Lakshmi Enterprises V. Income Tax Officer Ward-I, Chamarajanagar

ITA/491/2014

AI Insights

The case involves M/s Lakshmi Enterprises, represented by its proprietor Sri Srikantamurthy N, who appealed against the order of the Income Tax Appellate Tribunal, which upheld the disallowance of a claimed expenditure of \u20b928,40,160 for the assessment year 2008-09. The expenditure was claimed under \\u2018granite raising expenses\\u2019. The Income Tax Officer had disallowed the claim, considering it an unproved liability, which was later upheld by the CIT (A) and the Tribunal. The main contention of the appellant was that the payments were made through cross cheques and taxes were deducted at source, thus the expenditure should not have been disallowed. The respondent, the Income Tax Officer, supported the findings of the lower authorities, arguing that the assessee failed to substantiate the claim.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 794035 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-07-2015
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: VANI
• Keywords: Natural Justice; Tax deduction at source; Unproved liability; Granite raising expenses; Cross cheques
• Section: 143(2); 131; 260A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 02nd DAY OF JULY, 2015 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND THE HON’BLE MR. JUSTICE ARAVIND KUMAR ITA NO.491/2014 BETWEEN: M/S LAKSHMI ENTERPRISES NEAR SCM LADIES HOSTEL, SIDDARTHA NAGAR CHAMARAJANAGARA REPRESENTED BY ITS PROPRIETOR SRI SRIKANTAMURTHY N AGED ABOUT 46 YEARS S/O SRI NANJAPPA. …APPELLANT (BY SMT. VANI H, ADVOCATE) AND: THE INCOME TAX OFFICER WARD-I, CHAMARAJANAGAR. …RESPONDENT (BY SRI.K.V. ARAVIND, ADVOCATE) THIS APPEAL IS FILED UNDER SECTION 260A OF INCOME TAX ACT, 1961 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE 2 IMPUGNED ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 11.07.2014 (ANNEXURE-A) PASSED IN ITA NO.349/BANG/2012 RELATING TO ASSESSMENT YEAR 2008-09. THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, ARAVIND KUMAR J, DELIVERED THE FOLLOWING: JUDGMENT We have heard the learned Advocates appearing for the parties namely, Smt.Vani H. appearing for appellant – assessee and Sri K.V.Aravind, appearing for respondent – revenue. We have perused the orders passed by the assessing Officer, CIT (A) and Income Tax Appellate Tribunal, Bengaluru ‘C’ Bench. 2. For the assessment year 2008-09, assessee filed the return of income declaring total income of `4,26,160/- besides the agricultural income. After issuing notice under Section 143(2) of the Income Tax Act, 1961 assessment order came to be framed on 31.12.2010 whereunder claim of the assessee of having incurred expenses of `28,40,160/- 3 towards “granite raising expenses” came to be disallowed and was held that the liability created by the assessee is an unproved liability and accordingly, the said sum was brought to tax. Being aggrieved by this order, an appeal came to be filed before the CIT (A), who by order dated 29.11.2011 upheld the addition and dismissed the appeal. Assessee pursued his grievance before the Income Tax Appellate Tribunal, Bengaluru ‘C’ Bench and the Tribunal on re-appreciation of entire facts and perusal of the records was of the view that the order passed by the first appellate authority did not suffer from any legal infirmity calling for interference and as such by order dated 11.07.2014 allowed the appeal in part (on other issues). 3. Being aggrieved by the disallowance of the expenditure of ` 28,40,160/-, the assessee has filed this appeal contending interalia that the payments made to three persons was by way of cross cheques 4 and taxes have also been deducted at source when payments were made to them and as such, the assessing Officer could not have disallowed the expenditure. It is also contended by Smt.Vani H, learned Advocate appearing for the assessee that assessing Officer erroneously relied upon the statement of Sri Nagendra without providing any opportunity to the assessee to cross examine him and as such, the order of assessment as affirmed by the appellate authorities is erroneous and is liable to be set aside. She would elaborate her submission by contending that when the authorities have not disputed the particulars of granite purchased, produced and sold by the assessee during the relevant year, it should be logically concluded that there would be no sale without equal quantity of granite production or purchases. Hence, on these grounds she seeks for formulating the substantial question of law as indicated in the appeal 5 memorandum and prays for answering the same in favour of the assessee. 4. Per contra, Sri K.V.Aravind, learned Advocate appearing for the revenue would support all the three orders passed by the authorities and contends that the finding recorded by the assessing Officer as well as first appellate authority are all questions of fact and as such, the Tribunal also did not find any substance in the contention raised by the assessee and submits that there is no substantial question of law involved in this appeal for being adjudicated and answered. Hence, he prays for dismissal of the appeal. 5. Having heard the learned Advocates appearing for the parties and on perusal of the records, it would clearly indicate that the assessee had debited ` 28,40,160/- as ‘granite raising expenses’ which was said to have been incurred 6 towards extraction of granite and claimed that said amount was paid to three persons namely, Sriyuths Sundarraj, Basavaraj and Nagendra in a sum of ` 9,15,100/-, ` 9,75,800/- and ` 9,49,260/- respectively. Hence, assessing Officer has called upon the assessee to produce proof in support of the claim of expenditure and also to furnish the postal address of these three persons in order to verify the genuineness of the statement. During the course of assessment proceedings, statement of the assessee was recorded under Section 131 of the Act. Though summons under Section 131 of the Act were issued to these three creditors and duly served on them, only Sri G Nagendra appeared and furnished his statement and has admitted to the following effect: (i) “he carried on the business of extracting granties jointly with Sri. Sundarajan and Sri. Basavaraj (ii) he does not know the assessee and does not have any transaction with the assessee; 7 (iii) he does not know the nature of liability created by the assessee in his books; (iv) he never worked as a raising contractor for the assessee nor issued any bills/statements; (v) the receipt of amount of ` 9.5 lakhs is withdrawal of his capital from the joint business carried on by him with Sri. Sundarajan and Sri. Basavaraj; (vi) he does not know who has issued cheque for ` 9.5 lakhs to him. However, cheque has been handed over by Sri.Basavaraju; and (vii) Sri. Nagendra is not aware that he has filed return of income for the AY 2008-09.” 6. In fact, assessee contended that amount was paid to Sri G Nagendra by crossed cheque. However, said Sri G Nagendra pleaded his ignorance with regard to filing of return of income by him and also stated that the assessee’s brother Sri G Basavaraj (to whom the assessee had also paid a sum of ` 9,75,800/-) had obtained signatures in the guise 8 of obtaining PAN card for him. This would only indicate that there has been inconsistency between the stand of the assessee and the statement furnished by Sri G Nagendra. 7. No other material evidence was produced by the assessee for verification by the assessing Officer and as such, the assessing Officer came to a conclusion that the liability created by the assessee is not genuine and has not been created in the normal course of business. 8. The CIT(A), on re-appreciation of material evidence, has also found that one of the recipients of the money from the assessee was Sri Basavaraj who is none other than the brother of the assessee. There was no impediment for the assessee to secure his presence and Sri Sundarraj to whom the assessee also claims to have made payment towards granite extraction charges is none other than the partner of 9 Sri Basavaraj. During the pendency of appeal proceedings, the first appellate authority directed the assessing Officer to give further opportunity to the assessee to prove his claims. Even at that stage, assessee did not tender any evidence except reiterating his earlier stand. Thus, taking note of the statement made by Sri Nagendra that he had received amount of `9,49,260/- as withdrawal from his capital from the partnership firm, it was held that said transaction is a finance transaction and not business transaction. This finding recorded by first appellate authority is also based on proper appreciation of material evidence. 9. The Tribunal has rightly held that when an assessee claims expenditure for business purpose, the onus is on the assessee to prove and it has also found that on facts, assessee had failed to establish this fact. At this juncture itself, it would be appropriate to deal with the contention raised by the 10 learned counsel namely, the assessing Officer not affording opportunity to the assessee to cross examine Sri Nagendra. Records would clearly indicate that copy of the statement recorded by assessing Officer was supplied to the assessee but the assessee did not chose to cross examine Sri Nagendra. Hence, assessee cannot be heard to contend that the order of the assessing Officer smacks of violation of principles of natural justice when the onus of proof is upon the assessee with regard to expenditure incurred and on failure to prove the same, the expenditure could not be allowed as has been done rightly so by the assessing Officer in the instant case. 10. The payments which the assessee claims to have paid to these three persons relates to granite extraction charges. This Court cannot lose sight of the fact that for extraction of granite apart from manual labour, equipments and machineries would 11 be used by the labour contractors and the payments are made on weekly basis to the manual labourers. In the instant case, it has been rightly noticed by the assessing Officer that the payments have been made after a year which would be an additional factor to doubt the transaction. Hence, the burden cast on the assessee to prove the expenditure incurred was genuine, has not been discharged. 11. For the reasons aforestated, we find the findings recorded by the assessing Officer, as affirmed by the CIT(A) and confirmed by the Income Tax Appellate Tribunal, Bengaluru ‘C’ Bench are all question of facts and there being no perversity in the findings recorded by these three authorities, we are of the considered view that it does not give rise for formulating the substantial question of law as contended by the appellant – assessee and same is liable to be rejected. 12 Hence, we proceed to pass the following: ORDER (i) Appeal is hereby dismissed. (ii) Order passed by the Income Tax Appellate Tribunal, Bengaluru ‘C’ Bench, dated 11.07.2014 is hereby affirmed. (iii) No order as to costs. Sd/- JUDGE Sd/- JUDGE *sp "