The ITO, Ward-2(2)(5), Ahmedabad V. M/s. Savvy Oraganisers, Ahmedabad

ITSSA 95/AHD/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2678 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 24-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 27-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Keywords: Unexplained cash credit; Income from undisclosed sources; Opportunity of being heard; Deemed dividend
• Section: 143(3); 142(1); 153A; 69B; 143(2); 264; 153; 153C; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (CONDUCTING THROUGH VIRTUAL COURT) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER IT(SS)A NO. 95/AHD/2018 (ASSESSMENT YEAR: 2007-08) ITO WARD-2(2)(5), AHMEDABAD VS. M/S. SAVVY ORGANISERS, B/H. SANGATH SILVER APARTMETNS, SABARMATI KOBA ROAD, OPP. ENGINEERING COLLEGE, MOTERA, AHMEDABAD [PAN NO. ABIFS7332J] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI VIRENDRA OJHA, CIT DR RESPONDENT BY : SHRI VARTIK CHOKSHI, AR DATE OF HEARING: 21/04/2021 DATE OF PRONOUNCEMENT: 24/06/2021 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE REVENUE IS DIRECTE D AGAINST THE ORDER DATED 19.01.2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 11, AHMEDABAD ARISING OUT OF THE ORDER DATED 28.03.2014 PASSED BY THE DCIT, CENTRAL CIRCLE-1(2), AHMEDABAD UNDER SECTION 143(3) R.W.S 153A OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT) FOR ASSESSME NT YEAR 2007-08 WITH THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 4,01,00,000/- MADE BY THE AO BEING UNDISCLOSED INVESTMENT IN LAND . 1.1 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT IN THE CASE OF CIT VS. BHARAT ENGINEERING & CONSTRUCTION COMPANY (AS RELIED ON BY THE CIT(A)), THE HONBLE SUPREME COURT HAD DECLINED TO INTERFERE WITH THE FINDINGS OF FACT RATHER THAN PRO NOUNCING THE LAW ON THE SUBJECT. 1.2 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT TH E HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGINEERING & CONSTRUCTION COMPANY ( SUPRA) HAD RATHER OBSERVED THAT :IN THE ABSENCE OF SATISFACTORY EXPLANATION FROM THE ASSESS EE THE INCOME-TAX OFFICER MAY ASSUME THAT CASH CREDIT ENTRIES IN ITS BOOKS REPRESENT INCOME F ROM UNDISCLOSED SOURCES. - 2 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 1.3 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT A PARTNERSHIP IS A COMPENDIUM OF PARTNERS AND THE PARTNERSHIP IS CREATED AS SUCH BY THERE IS AN AGREEMENT BETWEEN THE PARTNERS TO CARRY ON BUSINESS. 1.4 THE PARTNERSHIP ACT DOES NOT MANDATE THAT SUCH AGREEMENT HAS TO NECESSARILY BE IN WRITING, IT COULD BE ORAL TOO SO THAT DATE OF REGIS TRATION OF THE PARTNERSHIP DEED IS NOT PARAMOUNT IF THE CUMULATIVE FACTS SHOWED THAT THERE WAS EXIST ENCE OF PARTNERSHIP EVEN BEFORE THAT DATE. 1.5 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT TH E PARTNER OF THE ASSESSEE FIRM HAD ADMITTED TO HAVE NEGOTIATED THE SAID LAND DEAL ON BEHALF OF THE FIRM AND THE PAYMENT WAS ALSO MADE ON BEHALF OF THE FIRM. 1.6 THE LD. CIT(A) HAD FAILED TO APPRECIATE THAT EV EN IF CASH PAYMENT WAS MADE BY ONE OF THE PARTNERS, IT WAS PAID ON BEHALF OF THE FIRM AS THE SAID LAND BELONGED TO THE FIRM. 1.7 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT A PARTNER IS AN AGENT OF THE FIRM IN TERMS OF SECTION 18 OF THE PARTNERSHIP ACT. 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. THE BRIEF FACTS LEADING TO THE CASE IS THIS THAT A SEARCH UNDER SECTION 132 OF THE ACT WAS CONDUCTED IN THE CASE OF SAVVY GROUP ON 27. 04.2011 AND SUBSEQUENT DATES. A WARRANT OF AUTHORIZATION UNDER SECTION 132 WAS AL SO ISSUED IN THE CASE OF THE ASSESSEE. SUBSEQUENTLY, NOTICE UNDER SECTION 153C OF THE ACT WAS ISSUED ON 22.03.2013, IN RESPONSE WHEREOF THE ASSESSEE FILED ITS RETURN OF INCOME ON 13.01.2014 DECLARING TOTAL LOSS OF RS. 18,180/-. NOTICE UNDER SECTION 143(2) WAS ISSUED ON 22.03.2013 FOLLOWED BY NOTICE UNDER SECTION 142(1) DATED 17.01.2014. IT IS RELEVANT TO MENTION THAT THE ASSESSEE FILED ITS ORIGINAL RET URN OF INCOME ON 29.09.2008 DECLARING TOTAL LOSS AT RS. 18,180/-. 3. THE ASSESSEE FIRM HAS PURCHASED A LAND AT MOTERA BEING SURVEY NO. 197/1 AND 198/1 FROM ONE SHRI BALDEV F. PATEL AND THREE OTHER S FOR CONSTRUCTION OF A SCHEME NAMELY SAVVY SOLARIS; THE SALE DEED WAS EXECUTED IN THE ASSESSMENT YEAR 2010-11. ACCORDING TO THE REVENUE DURING THE SEARCH CONDUCTE D AT THE RESIDENCE OF SHRI BALDEV F PATEL AND OTHERS CERTAIN INCRIMINATING MATERIALS WERE CLAIMED TO HAVE BEEN FOUND WHEREFROM IT APPEARS THAT THE SAID MR. BALDEV F. PA TEL AND OTHERS HAVE ACCEPTED - 3 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 RECEIPT OF ON-MONEY AMOUNTING TO RS. 4.01 CRORES FROM THE APPELLANT DURING F.Y. 2006-07. SUCH SEIZED MATERIALS AND/OR PAPERS FOUND FROM THE PREMISES IN REGARD TO THE SALE OF MOTERA LAND LYING AND SITUATED AT SURVE Y NO. 197/1 AND 198/2 ALONG WITH THE COPIES OF THE STATEMENT OF SHRI BALDEV F. PATEL RECORDED ON 27.04.2011 AND SHRI SHAILESH B. PATEL RECORDED ON 12.07.2011 WERE PROVI DED TO THE ASSESSEE. THE DETAILS OF THE PAYMENT MADE TOTALING TO RS. 5,50,00,000/- F OR THE LAND BEING SURVEY NO. 197/1, 198/2 AND 199/2 WERE ALSO MADE AVAILABLE TO THE ASSESSEE. THE LAND LYING AND SITUATED AT SURVEY NO. 197/1 AND 198/2 IS CONSISTIN G OF A TOTAL AREA OF 19141 SQ. METER AND THE OTHER ONE LYING AND SITUATED AT 199/2 IS AD MEASURING OF AN AREA OF 13,954 SQ. METER. THE TOTAL CONSIDERATION OF RS. 5,50,00,000/ -, AS PER SEIZED MATERIAL WAS DIVIDED ON THE BASIS OF AREA COVERED BY THE ABOVE L ANDS AND ACCORDINGLY THE AMOUNT OF RS. 4,01,00,000/- WAS ADDED TO THE TOTAL INCOME OF THE APPELLANT AS UNDISCLOSED INVESTMENT BEING THE PROPORTIONATE PAYMENT OF PURCH ASE OF LAND HAVING SURVEY NO. 197/1 AND 198/2 OUT OF THE TOTAL PAYMENT OF RS. 5,5 0,00,000/-. RELEVANT TO MENTION THAT THE REMAINING AMOUNT OF RS. 1,49,00,000/- PERT AINING TO THE LAND LYING AND SITUATED AT SURVEY NO. 199/2 WAS NOT PURCHASED BY T HE APPELLANT. 4. IT WAS THE CASE OF THE ASSESSEE THAT THE UNACCOU NTED FUNDS HAVE BEEN APPLIED FOR THE PURCHASE OF LAND FOR THE PROJECT SAVVY SOLARIS UNDERTAKEN BY THE APPELLANT FIRM, JOINTLY BY SAVVY GROUP AND MARUTI GROUP; THE SAME W ERE OUT OF UNACCOUNTED RECEIPT OF SAVVY INFRASTRUCTURE, ANOTHER FIRMS PROMOTED BY THE SAVVY AND MARUTI GROUP. THE LD. AO WAS OF THE VIEW THAT SINCE THE LAND HAS BEEN PURCHASED IN THE NAME OF THE APPELLANT FIRM, AND THE FINAL SALE DEED WAS EXECUTE D IN THE NAME OF THE APPELLANT, AND ABOVE ALL CHEQUES PAYMENTS WERE MADE BY THE APPELLA NT, THE LOGICAL COROLLARY WOULD BE THAT IT IS NONE BUT THE APPELLANT HAD BORNE THE CASH AMOUNT TOO. APART FROM THAT ONE AMIT PATEL WAS NEGOTIATING THE LAND DEAL IN THE CAPACITY OF THE PARTNER OF THE APPELLANT FIRM AND HE HAS ACCEPTED AND CONFIRMED TH AT AN ON-MONEY PAYMENT WAS - 4 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 MADE BY THE APPELLANT FIRM FACT OF WHICH HAS BEEN R ELIED UPON BY THE LD. AO WHILE MAKING ADDITION OF RS. 4.01 CRORES IN THE HANDS OF THE ASSESSEE. THE LD. AO WAS OF THE VIEW THAT THE SAID AMOUNT HAS NOT BEEN OFFERED EITHER IN THE RETURN OF INCOME OF SAVVY INFRASTRUCTURE COMPANY OR BEFORE THE SETTLEME NT COMMISSION AND NEITHER TAX HAS BEEN PAID THEREON. ULTIMATELY THE ADDITION OF RS. 4.01 CRORES WAS MADE ON THE GROUND THAT ON-MONEY PAYMENT TOWARDS LAND HAS BEEN MADE BY THE APPELLANT FIRM. HOWEVER, SUCH ADDITION HAS BEEN DELETED BY THE FIRS T APPELLATE AUTHORITY AND HENCE THE INSTANT APPEAL BEFORE US. 5. AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE LD. AO FAILED TO APPRECIATE THE FACT THAT THE PARTNERS OF THE APPELLANT FIRM HAS INVESTED IN THE SAID LAND FOR AND ON BEHALF OF THE ASSESSEE FIRM OUT OF THE UNACCOUNTED INCOME EARNED FROM THE SCHEME SAVVY SERENE BELONGING TO THE PARTNERSHIP FIRM SAVVY INFRASTRUCT URE COMPANY. IT WAS FURTHER POINTED BY THE LD. AR THAT THE MAJOR PORTION OF SUC H AMOUNT WAS PAID TO THE OWNERS OF THE LAND BEFORE THE DATE OF INCORPORATION OF THE APPELLANT FIRM ON 23.02.2007 WHICH MADE IT CLEAR THAT PAYMENTS WERE NOT MADE OUT OF TH E INCOME OF THE APPELLANT FIRM. WHEN NO SUCH UNACCOUNTED INCOME HAS BEEN EARNED BY THE APPELLANT FIRM NO ADDITION IS SUSTAINABLE. FURTHER THAT THE LD. AO WHILE ARRI VING AT THE CONCLUSION HAS CONSIDERED THE SUBMISSION IN ISOLATION ONLY TO THE EXTENT OF ACCEPTANCE OF ON-MONEY PAYMENTS. IT WAS FURTHER ARGUED BY THE LD. AR THAT ONCE IT HAS BEEN ADMITTED BY THE LD. AO THAT NO AMOUNT HAS OFFERED IN THE RETURN OF INCOME BY SAVVY INFRASTRUCTURE OR BEFORE THE HONBLE SETTLEMENT COMMISSION, NETHER TH E SAID FIRM HAS PAID TAXES THEREON IT PROVES THAT THE LD. AO HAS ACCEPTED THE CONTENTION OF THE APPELLANT THAT THE UNACCOUNTED INCOME OUT OF WHICH THE ON-MONEY PAYMEN T HAS BEEN MADE WAS OUT THE RECEIPT IN THE HANDS OF THE PARTNERSHIP FIRM SAVVY INFRASTRUCTURE AND NOT THE APPELLANT FIRM. THEREFORE, THE SOURCE OF INVESTMENT IN THE L AND SINCE FULLY EXPLAINED THE - 5 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 ADDITION UNDER SECTION 69B AS UNEXPLAINED INVESTMEN T IS NOT SUSTAINABLE IN THE EYE OF LAW AND, THUS, THE SAME IS LIABLE TO BE QUASHED. T HE LD. AR FINALLY RELIED UPON THE ORDER PASSED BY THE LD. CIT(A) IN DELETING SUCH ADD ITION MADE WRONGLY BY THE LD. AO. 6. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DER PASSED BY THE LD. AO. IT WAS HIS SOLE CONTENTION THAT SINCE THE LAST SALE DE ED REGISTERED IN THE NAME OF THE APPELLANT COMPANY WAS UPON MAKING PAYMENT OF CONSID ERATION BY THE ASSESSEE COMPANY THROUGH BANKING CHANNEL, THE LOGICAL COROLL ARY WOULD BE THAT NONE BUT THE ASSESSEE HAD PAID THE CASH AMOUNT TOO. HOWEVER, HE FAILED TO EXPLAIN AS TO HOW THE ADDITION OF ON MONEY TO THE TUNE OF RS. 4.01 CRORES IS SUSTAINABLE IN THE HANDS OF THE ASSESSEE WHEN SUCH AMOUNT WAS PAID TO THE VENTURE O F THE LAND MUCH BEFORE THE FORMATION OF THE APPELLANT FIRM. 7. WE HAVE HEARD THE RIVAL SUBMISSION MADE BY THE R ESPECTIVE PARTIES AND WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. 8. THE CASE OF THE ASSESSEE IS THIS THAT THE PARTNE RS OF THE FIRM HAVE INVESTED IN THE LAND FOR AND ON BEHALF OF THE FIRM OUT OF UNDISCLOS ED RECEIPT OF SAVVY INFRASTRUCTURE. IT IS ALSO THE FURTHER CASE OF THE ASSESSEE THAT TH E FIRM WAS INCORPORATED ON 23.02.2007 AND MAJORITY PAYMENTS IN RESPECT OF SUCH PURCHASE O F LAND WAS MADE PRIOR TO THE DATE OF INCORPORATION AND THEREFORE, THE SAME IS NOT OUT OF THE UNDISCLOSED INCOME OF THE FIRM. IT IS AN ADMITTED POSITION THAT THE APPELLAN T FIRM WAS INCORPORATED ON 23.02.2007. IT FURTHER APPEARS FROM THE AUDITED AN NUAL ACCOUNTS OF THE APPELLANT FIRM RELEVANT PORTION WHEREOF HAS BEEN REPRODUCED I N THE ORDER PASSED BY THE LD. CIT(A) EVIDENCING THAT THERE WAS NO WORKING CAPITAL FUNDS AVAILABLE IN THE FIRST YEAR OF INCORPORATION I.E. 2007-08. THE RELEVANT EXTRAC T OF THE BALANCE SHEET OF 2007-08 AS REPRODUCED BY THE LD. CIT(A) IS REPRODUCED HEREINBE LOW FOR READY REFERENCE:- - 6 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 RELEVANT EXTRACT FROM BALANCE SHEET FOR A.Y. 200 7-08:- PARTICULARS AMOUNT(RS) CURRENT ASSESTS, LOANS AND ADVANCES: 2,31,71,356 LESS: CURRENT LIABILITIES AND PROVISION SUNDRY CREDITORS AND OTHER CURRENT LIABILITY 14,19,385 NET CURRENT LIABILITY 2,17,51,971 EXPENDITURE INCURRED AS PER PROFIT AND LOSS ACC OUNT: PARTICULARS AMOUNT (RS) INCOME: WORK IN PROGRESS 80,75,053 CLOSING STOCK 22,46,405 EXPENDITURE: MATERIAL EXPENSES 23,29,355 LABOUR EXPENSES 12,300 DIRECT EXPENSES 79,79,803 TOTAL 1,03,21,458 9. FROM THE ABOVE EXTRACT OF THE AUDITED ANNUAL ACC OUNTS FOR A.Y. 2007-08 IT APPEARS THAT THERE WAS NO RECOVERY FROM MEMBERS DUR ING THE YEAR UNDER CONSIDERATION AND THEREFORE, THERE CANNOT BE ANY QUESTION OF MAKI NG PAYMENT FOR PURCHASE OF IMPUGNED LAND BEARING SURVEY NO. 197/1 AND 198/2. FURTHER THAT THE ASSESSEE CLAIMED TOTAL EXPENDITURE OF RS. 1,03,21,458/- AND ALL OTHER EXPENDITURE WERE DIRECTLY TRANSFERRED TO CLOSING WORK IN PROGRESS OF RS. 80,7 5,053/-. THEREFORE, IT APPEARS ON RECORD THAT DURING FIRST YEAR OF COMMENCE OF BUSINE SS OF THE APPELLANT BEING THE PRESENT ASSESSMENT YEAR THE APPELLANT IS NOT HAVING SUFFICIENT WORKING CAPITAL AND THEREFORE, THE QUESTION OF MAKING PAYMENT AS ALLEGE D FOR PURCHASE OF LAND HAVING SURVEY NO. 197/1 AND 198/2 DOES NOT AND CANNOT ARIS E AT ALL. FURTHER FROM THE AUDITED ANNUAL ACCOUNTS OF A.Y. 2008-09 AS REPRODUC ED AT PAGE 5 OF THE APPELLATE ORDER IT APPEARS THAT EVEN IN THE NEXT ASSESSMENT Y EAR I.E. ASSESSMENT YEAR 2008-09 - 7 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 APPELLANT HAS RECEIVED MEMBERS COLLECTION OF RS. 3, 41,225/-; THE SAME BEING ADMITTEDLY VERY INSIGNIFICANT AMOUNT FURTHER CLARIF IES THAT THE APPELLANT WAS NOT HAVING SUFFICIENT CAPITAL FOR MAKING PAYMENT FOR PU RCHASE OF LAND LYING AND SITUATED AT SURVEY NO. 197/1 AND 198/2. MORESO, WHEN THE APPEL LANT FIRM WAS INCORPORATED ON 23.02.2007 I.E. IN THE A.Y. 2007-08 THE PRESENT YEA R UNDER CONSIDERATION BEING THE FIRST YEAR OF INCORPORATION OF BUSINESS OF THE APPE LLANT, NO ADDITION TOWARDS UNEXPLAINED CASH CREDIT CAN BE MADE UNDER SECTION 6 8 IN THE FIRST YEAR OF INCORPORATION OF BUSINESS. IN THE ABSENCE OF HUGE CAPITAL AVAILABLE WITH THE ASSESSEE FIRM THE ADDITION OF RS. 4.01 CRORE ON THE GROUND O F UNACCOUNTED PAYMENT FOR PURCHASE OF LAND LYING AND SITUATED AT SURVEY NO. 1 97/1 AND 198/2 IS NON-APPLICATION OF MIND AND NOT JUSTIFIED UNDER SECTION 68 OF THE A CT. MORESO, THE AMOUNT PAID BY CHEQUE WAS ALSO INTRODUCED BY THE PARTNERS OF THE A PPELLANT FIRM AS THEIR CAPITAL AND PAYMENT WAS MADE BY THE APPELLANT FIRM OUT OF THE S AID AMOUNT. IT IS FURTHER EVIDENT FROM THE FOLLOWING CHART THAT THE MAJOR PORTION OF SUCH CASH AMOUNTS PAID TO THE OWNERS OF LAND ON VARIOUS DATES WAS BEFORE THE DATE OF INCORPORATION OF THE APPELLANT FIRM ON 23.02.2007:- DATE PAYMENTS MADE TO AMOUNT (RS.) 19.07.2006 BALDEV, SHAILESH, MUKESH & SANJAY 1530924 06.09.2006 BALDEV, SHAILESH, MUKESH & SANJAY 2843143 06.09.2006 BALDEV, SHAILESH, MUKESH & SANJAY 2916044 09.10.2006 BALDEV, SHAILESH, MUKESH & SANJAY 3645055 18.10.2006 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 13.11.2006 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 22.11.2006 BALDEV, SHAILESH, MUKESH & SANJAY 2187033 28.11.2006 BALDEV, SHAILESH, MUKESH & SANJAY 1458022 30.11.2006 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 08.12.2006 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 21.12.2006 BALDEV, SHAILESH, MUKESH & SANJAY 4009561 - 8 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 01.01.2007 BALDEV, SHAILESH, MUKESH & SANJAY 1458022 13.01.2007 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 22.01.2007 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 25.01.2007 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 27.01.2007 BALDEV, SHAILESH, MUKESH & SANJAY 3645055 14.02.2007 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 01.04.2007 BALDEV, SHAILESH, MUKESH & SANJAY 1822528 TOTAL: 40095611 10. THUS, IT IS EVIDENT THAT ALL THE PAYMENTS EXCEP T THE PAYMENT ON 01.04.2007 WERE MADE BY PRIOR TO THE DATE OF INCORPORATION OF THE A PPELLANT FIRM. IN FACT, NO PAYMENT COULD HAVE BEEN MADE BY AND/OR ON BEHALF OF THE APP ELLANT FIRM BEFORE THE DATE OF ITS INCORPORATION. THUS, THE FUND UTILIZED FOR PAYMENT S TOWARDS ACQUISITION OF LAND WERE NOT BELONGING TO THE APPELLANT FIRM; THE SAME SEEMS BELONGED TO THE PARTNERS OF THE APPELLANT FIRM. THUS, ADMITTEDLY WHEN THE APPELLAN T HAS NO SOURCE OF MAKING ALLEGED UNACCOUNTED CASH PAYMENT OF RS. 3.82 CRORE OUT OF T HE TOTAL PAYMENT OF RS. 4.01 CRORE PRIOR TO THE DATE OF INCORPORATION OF THE APPELLANT FIRM, SUCH UNACCOUNTED PAYMENT CANNOT BE SUBJECT MATTER OF ADDITION IN THE HANDS O F APPELLANT FIRM MERELY ON THE GROUND THAT CHEQUE PAYMENTS WERE MADE BY THE APPELL ANT FIRM. 11. WE HAVE FURTHER CONSIDERED THE JUDGMENT PASSED BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. CITY MILLS DISTRIBUTORS PVT. LT D., REPORTED IN 85 TAXMAN 352 WHEREIN IT HAS BEEN HELD THAT THE INCOME EARNED ON BUSINESS CARRIED ON BY THE PROMOTERS OF COMPANY PRIOR TO THE DATE OF INCORPORA TION OF COMPANY CANNOT BE SAID TO THE INCOME OF THE COMPANY INASMUCH AS A COMPANY BEC OMES A LEGAL ENTITY IN THE EYE OF LAW ONLY WHEN IT IS INCORPORATED AND THE QUESTIO N AS TO WHO IS LIABLE TO PAY TAX ON SUCH INCOME CANNOT DEPEND UPON WHETHER OR NOT THE C OMPANY AFTER INCORPORATION SO DECIDES. IT IS HE WHO CARRIED ON THE BUSINESS AND RECEIVED THE INCOME WHEN IT ACCRUED WHO IS LIABLE TO BEAR THE BURDEN OF TAX THEREON. - 9 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 12. APART FROM THAT THE JUDGMENT PASSED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF DCIT VS. AMOD PETROCHEM PVT. LTD., R EPORTED IN [2008] 217 CTR 401 AND THE JUDGMENT PASSED BY THE MADRAS HIGH COURT IN THE CASE OF CIT VS. PANDIAN DISTRIBUTORS [2003] 259 ITR 428 WHERE IT HAS BEEN H ELD THAT NO ADDITION CAN BE MADE UNDER SECTION 68 OF THE ACT IN THE FIRST YEAR OF BU SINESS AS THERE CANNOT BE ANY SOURCE OF MAKING UNACCOUNTED PAYMENT AGAINST CHEQUE RECEIV ED AS UNSECURED LOAN OR SHARE CAPITAL BY ASSESSEE HAVE BEEN CONFIRMED BY US. 13. THUS, TAKING INTO CONSIDERATION THE ENTIRE ASPE CT OF THE MATTER, THE PARTICULAR FACTS THAT THE ASSESSEE FIRM WAS INCORPORATED ONLY ON 23.02.2007 AND GAINED THE LEGAL STATUS AS A FIRM ONLY ON THAT PARTICULAR DATE UPON SUCH INCORPORATION AND, THUS, THE ASSESSEE COMPANY DID NOT EXIST WHEN THE IMPUGNED IN COME WAS EARNED. THUS, THE ASSESSEE CANNOT BE MADE RESPONSIBLE FOR EVASION OF TAX ON THE GROUND OF ALLEGED PAYMENT MADE PRIOR TO SUCH INCORPORATION AND/OR REG ISTRATION OF THE PARTNERSHIP FIRM. THE PRESENT ADDITION HAS BEEN MADE IN THE CASE OF T HE APPELLANT ALSO STATES THAT ONE PAYMENT OF RS. 25 LAKH IS MADE ON 01.04.2007 WHICH FALLS IN A.Y. 2008-09 AND NOT IN A.Y. 2007-08 AND THEREFORE, EVEN BALANCE PAYMENT CA NNOT BE CONSIDERED AS UNDISCLOSED PAYMENT IN THE HANDS OF THE APPELLANT F OR THE CURRENT ASSESSMENT YEAR. 14. THUS, SINCE THE AO HAS NOT BEEN ABLE TO ESTABLI SH THAT THE APPELLANT HAD ANY SOURCE OF MAKING FOR SUCH HUGE UNACCOUNTED PAYMENT PARTICULARLY WITH THE PAYMENT TOWARDS ON-MONEY OF LAND PURCHASE WERE PRIOR TO THE INCORPORATION OF THE APPELLANT FIRM AND PART PAYMENT WAS IN SUBSEQUENT ASSESSMENT YEAR, THE CONDITION OF ADDITION IS NOT SATISFIED. THUS, THE ADDITION MADE BY THE L D. AO TO THE TUNE OF RS. 4.01 CRORE ON THE GROUND THAT ON-MONEY PAYMENT TOWARDS LAND IS MADE BY THE APPELLATE FIRM HAS BEEN RIGHTLY DECIDED AGAINST THE REVENUE BY THE LD. CIT(A). - 10 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 15. HOWEVER, THE LD. CIT(A) WHILE DELETING THE ADDI TION OF RS. 3.82 CRORES DIRECTED THE LD. AO TO PROCEED TO ASSESSES THIS INC OME IN THE HANDS OF THE PARTNERS OF THE COMPANY IF DEEMED FIT WITH THE FOLLOWING OBSERV ATION:- LOOKING TO THE ABOVE REFERRED CASE LAWS, IT IS SET TLED LEGAL POSITION THAT ADDITIONS FOR THE TRANSACTIONS PRIOR TO THE DATE OF INCORPORATION OF COMPANY OR REGISTRATION OF PARTNERSHIP DEED, ADDITIONS CANNOT BE MADE IN THE HANDS OF SUCH COMPANY OR FIRM. PARTNERSHIP FIRM IS A PERSON AS DEFINED UNDER THE ACT AND COME INTO EXI STENCE FROM THE DATE OF REGISTRATION OF FIRM UNDER THE PARTNERSHIP ACT. BEFORE REGISTRATION , SUCH FIRM HAS NO LEGAL STATUS AND CANNOT BE CONSIDERED RESPONSIBLE FOR ANY ACT. THERE FORE, THE PAYMENT AS SHOWN IN THE SEIZED PAPER AMOUNTING TO RS.3.82 CRORE IS PRIOR TO THE DATE OF REGISTRATION OF PARTNERSHIP FIRM, HENCE, IT CANNOT BE ADDED IN THE HANDS OF THE PARTNERSHIP FIRM. THE ASSESSING OFFICER MAY INITIATE PROCEEDINGS TO ASSESS THIS INC OME IN THE HANDS OF THE PARTNERS, IF DEEMED FIT. ADDITIONS TO THE EXTENT OF RS.3.82 CROR E ARE DELETED FOR THE REASONS AS DISCUSSED ABOVE. 16. THE LD. REPRESENTATIVE APPEARING FOR THE RESPON DENT VEHEMENTLY ARGUED AGAINST SUCH OBSERVATION AND/OR DIRECTION MADE BY T HE LD. CIT(A). THE SUM AND SUBSTANCE OF HIS ARGUMENT IS THIS THAT WITHOUT GIVI NG AN OPPORTUNITY OF BEING HEARD TO THE AGGRIEVED PARTY THE DIRECTION ISSUED BY THE APP ELLANT AUTHORITY IS AN EXERCISE IN FUTILITY. ON THIS ISSUE HE HAS RELIED UPON THE JUD GMENT PASSED BY THE MUMBAI BENCHES IN THE MATTER OF INCOME TAX OFFICER VS. BIOTECH OPT HALMIC PVT. LTD. IN ITA NO. 443/AHD/2011 FOR A.Y. 2006-07. WHILE DEALING WITH THE IDENTICAL ISSUE THE LD. TRIBUNAL HAS BEEN PLEASED TO PASS FOLLOWING ORDERS: - 14. SECTION 153 (3), DEALING WITH THE IMPACT OF TH E FINDINGS OR DIRECTION GIVEN BY THE REVISIONARY, APPELLATE OR JUDICIAL AUTHORITIES, PRESCRIBES THAT THE PROVISIONS OF INTER ALIA SECTION 151(1) SHALL NOT APPLY TO THE ASSESSMENTS, REASSESSMENTS AND RECOMPUTATIONS WHICH MAY, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2A) BE COMPLETED AT ANY TIME WHERE THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION IS MADE ON THE ASSESSE OR ANY PERSON IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION CONTAINED IN AN ORDER, UNDER S ECTIONS 250, 254, 260, 262, 263 OR 264 1535OR IN AN ORDER OF ANY COURT IN A PROCEEDING OTHERWISE THAN BY WAY OF APPEAL OR REFERENCE UNDER THIS ACT. IN OTHER WORDS, WHEN EFFECT OF A FINDING OR D IRECTION OF AN REVISIONARY, APPELLATE OR JUDICIAL AUTHORITY IS TO BE GIVEN, THAT EXERCISE CAN BE CARR IED OUT ANY POINT OF TIME DE HORS THE TIME LIMITS SPECIFIED IN SECTION 153(1). HOWEVER, EVEN THIS REL AXATION OF TIME LIMITS IS SUBJECT TO CERTAIN RIDERS, INCLUDING RIDER CONTAINED IN EXPLANATION 3 TO SECTION 153(3) WHICH PROVIDES THAT, WHERE BY A REVISIONARY, APPELLATE OR JUDICIAL ORDER OF TH E ABOVE NATURE, AN INCOME IS EXCLUDED FROM THE INCOME OF ONE ASSESSE AND HELD TO BE INCOME OF THE OTHER ASSESSEE, THE ASSESSMENT OF SUCH AN INCOME IN THE HANDS OF ANOTHER ASSESSE BE DEEMED T O BE ONE MADE IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION CONTAINED IN THE SAID ORDER, PROVIDED SUCH OTHER PERSON WAS GIVEN AN OPPORTUNITY OF BEING HEARD BEFORE THE SAID ORDER WAS PASSED (EMPHASIS BY UNDERLING - 11 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 SUPPLIED BY US). CLEARLY, THEREFORE, UNLESS THE PE RSON IN WHOSE HAND INCOME IS DIRECTED TO BE ADDED HAS BEEN HEARD BEFORE SUCH DIRECTIONS ARE ISS UED, THE DIRECTIONS ISSUED BY THE REVISIONARY, APPELLATE OR JUDICIAL AUTHORITY ARE AN EXERCISE IN FUTILITY. THIS RIDER IS EQUALLY RELEVANT IN RESPECT OF REOPENING OF AN ASSESSMENT UNDER SECTION 154, AS A RESULT OF THE FINDINGS OR DIRECTIONS OF THE REVISIONARY, APPELLATE OR JUDICIAL AUTHORITIES. 15. IT IS AN UNDISPUTED POSITION, ON THE FACTS OF T HIS CASE, THAT SHRI MEHUL P ASNANI, IN WHOSE HANDS CIT(A) HAS DIRECTED THIS INCOME TO BE ADDED, HAS NOT BEEN GRANTED AN OPPORTUNITY OF HEARING BY THE CIT(A) BEFORE THESE DIRECTIONS WERE ISSUED. SUCH BEING THE ADMITTED FACTS, ITS BEYOND DOUBT THAT A COMPLETED ASSESSMENT CANNOT BE DISTURBED OR REOPENED TO GIVE EFFECT TO SUCH FINDINGS OR DIRECTIONS. 16. THERE IS, HOWEVER, AN EVEN MORE FUNDAMENTAL ISS UE, AND THAT ISSUE IS WHETHER THE DIRECTION THAT THE DEEMED DIVIDEND INCOME BEING BROUGHT TO TA X IN THE HANDS OF SHRI ASNANI IS A DIRECTION NECESSARY FOR THE DISPOSAL OF CASE. THIS ISSUE ASSU MES SIGNIFICANCE IN VIEW OF THE LEGAL POSITION THAT, AS HELD BY HONBLE SUPREME COURT IN THE CASE OF CIT VS RAJINDER NATH [(1979) 120 ITR 14 (SC)],AS REGARDS THE EXPRESSION 'DIRECTION' IN S. 153(3)(II) OF THE ACT, IT IS NOW WELL SETTLED THAT IT MUST BE AN EXPRESS DIRECTION NECESSARY FOR THE D ISPOSAL OF THE CASE BEFORE THE AUTHORITY OR COURT. IT MUST ALSO BE A DIRECTION WHICH THE AUTHOR ITY OR COURT IS EMPOWERED TO GIVE WHILE DECIDING THE CASE BEFORE IT. THEIR LORDSHIPS THEN ADDED THAT THE EXPRESSIONS 'FINDING' AND' DIRECTION' IN S. 153(3)(II) OF THE ACT MUST BE ACCO RDINGLY CONFINED AND THAT SEC. 153(3)(II) IS NOT A PROVISION ENLARGING THE JURISDICTION OF THE A UTHORITY OR COURT. 17. AS TO WHAT CONSTITUTES AN EXPRESS DIRECTION NE CESSARY FOR DISPOSAL OFA CASE, WE FIND THE FOLLOWING GUIDANCE FROM THEIR LORDSHIPS: TO BE A NE CESSARY FINDING, IT MUST BE DIRECTLY INVOLVED IN THE DISPOSAL OF THE CASE. IT IS POSSIBLE IN CERT AIN CASES THAT IN ORDER TO RENDER A FINDING IN RESPECT OF A, A FINDING IN RESPECT OF B MAY BE CALL ED FOR. FOR INSTANCE, WHERE THE FACTS SHOW THAT THE INCOME CAN BELONG EITHER TO A OR B AND NO ONE E LSE, A FINDING THAT IT BELONGS TO B OR DOES NOT BELONG TO B WOULD BE DETERMINATIVE OF THE ISSUE WHE THER IT CAN BE TAXED AS A'S INCOME. A FINDING RESPECTING B IS INTIMATELY INVOLVED AS A STEP IN HE PROCESS OF REACHING THE ULTIMATE FINDING RESPECTING A. IF, HOWEVER, THE FINDING AS TO A'S LI ABILITY CAN BE DIRECTLY ARRIVED AT WITHOUT NECESSITATING A FINDING IN RESPECT OF B. THEN A FIN DING MADE IN RESPECT OF B IS AN INCIDENTAL FINDING ONLY. IT IS NOT A FINDING NECESSARY FOR THE DISPOSA L OF THE CASE PERTAINING TO A. THE SAME PRINCIPLES SEEM TO APPLY WHEN THE QUESTION IS WHETHER THE INCO ME UNDER ENQUIRY IS TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION OR ANY OTHER ASSESSMENT YE AR. AS REGARDS THE EXPRESSION 'DIRECTION' IN S.153(3)(II) OF THE ACT, IT IS NOW WELL SETTLED THA T IT MUST BE AN EXPRESS DIRECTION NECESSARY FOR THE DISPOSAL OF THE CASE BEFORE THE AUTHORITY OR COURT. IT MUST ALSO BE A DIRECTION WHICH THE AUTHORITY OR COURT IS EMPOWERED TO GIVE WHILE DECIDING THE CA SE BEFORE IT. 17. CONSIDERING THE PRINCIPLE LAID DOWN BY THE LD. TRIBUNAL AS REPRODUCED HEREIN BEFORE WE DO NOT APPRECIATE SUCH STAND TAKEN BY THE LD. CIT(A) AT THIS STAGE. ADMITTEDLY BEFORE MAKING SUCH A DIRECTION UPON THE LD. AO THE AGGRIEVED PARTY BEING THE PARTNERS OF THE FARM HAVE NOT BEEN GIVEN AN OPPORTUNITY OF BEING HEARD WHICH IS SINE QUA NON IN TERMS OF EXPLANATION 2 OF SECTION 153 OF THE ACT. THEREFORE, RESPECTFULLY RELYING UPON THE JUDGMENT WE OBSERVE T HAT THE DIRECTION GIVEN BY THE LD. - 12 - IT(SS)A NO.95/AHD/2018 ITO VS. M/S. SAVVY O RGANISERS A.Y. 2007-08 CIT(A) UPON THE LD. AO TO INITIATE PROCEEDINGS TO A SSESS THIS INCOME IN THE HANDS OF THE PARTNERS, IF DEEMED FIT BE EXPUNGED. FINALLY T HE APPEAL PREFERRED BY THE REVENUE IS FOUND TO BE DEVOID OF ANY MERIT AND HENCE DISMIS SED. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 24 / 0 6 /20 21 SD/- SD/- (WASEEM AHMED) (MS. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 24/06/2021 TANMAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE PCIT- AHMEDABAD. 5. , ! ' , #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT. REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 10&12.05.2021. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.05.2021 3. OTHER MEMBER. 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S .06.2021 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24.06.2021 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER