TY, BEFORE WHO M THE ASSESSEE APPELLANT SUBMITTED THAT THE ASSESSING OFFICER HAS ADDED 0.5% COMMISSION TO THE TOTAL INCOME AMOUNTING TO RS.6,17,000 AS HE WAS NOT ABLE TO SUBSTANTIATE THE ACTUAL RATE OF COMMISSION PAYABLE. ADDITION HAS BEEN DONE ARBITRARILY WHICH FORMS NO BASIS. ASSESSEE HAS ALREADY INCLUDED AMOUNT OF EXPECTED COMMISSION IN THE PROFIT AND LOSS ACCOUNT AND BROUGHT TO TAX. A COPY OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF TIMES TRACON (P) LIMITED WAS SUBMITTED BEFORE THE LEARNED CIT(A). F URTHER T HE ASSESSING OFFICER WAS EXPLAINED THAT THE ASSESSEE HAS CONVERTED THE INVESTMENTS AMOUNTING TO RS 26,98,85,400 INTO STOCK IN TRADE AT A VALUE OF RS . 2700 AND THE CAPITAL LOSS GENERATED DUE TO THIS CONVERSION HAS BEEN DEBITED TO THE CAPITAL RESERVE RELATED TO SHARE PREMIUM ACCOUNT WHICH HAS BEEN CARRIED FORWARD FROM THE PREVIOUS YEARS. THIS STOCK IN TRADE IS THEN SOLD AT RS 12,34,00,000 AND CREDITED IN THE PROFIT AND LOSS ACCOUNT. BALANCE IN THE CAPITAL RESERVE SHOWED IN THE BALANCE SHEET AFTER ADJU STING CAPITAL LOSS ON CONVERSION OF INVESTMENTS INTO STOCK I N TRADE, WERE DEBITED TO CAPITAL RESERVE AND THE REMAINING BALANCE OF CAPITAL RESERVE AMOUNTING TO RS 40,39,638 WAS CARRIED FORWARD IN THE SUBSEQUENT YEARS. IT IS OBVIOUS AND CLEAR THAT THE SHARE PREMIUM ACCOUNT WHICH IS RESULTED IN CAPITA L RESERVE IS RELATED TO THE SHARE CAPITAL WHICH IS EXISTING IN THE BALANCE SHEET AND NOTHING TO DO WITH INVESTMENTS. HENCE ADDING THE SAME TO THE TOTAL INCOME IS NOT JUSTIFIED AND UNCALLED FOR. THE SAME FACT HAS A LSO BEEN TAKEN IN THE BOOKS OF ACCOUNTS AND MENTIONED IN THE NOTES TO THE ACCOUNTS . MOREOVER THIS ACCOUNTING TREATMENT IS VERY MUCH EFFECTED IN THE BOOKS WHICH IN NO WILD IMAGINATION BE TREATED AS CONCEALMENT. IN THE CASE OF THIS ASSESSEE , THE I.T(SS)A.NO. 76/CTK/2012 4 LEARNED ASSE SSING OFFICER HAS ADDED DEBTORS AMOUNTING TO RS 83,94,527 BUT THE SOURCES OF THE SAME HAS ALREADY BEEN TAXED IN THE LIABILITY SIDE OF THE BALANCE SHEET SO ADDING BACK DEBTORS AGAIN TO THE TOTAL INCOME IS BAD IN LAW HENCE NOT JUSTIFIED. FURT HER COMMISS ION P AYABLE AMOUNTING TO RS.30, 85,000 HAS BEEN ADDED BUT COMMISSION RECEIVABLE OF THE SAME AMOUNT HAS ALREADY TAKEN IN THE PROFIT AND LOSS ACCOUNT ACCORDINGLY BROUGHT TO TAX, HENCE ADDING BACK COMMISSION PAYABLE AGAIN IS BAD IN LAW HENCE NOT JUSTIFIED. HOWEVER, THE LEARNED CIT(A) NEGATED THE CLAIM OF THE ASSESSEE JUSTIFYING THE ACTION OF THE ASSESSING OFFICER ON ALL THE ISSUES WITHOUT ANY BASIS OR REASONING TO THE FINDING OF THE ASSESSING OFFICER. HE HELD THAT THE FACTS AND CIRCUMSTANCES DO NOT INDICATE ANY TRA NSACTIONS HAVING BEEN CARRIED OUT WHICH REQUIRE FURTHER VERIFICATION. 4. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITT ED THAT THE ASSESSING OFFICER AFTER HAVING ACCEPTED THE RETURNED INCOME ON THE BASIS OF SEARCH MATERIAL BEING CA SH FORMING PART AND PARCEL OF THE INCOME RETURNED TRIED TO ANALYZE THE FINANCIAL STATEMENTS IN HIS OWN WAY WHEN THE PURPORTED SO CALLED ADDITIONS HAVE NO BEARING TO BE TAXED EITHER AS DISALLOWANCE OR AS FOR INSUFFICIENT EXPLANATION OFFERED BY THE ASSESSEE WHICH HE FULLY SUPPORTED AS PER THE SUBMISSIONS BEFORE THE LEARNED CIT(A) MENTIONED ABOVE. HE POINTED OUT AS TO HAVING ESTABLISHED THE FACT THAT THE ASSESSEE IS AN INVESTING COMPANY AND GRANTS LOANS AND ADVANCES AGAINST THE SHARE CAPITAL INVESTED BALANCE T HE EARNING OF INCOME WHICH COMMISSION WAS SHOWN PAYABLE AS WELL AS RECEIVABLE THE ASSESSEE BEING A PRIVATE LIMITED COMPANY HOLDING THE POSITION OF TRUST BETWEEN THE TWO. THE CONTRA ENTRY OF RS.30,85,000 OUGHT TO HAVE BEEN CONSIDERED AS FROM THE INVESTMENT AND CONSIDERED AND BROUGHT N RECORD BY THE ASSESSING OFFICER AND NOT THAT UNILATERALLY TO ENHANCE THE TAXATION INSOFAR AS THE DETAILS OF EXPENDITURES I.T(SS)A.NO. 76/CTK/2012 5 WERE TO BE GIVEN. HE ARGUED THAT WHEN IT WAS EXPLAINED THAT THE COMMISSION WHICH IS EARNED WHICH DETAILS WERE FURNISHED WERE THE DETAILS TO BE ALLOWED ONWARD REMISSION CANNOT BE DISALLOWED UNILATERALLY. THE FINDING OF ENHANCEMENT OF COMMISSION THEREFORE CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE THAT IT WAS ON THE BASIS OF MISINTERPRETATION OF FACTS BY THE ASSESSING AUTHORITIES INSOFAR AS IT IS NOT DENIED THAT THE COMMISSION WAS PAID ON RECEIPT OF COMMISSION WHICH INCOME THE AUTHORITIES ARE PREPARED TO ACCEPT AGAINST THE INCOME SO RENDERED BY THE ASSESSEE. THE INCREASE OF RS.6,17,000 HAD THEREFORE NO BASIS O N THE FACTS AND CIRCUMSTANCES AS BROUGHT ON RECORD BY THE ASSESSING OFFICER. 4.1. SIMILARLY HAVING ACCEPTED THE ADVANCES AGAINST THE INVESTMENT OF MORE THAN RS.4 CRORES WHICH INCOME HAS BEEN RENDERED TO TAX BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR COULD NOT BE CHALLENGED INSOFAR AS THE AMOUNT OWED TO THE ASSESSEE WAS RS.3.5 CRORES FROM SUDHA DEVI FOUNDATION AND THE REMAINING WERE ALSO FROM VARIOUS OTHER PARTIES ON WHOSE BEHALF THE ASSESSEE HAS GRANTED LOANS DID NOT REQUIRE FURTHER VERIFICATION INS OFAR AS THE ASSESSEE HAD ADEQUATE FUNDS AGAINST THE INCOME SO RENDERED BY THE ASSESSEE. A SUM OF RS.83,93,527 THEREFORE WAS PART OF THE ASSESSING OFFICERS SURMISES AND CONJECTURES WHICH THE LEARNED CIT(A) DID NOT CONSIDER IN THE MANNER AS SUBMITTED BY TH E LEARNED COUNSEL FOR THE ASSESSEE BEFORE HIM. 4.2. THE ASSESSEE HAD RECEIVED SHARE PREMIUM AGAINST THE SHARES ISSUED WHICH MAY KINDLY BE PERUSED IN THE FINANCIAL STATEMENTS DULY AUDITED FURNISHED WAS ON THE BASIS OF SHARES ALLOTTED TO THE SHARE HOLDERS W HEN THE SHARE PREMIUM WAS TO BE RECEIVED IN ACCORDANCE TO THE PROVISIONS OF THE COMPANIES ACT, 1956. THE ASSESSING OFFICER HELD THAT THE SHARE PREMIUM IS NOT AGAINST ANY INVESTMENT THEREFORE HAS TO BE DISALLOWED AMOUNTING TO I.T(SS)A.NO. 76/CTK/2012 6 RS.40,39,638. HE ARGUED THAT IT WAS THE ASSESSEES OWN SHARE WHICH FETCHED PREMIUM DID NOT REQUIRE INVESTMENT WHICH THE ASSESSING OFFICER HAS ALREADY ACKNOWLEDGED THAT THE INVESTMENTS WERE SOLD AND RENDERED TO TAX AS INCOME WHICH INCOME HE HAS READILY ACCEPTED AMOUNTING TO RS.12,80,67,2 17. HE FURTHER PRAYED THAT THESE ADDITIONS AS COMPUTED BY THE ASSESSING OFFICER CONFIRMED BY THE LEARNED CIT(A) HAS NO LEGS TO STAND ON INSOFAR AS THE ASSESSMENT HAS BEEN MADE U/S.143(3)/153(B) AND LIABLE TO BE DELETED AS THEY ARE SELF BALANCING UNDER TH E PROVISIONS OF THE I.T.ACT. 5. THE LEARNED CIT - DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. SHE SUBMITTED THAT THE BOOK ENTRIES WERE TO BE VERIFIED BY THE ASSESSING OFFICER WHICH THE ASSESSEE COULD NOT EXPLAIN INSOFAR AS THAT HAVING RENDERED INCOME THE ASSESSEE WAS TO ESTABLISH BY WAY OF REGULAR RETURN THE MODUS OPERANDI OF HOLDING THE ASSETS AND LIABILITY WHEN THE ASSESSEE HIMSELF ADMITS THAT THE COMMISSION EARNED AS COMMISSION PAYABLE LEAVE NO ROOM FOR HAVING ANY BUSINESS TRANSACTI ONS. 6. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF CASE AS BROUGHT ON RECORD BY THE AUTHORITIES BELOW, WE ARE INCLINED TO FIND A MEANING INTO THE MODUS OPERAN DI OF THE ASSESSEE APPELLANT WHICH WAS VERIFIED ON THE BASIS OF SEARCH AND SEIZURE OPERATION CARRIED OUT BY THE INCOME - TAX AUTHORITIES. THE ASSESSEE FILED RETURN INDICATING THAT THE CASH SEIZED WAS ON THE BASIS OF LIQUIDATION OF INVESTMENT WHICH WERE INCOR PORATED IN THE BALANCE SHEET MAY OR MAY NOT HAVE BEEN PAPER TRANSACTIONS BUT WERE ON THE BASIS OF RECEIPT OF CASH WHICH WAS DULY ACKNOWLEDGED AND INCORPORATED IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAVING ACCEPTED THE RETURN IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT, WAS NOT TO VERIFY FURTHER THE TREATMENT GIVEN TO THE INCOME SO RENDERED WHICH IS PART AND I.T(SS)A.NO. 76/CTK/2012 7 PARCEL OF THE ACCOUNTING AS PER THE COMPANIES ACT DULY AUDITED UNDER THE PROVISIONS OF THE I.T.ACT AS WELL. WE ARE THEREFORE OF THE CONSIDE RED VIEW THAT THE CAPITAL RESERVE WHICH THE ASSESSING OFFICER BELIEVED WAS LIQUIDATED BUT REQUIRED EXPLANATION WAS ON THE BASIS OF SHARE HOLDERS INVESTING IN THE COMPANY ALONG WITH THE PREMIUM WHICH PREMIUM WAS INCOME IN THE HANDS OF THE ASSESSEE AS CAPITA L WERE LIQUIDATED AND RENDERED TO TAX U/S.132(4). IN THIS VIEW OF THE MATTER, THE EARNING OF COMMISSION TO BE PASSED ON TO THE REAL CREDITOR WAS NOT TO BE DISTURBED AS EXPENDITURE REMAINING UNEXPLAINED. WE DIRECT THE DELETION OF RS.30,85,000 AS COMMISSION CLAIMED AS EXPENDITURE WHICH WAS TO BE O N THE BASIS OF INCOME EARNED TO THE LIKE AMOUNT. SIMILARLY THE ENHANCEMENT OF RS.6,17,000 DOES NOT HAVE ANY BASIS AS COMPUTED BY THE AO AS THEY ARE CONTRARY TO HIS OWN FINDING FOR THE PURPOSE OF TAXATION EXPENDITURE FROM UNDISCLOSED INCOME. 6.1. SIMILARLY THE LOANS AND ADVANCES STANDING WERE AGAINST THE RESERVE CREATED BY THE ASSESSEE WAS ON THE BASIS OF INCOME RENDERED TO TAX AND THEREFORE COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE INSOFAR AS THE ASSESSING OFFI CER ACCEPTED THAT THE MAJOR LOANS AND ADVANCES WAS TO SUDHA DEVI FOUNDATION. WHEN THE BALANCE WAS RENDERED TO TAX IT WAS NOBODYS CASE THAT THE ASSETS WERE TO BE VERIFIED WHICH ASSETS WERE NOT CREATED AND WERE PART AND PAR CEL OF THE PHYSICAL CASH F O UND A T THE TIME OF SEARCH IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT HAVING RENDERED INCOME, THE ASSESSING OFFICER OUGHT TO HAVE CONSIDERED THAT THE ASSETS AND LIABILITIES CANNOT BE TAXED OVER AND ABOVE THE RETURNED INCOME HAVE TO BE UNDER SPE CIFIC PROVISIONS IN LAW AND INSOFAR AS THE ASSESSEE IS CONCERNED THE SAME ST OOD EXPLAINED TO THE EXTENT THAT THE INCOME RENDERED U/S.132(4) INCORPORATED IN THE BOOKS OF ACCOUNT IS FAR MORE THEN DISCLOSED LIABILITY AND THE SAME INCOME CANNOT BE TAXED AS A LIABILITY AS WELL AS ASSETS. I.T(SS)A.NO. 76/CTK/2012 8 6.2. IN VIEW OF THE ABOVE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE RETURN AS FILED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.02.2013 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 12.2.2013 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.02.2013 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES T O THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 14.02.2013 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.02.2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPAT CH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.