Income Tax Appellate Tribunal - Agra
Shastri Construction Co., Gwalior vs Department Of Income Tax on 19 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No. 143/Agra/2011
Asstt. Year : 2007-08
Income-tax Officer, vs. M/s. Sharthi Construction Co.
Ward 1(2), Gwalior. Shiv Nagar, Goshipura,
Near Railway Station, Gwalior.
(PAN : ABHFS 6829B)
(Appellant) (Respondent)
Appellant by : Shri Sohail Akhtar, Jr. D.R.
Respondent by : None
Date of hearing : 19.04.2012
Date of pronouncement of order : 27.04.2012
ORDER
Per Bhavnesh Saini, J.M.:
This appeal by the Revenue is directed against the order of the ld. CIT(A), Gwalior dated 25.02.2011 for the assessment year 2007-08 on the following ground :
"Whether on the facts and in the circumstances of the case, the CIT(Appeal) has erred in :-
1. Deleting the addition of Rs.26,50,575/- u/s. 68 of the Income tax Act made on account of initial capital introduced by the partners treated as unexplained cash credit by the AO."2 ITA No.143/Agra/2011
2. Briefly, the facts of the case are that the assessee firm has come into existence vide partnership deed dated 29.09.2006 relevant to the assessment year under appeal for carrying out the business of construction of roads and other government contracts etc. The firm has four partners, namely, Shri Manoj Shashtri, Shri Ballabh Pandey, Shri Sadik Khan and Shri Narain Prakash Vijaywargiya. Smt. Kusum Lata Shashtri W/o Shri Manoj Shastri has been introduced to the firm vide amended deed dated 25.01.2007 whereas Shri Narain Prakash Vijaywargiya has retired from the firm. The AO found that the partners have introduced initial capitals which were, however, treated as unexplained cash credits because the assessee could not prove the source of capital introduced by each partner through documentary evidences. Whatever explanation was given by the assessee was not believed by the AO. The AO, therefore, treated the initial capital introduced by the partners as unexplained and addition was, accordingly, made.
3. It was submitted before the ld. CIT(A) that no contract work has been allotted to the firm during the relevant financial year. However it has applied for contract work from MPRRDA, biding of which was under process upto the end of the financial year. To make security deposit with the concerned agencies, FDRs were to be deposited and since no bank account was opened by the firm during the year, therefore, all the FDRs were made through bank account of one of the 3 ITA No.143/Agra/2011 partners, namely Shri Manoj Shastri and in the said bank account, all the partners have made contribution, from which FDRs were made in favour of the Government Department. Complete books of account and relevant details were produced before the AO for verification alongwith PAN, Income-tax returns, computation of income and bank passbook of each partner to explain the source of capital contribution made by them. It was, therefore, pleaded that the addition is unjustified.
4. The ld. CIT(A) considering the explanation of the assessee and the material on record, deleted the addition. His findings in para 3.2 of the appellate order are reproduced as under :
"3.2 Appellant's submissions alongwith assessment order have been considered carefully. Assessment records have also been perused. The appellant has submitted vide letters dtd. 10.12.09, 11.12.09, 18.12.09 and 22.12.09, all the details as asked for by the A.O. in support of its submissions made regarding capital contribution. All the partners are found to be regular income tax payers and have submitted copy of last two returns filed by each alongwith PAN card, computation, bank statement etc. In respect of Mr. Manoj Shastri, his audited accounts alongwith balance sheet and audit report have also been produced. On the last date of hearing, i.e. 22.12.09, the appellant has submitted cash flow statement of its partners. Vide order sheet entry of the same date, A.O. has discussed the case with the appellant's A. R. No further query has been raised by the A.O. regarding annual cash flow statement of each of the partner submitted by the appellant. Thus, A.O. was not correct in rejecting the cash flow statement only on the ground that day-to-day details of cash transactions have not been given, when in fact, they have never been asked for by the A.O. during the entire course of assessment 4 ITA No.143/Agra/2011 proceedings. During the course of appeal proceedings, the appellant has been asked to give day-wise cash flow statement of each of its partner evidencing the deposits made by them on various dates.
Despite being given various opportunities w.e.f. 3.5.10 till 21.2.2011, the appellant has not been able to produce cash book of Shri Sadik Khan. Required details in case of other three persons, have been submitted and also been perused.
As stated earlier, there is no bank account in the name of the appellant firm during the year under consideration. A.O. has treated the capital of Rs. 26,04,000/- introduced by Shri Manoj Shastri as unexplained mainly on the ground that he has not been able to explain the deposits made in his saving bank as well as over-draft account. As per provisions of Sec. 68 of the I T. Act, it is mentioned that where any sum is found credited in the books of the assessee in any previous year, the same may be charged to income tax as the income of the assessee of the previous year, if the explanation offered by the assessee is treated as unsatisfactory by the A.O. Thus, the same should be found credited in the books of the appellant firm to be treated as unexplained income of the firm itself Bank account of partner cannot said be to be part of books of accounts of the appellant firm. It has been held by Hon 'ble Supreme Court in case of CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78(SC) that where an assessee gives names and addresses of the alleged creditors, who are income tax assessees and the A.O. apart from issuing summons u/s. 131 to creditors does not pursue the matter further, then the addition of cash credit u/s. 68 to the assessee's income cannot be made, as the assessee has discharged the burden u/s 68. In the instant appeal, A.O. has not even issued any notice/summon to any of the partner/creditor before rejecting the detailed submissions and evidences given by the appellant from time to time. In my view, the appellant has been able to fully discharge its onus regarding identity and creditworthiness of its creditors alongwith genuineness of transactions except for Shri Sadik Khan. Having said that, it still cannot be assessed as unexplained credit u/s. 68 of the I.T. Act in the hands of the appellant firm, as Hon 'ble Allahabad High Court in case of CIT Vs. Jaiswal Motor Finance (1983) 141 ITR 706 has held that if there are cash credit entries in the books of a firm, in which the accounts of the individual partners exists, and it is found as a fact that cash was received by the firm from its partners, then, in the absence of any material to indicate that they 5 ITA No.143/Agra/2011 were the profits of the firm, it could not be assessed in the hands of the firm. The same view has also been taken by jurisdictional Hon 'ble MP. High Court in case of CIT Vs. Metachem Industries (2000) 245 ITR 160 that once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income tax payer or not and where he had brought this money from is not the responsibility of the firm. The moment the firm gives satisfactory explanation and A. O. has himself accepted the fact that the partners have made deposits in their respective capital accounts, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purpose of income tax. By relying on decision of Hon 'ble Allahabad High Court in case of Sundar Lal Jain Vs. CIT (1979) 117 ITR 316, it has been held the credit in the account of a partner is not a loan to the firm and is not assessable in the hands of the firm. It is open to the A.O. to undertake further investigation with regard to that individual who has deposited this amount. So far as the responsibility of the appellant firm is concerned, it is satisfactorily discharged Respectfully following these decisions, addition of Rs.26,50,575/- made in the case of the appellant firm on account of capital contribution by its partners is, accordingly, hereby, deleted. However, it is open to the AO to take appropriate action u/s 69 o/the IT Act, as deemed fit and as per provisions of Income Tax Act, against the partner viz. Shri Sadik Khan, which in my view has not been able to satisfactorily explain the cash deposits made in the firm."
5. The ld. DR relied upon the order of the AO. None appeared on behalf of the assessee despite service of notice. The assessee is, therefore, proceeded exparte.
6. On consideration of the above facts, we are not inclined to interfere with the order of the ld. CIT(A). It is admitted fact that the addition was made by the AO in respect of initial capital introduced by the partners in the assessee firm. The firm 6 ITA No.143/Agra/2011 came into existence during the assessment year under appeal itself and no business activities have been carried out. He also accepted the business income at nil income. According to the submissions of the assessee, no work was allotted to the assessee firm for construction. Therefore, the assessee firm remained at the stage of formation. The issue is, therefore, squarely covered in favour of the assessee by the judgments of Hon'ble Allahabad High court in the case of Jaiswal Motor Finance (supra) and Sunder Lal Jain (supra) as well as the decision of Hon'ble M.P. High Court in the case of Metachem Industries (supra). We may further note here that the judgment of Hon'ble Supreme Court in the case of CIT vs. Bharat Engineering and Construction Co., 83 ITR 187 is also relevant to decide the issue, in which it was held as under : -
"The assessee, an engineering-construction company, commenced its business in May, 1943. In its accounts there were several cash credit entries in the first year of its business totaling Rs.2,50,000. Though the explanation regarding the cash credit entries was found to be false, the Appellate Tribunal held that these cash credits could not represent the income or profits of the assessee as they were all made very soon after the company commenced its activities :
Held, that the inference drawn from the facts proved was a question of fact and the Tribunal's finding on that question was final. A construction company took time to earn profits and it could not have earned a huge profit within a few days after the commencement of its business. Hence, it was reasonable to assume that the cash credit entries represented capital receipts though for one reason or another the assessee had not come out with the true story as regards the source of the receipts."7 ITA No.143/Agra/2011
On consideration of the facts of the case in the light of finding of the ld. CIT(A) and the above decisions, we do not find any merit in the appeal of the Revenue.
Same is, accordingly, dismissed.
7. In the result, the departmental appeal is dismissed.
Order pronounced in the open court.
Sd/- Sd/-
(A.L. GEHLOT) (BHAVNESH SAINI)
Accountant Member Judicial Member
*aks/-
Copy of the order forwarded to :
1. Appellant
2. Respondent
3. CIT(A), concerned By order
4. CIT, concerned
5. DR, ITAT, Agra
6. Guard file Sr. Private Secretary
True copy