Income Tax Appellate Tribunal - Chennai
R.Purushothaman, Madurai vs Department Of Income Tax on 4 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A Nos.1454 & 1455/Mds/2010
(Assessment year : 2005-06 & 2007-08 )
The ACIT vs Shri.R.Purushothaman
Central Circle III 184/2 Trivandrum Road
Madurai Tirunelveli
[PAN AGSPR1481J]
(Appellant) (Respondent)
Appellant by : Shri M.N.Murthy Naik, JCIT/DR
Respondent by : Shri G.Baskar, Advocate
Date of Hearing : 04-10-2011
Date of Pronouncement : 17-10-2011
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
These are two appeals of the Revenue, for assessment year s 2005-06 and 2007-08, which have been filed against the common order of the ld. CIT(A), dated 21.4.2010, passed for assessment years 2001-02 and 2004-05 to 2007-08. It was informed that for other assessment years, the Revenue has not preferred any appeal. Since thee appeals arise from a common order and were heard together, we proceed to decide them by a common order.
:- 2 -: ITA 1454 & 1455/10I.T.A.No. 1454/Mds/2010
2. The first issue of this appeal raised vide ground No.1(a) to 1(c) is in relation to the deletion of an addition of ` 2.05 crores which were added by the Assessing Officer on account of unexplained investment in share capital in Susee Group of companies. The facts apropos this issue are that the assessee Shri R.Purushothaman, individual, is assessed to tax in his capacity as 'Karta' of HUF and also his individual capacity. He is also a partner in M/s Susee Auto (Firm) in his HUF capacity. His sources of income in his individual capacity are from insurance commission, Susee Auto Proprietor concern, interest income, income from Private Ltd companies as their director, agricultural income and income from other sources. A search u/s 132 was conducted on 4.7.2006 in the residential premises of the assessee a simultaneous survey u/s 133A was carried on in the business premises of M/s Susee Auto (Firm), M/s Susee Engineering and Automobiles P. Ltd., M/s Susee Vehicle Dealers P. Ltd, M/s Susee Auto Zone P. Ltd., and M/s Hari Lubricants. The details of income return by the assessee for various years which are relevant for the issue in question are as under:
:- 3 -: ITA 1454 & 1455/10
Sl Assessment Income Agricultural Due date of Date of No year returned income filing of filing of returned return original return
1. 2001-02 6,76,833 Nil 31.8.2001 30.1.2002
2. 2004-05 4,73,935 Nil 31.8.2004 18.5.2005
3. 2005-06 12,75,950 2,10,000 31.8.2005 30.4.2007
4. 2006-07 14,34,713 4,77,500 31.8.2006 30.4.2007
5. 2007-08 12,10,150 3,57,700 31.8.2007 22.3.2008
3. In response to notices u/s 153A(a) issued for assessment years 2001-02, 4004-05 to 2006-07 and notice u/s 142(1) issued for assessment year 2007-08, the assessee filed his returns of income for these years on 20.10.2008 returning the same income as was returned in the original returns, as above. After considering the submissions of the assessee regarding various entries found in the seized material, assets and capital introduced in the companies and withdrawal from the firms, transfer of assets, etc. in his capacity and also in his individual capacity, the assessments were framed making certain additions to the returned income in all these assessment years with details of disputed additions, yearwise, which are as under:
Sl. Additions Nature of addition
A.Y
No made
1 2001-02 1,948 Unaccounted interest receipts in SBI, SB A/c
46,366 Undisclosed cash credit
2 2004-05 2,676 Unaccounted interest receipts in SBI, SB A/c
26,620 Undisclosed cash credit
2,153 Undisclosed cheque deposit
3 2005-06 1,05,000 50% of Agricultural Income
treated as non-Agricultural Income
:- 4 -: ITA 1454 & 1455/10
Unexplained Investment in newly formed
2,05,00,000
companies.
Excess amount collected at the time of
24,500
registration.
Conveyance and travelling allowance
1,40,000
received from companies.
44. 2006-07 2,38,750 50% Agricultural Income treated as
Non Agricultural Income
Excess amount collected at the time of
74,560
registration.
55. 2007-08 .. 1,78,850 50% of Agricultural Income treated as
Non-Agricultural Income
Excess amount collected at the time of
1,29,120
registration.
Undisclosed bank accounts in
37,85,255
lOB.
94,610 Unexplained cash found at residence
2,24,244 Addition towards shortfall in
G.P.
4. Aggrieved, the assessee filed appeals for all these years and the ld. CIT(A) has decided all of them by a common order. This appeal relate to assessment year 2005-06. The assessee was a partner in his HUF capacity in M/s Susee Auto (Firm) alongwith his wife, Smt.P.Janarthana and his minor son, P.Hariprathan. Due to dispute amongst the family members, business in partnership firm namely, M/s Susee Auto(Firm), was discontinued. In assessment year 2004-05, two private limited companies with the names M/s Susee Vehicle Dealers Pvt. Ltd and M/s Susee Engineering and Automobiles P. Ltd. were formed on 9.10.2003 with the total capital of ` 1,60,00,000/- and out of which ` 99,50,000/- and ` 59,50,000/- :- 5 -: ITA 1454 & 1455/10 were introduced by assessee-HUF in M/s Susee Vehicle Dealers P. Ltd and Susee Engineering & Automobiles P. Ltd, respectively. The assessee has also formed Susee Auto Zone P. Ltd on 16.4.2004 with a share capital of ` 60,00,000/- and out of which ` 59,50,000/- belonged to assessee-HUF. The total of all these investments came to ` 2.19 crores. A sum of ` 14 lakhs was considered as source for the said investment and thereby the net figure of ` 2.05 crores was arrived at as undisclosed income/unexplained investment made by this assessee. When asked to explain the source for the investments in question, it was explained that the assessee-HUF being a partner in the firm with 35% share of profit and other partners, his wife and son, having 35% and 30% share, respectively and a sum of ` 1.6 crores was debited in the account of Shri R.Purushothaman(HUF) and this was introduced as capital in Susee Vehicle Dealers P.Ltd and M/s Susee Engineering and Automobiles Pvt. Ltd. The case of the assessee is that the stock of the firm was sold to M/s Susee Hyundai. In respect of investments in M/s Susee Auto Zone P. Ltd., the assessee relied on Special Audit Report relating to assessment year 2005-06 which was submitted in his individual capacity and the Special Auditors, M/s Victor Grace & Co., vide their Special Audit Report u/s 142(2A) dated 29.5.2009 which the Department has directed them to verify the transaction relating to the :- 6 -: ITA 1454 & 1455/10 capital introduction in the said Private Limited Companies while transferring the stock and other items from the partnership firm M/s Susee Auto (Firm). The auditors had verified all transactions and submitted their report giving their findings that there was no transfer of funds and merely journal entries have been passed for the introduction of the capita in the newly formed Private Limited Companies. No addition was proposed by the said auditors for the above said investments in the companies share capital. After considering these and other evidence(s), the ld. CIT(A) has come to the conclusion that this amount of ` 2.05 crores cannot be sustained in the hands of this assessee added on account of investment in share capital. The ld. CIT(A) has heavily relied on the assessment s made in the case of three Private Limited Companies. Because these investments in the share capital of the above three companies were considered in the assessment of Private Limited Companies and ub assessee's hUF capacity assessment and the additions made therein were deleted after finding the factual matrix stated by the assessee to be correct. Now, the Revenue is aggrieved.
:- 7 -: ITA 1454 & 1455/10
5. It was argued by the ld.DR that the Assessing Officer was justified in adding the unexplained increase in share capital as undisclosed income/unexplained investments since no valid explanation was furnished by the assessee for the introduction of the share capital. It was further argued that there would be no source for the assessee to purchase assets without introduction of the above share capital but the reasons given by the ld. CIT(A) for deleting the impugned addition was not replied in proper perspective. On the contrary, the ld.AR has referred to page 157 of the paper book and para 11 (upto para 11.8)of the ld. CIT(A)'s order.
6. We have gone through the records and have found that the Assessing Officer has simply considered the Special Audit Report obtained u/s 142(2A) and has also failed to consider the discontinuation of business of the firm in which the entire assets belong to the assessee and his wife and son as stated above. The Assessing Officer has also failed to consider the Special Audit Report which explained the factual position of this case. Stocks of the firm were sold and transferred to the above stated three Private Limited Companies. The sundry debtors and sundry creditors alongwith the available cash and bank balances were transferred to the respective :- 8 -: ITA 1454 & 1455/10 Private Limited Companies from the respective Divisions. The capital contribution in the Private Limited Companies is only by way of sale of vehicles and transfer of debtors, creditors and cash/bank balances. The necessary entries are recorded in the books of the firm as well as that of the companies and no direct cash/funds are introduced by this assessee in the said Private Limited Companies. The transfer is only by journal entries and transfer entries in the books of the firm and in the books of the companies. These facts which are very relevant and important for the decision of the impugned issue were not at all considered properly by the Assessing Officer. On the contrary, these evidence(s) have been considered in their correct perspective by the ld. CIT(A). The Department could not dispute thee facts which have been culled out by us and mentioned above. The Special Auditors gave finding in their report. The Special Audit was ordered by the Assessing Officer to find out whether there was any unexplained cash or funds introduced by the assessee in the companies or not. There was no funds transfer and the capitals introduced were only by journal entries. The fact that the assessee in his HUF capacity was the shareholder in the three Private Limited Companies and not in his individual capacity because he has considered these investments in the assessment of assessee-HUF. The same investment was not :- 9 -: ITA 1454 & 1455/10 considered in his individual assessment and additions were made. This is something beyond the scope of Income-tax Act, 1961 as it amounts to double taxation of the same income. The perusal of the relevant pages of paper book filed by the assessee and the other records including the assessment records in the case of companies and assessee-HUF, and the perusal of Special Audit Report, it becomes crystal clear that there is no direct cash or funds introduced by the assessee in these three companies. Whatever may be the other reason of discontinuation of the firm, but on record, as per the evidence which evince dispute between the partners of the erstwhile firm, it is proved that there was some misunderstanding or quarrel amongst the partners of the firm and that is why the business of the firm could not be continued. Thus, we do not find any evidence to conclude that this assessee has introduced share capital of ` 2.05 crores in these companies by way of cash/funds belonging to him. But it is proved on record that the capital introduction in the Private Limited companies was out of transfer of stock, debtors and creditors, cash and bank balances only. The Special Auditors Report also supports the assessee's version as in that report, the Auditors have categorically given a finding that no such cash or fund belonging to the assessee was directly introduced in these companies. Hence, how can :- 10 -: ITA 1454 & 1455/10 it be concluded that the unexplained income of the assessee was introduced as capital in these companies. In our considered opinion, the deletion of the impugned addition is correct and has to be approved. Accordingly, the grounds raised by the Revenue fail.
7. The second issue raised vide ground Nos.2a and 2b is regarding deletion of addition of ` 24,500/- made by the Assessing Officer relating to excess amount collected at the time of registration. The facts apropos this issue are that the assessee was engaged in the business of buying and selling of vehicles and spares and services. On sales, the vehicles have to be registered in the name of the buyers and the assessee was assisting the buyers in the matter of registration. The Assessing Officer has estimated that excess amount was collected in this regard and ` 24,500/- remained as balance in the assessment year 2005-06 which has to be added to assessee's income. But the same Assessing Officer, while dealing with the case of M/s Susee Auto Plaza Motors Pvt. Ltd., which is one of the group companies of Susee Group, such addition was deleted by the Tribunal. The ld. CIT(A) has relied on the decision of the Tribunal dated 29.1.2010 in the case of Susee Auto Plaza Motors Pvt. Ltd. in I.T.A.Nos.1378 to 1380, and deleted the addition. Since we have also found that this issue stands :- 11 -: ITA 1454 & 1455/10 squarely covered by the decision of Tribunal (supra), the assessee has to come out of this tangle. We, therefore, confirm the order of the ld. CIT(A) on this issue and dismiss the grounds raised by the Revenue.
8. The next issue pertains to deletion of addition of ` 1,40,000/- made by the Assessing Officer relating to conveyance and travelling allowance. The Assessing Officer has disallowed this amount because in his opinion, the assessee has not filed any proof/evidence for travelling expenses before him. The ld. CIT(A) has deleted this disallowance. The case of the assessee is that the entire amount received by the assessee in this regard were spent on travelling and conveyance as the assessee had to incur expenses towards traveling for the purpose of the promotion of the company's business. Since there was no excess receipt over the expenditure, the same was not credited in his books of account. According to the assessee, just because the amount was not accounted for in the books it would result into income of the assessee of this year. Keeping in view the nature of assessee's business and the probability of expenditure having been incurred in extensive traveling, simply because the receipts and expenditure were not recorded in the books, we would not like to take :- 12 -: ITA 1454 & 1455/10 a different decision than what has been taken by the ld. CIT(A). Accordingly, we cannot allow this ground raised by the Revenue.
9. In the result, the appeal of the Revenue for assessment year 2005-06 stands dismissed.
I.T.A.No. 1455/Mds/2010
10. In this appeal, pertaining to assessment year 2007-08, following grounds have been raised by the Revenue:
"1.a. On the facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of ` 37,85,255 made by the A.O. relating to undisclosed income / investment in IOB and SBI.
1.b. The learned CIT(A) has failed to note that the assessee could not give any evidence / explanation for several cash remittances in the above bank accounts and consequently he admitted in the sworn statement that the unaccounted income from assessee's business concerns have been credited in the above bank accounts.
2a. On the facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of ` 2,24,244 made by the A.O. relating to shortfall in gross profit.
2b. The learned CIT(A) has failed to note that the gross profit admitted by the assessee was abnormally low, the reason for the same was not at all explained by the assessee and that the special auditors who audited the accounts u/s 142(2A) have also recommended for addition on account of low gross profit.
3a. On the facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of ` 1,29,120 made by the A.O. relating to excess amount collected at the time of registration.:- 13 -: ITA 1454 & 1455/10
3b. The learned CIT(A) has failed to note that order of the ITAT 'D' Bench Chennai in ITA No.1378 to 1380 dated 29.01.2010 in the case of M/s Susee Auto Plaza Motors Pvt. Ltd. has been disputed and that the issue has not become final.
4. The appellant craves leave to, add to amend or alter the above grounds of appeal as may be deemed necessary."
11. The first issue raised vide Ground Nos.1a and 1b is in relation to addition of ` 37,85,255/- made by the Assessing Officer on account of undisclosed income/investment in Indian Overseas Bank(IOB) and State Bank of India(SBI). The case of the Revenue is that the assessee could not give any evidence/explanation for several cash remittances in the above banks and consequently, the assessee had admitted in the sworn statement that the unaccounted income from his business concerns were credited in these bank accounts. The Assessing Officer noticed that the assessee was maintaining Special Bench account with IOB which had not reported in office books and the outstanding balance in these account on the date of search was ` 12,94,818/-. The assessee was also having another AB account with the same bank in which outstanding balance was of ` 13,73,587/-. Likewise, an account was maintained with SBI and balance on the date of search was ` 6,12,624/-. Thus, a total bank balance on the date of search was ` 37,85,255/-. A statement of the assessee was recorded :- 14 -: ITA 1454 & 1455/10 on 4.7.2006 and in reply to Question No.3 regarding his bank account, the as had replied that he was having a SB account in SBI, Palayamkottai Branch and his three concerns was also having accounts with the same bank and he did not have any other bank account. On the same day, after search, Question No.9 was put to him regarding IOB bank account which was found in his residence showing a balance of ` 17,99,064/-. The assessee replied that he could not give any evidence for the cash remittances and he had told that some of the credits in the bank account were introduced through cheques and the remaining credit in the bank account were deposited out of his unaccounted income derived from his business concerns. On 18.7.2006, again his sworn statement was recorded and in reply to Question No.1, he categorically stated that the bank accounts regarding which he had earlier mentioned, were not correct and he accepted that he had three SB accounts. In this regard it was explained that because the earlier statements were recorded in the midnight and the assessee was not in good state of mind and he was also having differences with his wife and due to search, he was very much confused so, on 18.7.2006 whatever was stated was superfluous without application of mind. Reliance was also placed on Special Auditors Report in which it was stated that the assessee had failed to :- 15 -: ITA 1454 & 1455/10 consider the interest amount credited in the above said bank account, but they have not treated the entire balance in these bank accounts as unaccounted income. After verifying the returns of income filed, only interest part was treated as not offered for taxation and only that part has been noticed by the auditors. The ld. CIT(A) has considered all these facts and deleted the impugned addition.
12. Before us, similar stand was taken by both the parties. Admittedly, the assessee was having bank accounts with IOB with Nos.6570 and 7755 and was also having bank account with SBI, Palayamkottai with Account No.10482014703. The SBI account was opened as earlier as in 1994 which was reflected in the earlier returns of income. The bank accounts with IOB were opened on 26.6.2004 and 6.5.2006 relatable to assessment year 2005-06 and 2007-08, respectively. The assessee's main source of income in his individual capacity is commission from insurance companies, salary from private limited companies and agricultural income which were claimed to have been deposited in the above three bank accounts. The assessee has been offering insurance commission income even prior to the date of search. The insurance companies had deducted TDS and this was claimed in his individual assessments. The payments from the :- 16 -: ITA 1454 & 1455/10 insurance companies were received through cheques which were deposited in the three bank accounts. These bank transactions are regular transactions operated by the assessee. The assessee is also a shareholder/director in three Private Limited Companies namely, M/s Susee Engineering and Automobiles Pvt. Ltd., M/s Susee Vehicle Dealers P. Ltd and M/s Susee Auto Zone Pvt. Ltd. After withdrawing funds from the bank accounts, the assessee had given and received funds therefrom M/s Susee Auto Zone Pvt. Ltd, M/s Susee Engineering Automobiles Pvt. Ltd and M/s Susee Vehicle Dealers Pvt. Ltd. These transactions are recorded in the accounts of these three companies in the respective assessment years and the returns in the case of all these companies were filed prior to the date of search for assessment years 2004-05 and 2005-06. The assessee was having current account in his individual capacity in these companies and the transactions were recorded in the books of the companies. In support thereto, copies of current account in his individual capacity in the respective companies were filed which are available on record. We have seen all these papers. The transactions and the balance returned in the returns of this assessee clearly tally with the transactions recorded in the companies accounts. The assessee has recorded all these transactions of three bank accounts in his individual books and :- 17 -: ITA 1454 & 1455/10 the balance in the books of accounts relevant to the period under search tallies with the bank statements. The assessee has offered cash credits and credit in suspense account as his income for assessment year 2005-06 and 2006-07 at ` 7,60,000 and ` 3,14,000/- respectively. The major transactions in IOB accounts which were opened in assessment years 2005-06 and 2006-07 as stated above, were either the amount received from the private limited companies or the amount paid to them. The deposits were also from salary, insurance commission and agricultural income. The amounts received by the assessee from the companies are properly recorded in the books of the companies which were also disclosed to the Department in their returns which were filed prior to the date of search for assessment years 2004-05 and 2006-06. These transactions stood already disclosed to the Department through the companies' books of account. Statements explaining the deposits made in the above said bank account and the sources thereof relatable to assessment years 2005-06 to 2007-08 are available on record. In the background of these evidence(s), we find that the insurance commission income and incentive received from the companies were transacted through the said bank accounts and TDS were deducted by the companies and the transactions with the three Private Limited Companies were recorded :- 18 -: ITA 1454 & 1455/10 in the books of the companies whose returns of income were filed well prior to the date of search for assessment years 2004-05 and 2005-06. The Special Audit Report which was ordered by the Assessing Officer himself do not find any transaction in the bank accounts as unaccounted. The reason for which he stated that the Assessing Officer has simply looked into the opening balances but has failed to look into the closing balances. Accordingly, we find force in the submissions of the ld.AR and found that opening balances have also been considered for this issue which the Assessing Officer has failed to do. Accordingly, we are in agreement with the finding given by the ld. CIT(A) in this regard. The overwhelming evidence(s) available on record show that this income cannot be treated as undisclosed income of the assessee.
13. The second issue raised vide Ground Nos.2a and 2b of this appeal relates to addition of ` 2,24,244/- made by the Assessing Officer on account of shortfall in gross profit. The facts apropos this issue are that the Assessing Officer noticed that the gross profit shown on sale of share of the year is 1.10% and the normal gross profit was between 10 to 15%. The total sale of spares for the year :- 19 -: ITA 1454 & 1455/10 was at ` 20,56,886/-. The assessee has admitted only ` 22,582/- as gross profit on spares thereby adopting 12% gross profit of the said sales, the Assessing Officer has added ` 2,24,224 [` 2,46,826/- minus ` 22,582/-]. As against this, the ld. CIT(A) has deleted this addition. Now, the Revenue is aggrieved.
14. After hearing both sides, we have found that there is no suppression of sales or inflation of purchases. The action of the Assessing Officer in adopting 12% gross profit rate in the account of sale of spares is simply adhoc and without any basis. Unless the Assessing Officer finds some material discrepancy in the accounts of a particular income, referring to estimation u/s 145 is not advisable and justifiable. Consequently, we confirm the impugned deletion which is simply based on suspicion.
15. The last issue of this appeal relates to deletion of an addition of ` 1,29,120/- made by the Assessing Officer on account of excess amount collected at the time of registration. :- 20 -: ITA 1454 & 1455/10
16. As we have decided in earlier assessment year, this issue stands covered by the Tribunal order in assessee's group case, therefore, we dismiss this ground of appeal.
17. In the result, the appeal of the Revenue for assessment year 2007-08 stands dismissed.
To summarize the result, both the appeals of the Revenue stand dismissed.
Order pronounced in the open court on 17.10.2011.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 17th October, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR