Income Tax Appellate Tribunal - Ahmedabad
Royal Manors Hotels Ind. Ltd., vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " C " AHMEDABAD
Before Shri MAHAVIR SINGH, JUDICIAL MEMBER and
Shri A.N. PAHUJA, ACCOUNTANT MEMBER
1) ITA No.2577/A hd/2003 for A.Y. 1999-2000
2) ITA No.1982/A hd/2002 for A.Y. 1998-1999
3) ITA No.1704/A hd/2002 for A.Y. 1998-1999
1. The ACIT, Central Vs. 1. Royale Manor Hotels &
Circle-1(3),Ahmedabad Industries Ltd.,Airport Cross
Roads,Hansol, A hmedabad
2. -do- 2. -do-
3. Royale Manor 3. The ACIT, Central Circle-
Hotels & Inds. Ltd. 1(3),Ahm edabad
Ahmedabad
PAN/GIR No. : 31-114-CV-1288
(APPELLANTS) .. (RESPONDENTS)
Assessee by : S/Shri S.N. Soparkar with
P.M. Mehta ,AR
Revenue by : Shri N.S. Dayam,DR
ORDER
A.N. PAHUJA : These three appeals, two by the Revenue and one by the assessee against an order dated 21/03/2003 for the AY 1999-2000 of the ld. CIT(Appeals)-II, Ahmedabad and order dated 28/03/2002 for the AY 1998-99 of the ld. CIT(Appeals)-I, Ahmedabad ,raise the following grounds :-
ITA No.2577/Ahd/2003-AY1999-2000[ Revenue]1. The CIT(A) has erred in law and on facts in deleting the addition on account of fresh current liabilities incurred by the assessee during the accounting period under consideration, out of the total addition of Rs.2,67,62,429/- as the assessee did not furnish the necessary evidence in support thereof during the course of assessment proceedings.
2. The CIT(A) has erred in law and on facts in deleting addition made on account of fresh deposits/unsecured loans obtained by the assessee during the accounting period under consideration, out of the total addition of Rs.2,17,29,472/- as the assessee did not furnish the necessary evidence in support thereof during the course of assessment proceedings.
2 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2
3. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer.
4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the AO be restored to the above extent.
ITA No.1982/Ahd/2002- AY 1998-99 [ Revenue]1. The ld. CIT(A) has erred in law and on facts in deleting addition of Rs.2,48,82,000/- made on account of new deposits from Public.
2. On the facts and circumstances of the case, the ld.CIT(A) ought to have upheld the order of the A.O.
3. It is therefore prayed that the order of the CIT(A) be set-aside and that of the A.O. be restored to the above extent.
ITA No.1704/Ahd/2002-AY 1998-99[ Assessee]1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in not considering/disposing of the first Ground of Appeal before him challenging the validity of the assessment order impugned before him in the following terms:
"1. In law and in the facts and circumstances of the appellant's case, the impugned assessment order is void and deserves to be cancelled, inter alia, for the reason:
(a) that it contains additions which have been made without at all applying mind and which are patently wrong;
(b) that all the additions have been made without the learned Assessing Officer issuing any show cause notice as such containing his proposal to make those additions and calling upon the appellant to show cause as to why his proposal for making the additions should not be carried out;
(c) that the impugned assessment order has been passed without observing elementary principles of natural justice."
2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in sustaining an addition of Rs.31,355 out of Rs.4,28,587 which had been added by the learned Assessing Officer on the ground that dues to five of the several creditors as shown by the appellant's books of account were not genuine on the mere circumstance that Notices u/s.133(6) of the I.T. Act, 1961 sent by him were returned unserved.
3 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2
3. In law and in the facts and circumstances of the appellant's case, the learned CIT(Appeals) has grossly erred in sustaining an addition of Rs.3,89,533 out of Rs.22,05,540 which had been added by the Assessing Officer on the ground that dues to fourteen of the creditors for capital goods as shown by the appellant's books of account were not genuine to the extent that there were differences between the dues as per the appellant's books of account as compared to corresponding balances intimated by the parties in response to Notices u/s.133(6) sent by the Assessing Officer to them.
4. In law and in the facts and circumstances of the appellant's case, the learned Ld. CIT(Appeals) has grossly erred in sustaining an addition of Rs.1,16,130 out of Rs.48,72,502 which had been added by the Assessing Officer on the ground that an entire component of the "Other Liabilities" appearing in the appellant's Balance Sheet deserved to be treated as non-genuine en bloc.
5. In law and in the facts and circumstances of the appellant's case, the learned Ld. CIT(Appeals) has grossly erred in sustaining an addition of Rs.4,82,759 out of Rs.44,92,185 which had been added by the Assessing Officer on the ground that an entire component of the "Other Liabilities" appearing in the appellant's Balance Sheet deserved to be treated as non-genuine en bloc.
6. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in sustaining, even if partially, the additions to the extent of Rs.31,355 (out of Rs.4,28,587), Rs.3,89,533 (out of Rs.22,05,540), Rs.1,16,130 (out of Rs.48,72,502) and Rs.4,82,759 (out of Rs.44,92,185) challenged by the appellant vide Grounds of Appeal No.2,3,4 and 5 hereinabove respectively without appreciating, inter alia, the submissions made by the appellant before him.
7. Your appellant craves leave to add to, amend, alter, delete and/or modify any of the above grounds of appeal on or before the final hearing."
ITA No.1982/Ahd/2002[Revenue]2. Adverting first to the appeal of the Revenue for the AY 1998-99, the only issue in this appeal relates to deletion of addition of Rs.2,48,82,000/- on account of new deposits received from the public. Facts, in brief, as per relevant orders are that that the return declaring loss of Rs.4,69,57,500/- filed on 30/11/1998, after being processed u/s 143(1) of the Income-tax Act,1961[hereinafter referred to as the 'Act'] was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 28.9.1999. During the course of 4 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 assessment proceedings, the Assessing Officer [AO in short] asked the assessee vide notice dated 27.9.2000 to furnish confirmations of unsecured loans in the prescribed format. Despite seeking further time of 15 days, no details were filed. Even after subsequent notices dated 23.10.2000 &7.11.2000, relevant details/confirmations were not filed. However, in their reply dated 29.12.2000, the assessee contended that since the deposits were collected through the brokers and these being huge in number, it was not possible to collect the desired details. It was explained that these deposits were through account payee cheques. Though the assessee filed copies of few application forms for fixed deposits, the AO considered these as self serving documents. Since desired confirmations were not forthcoming, the AO issued another notice dated 12.2.2001. Despite seeking a number of adjournments, neither confirmations of depositors were submitted nor their creditworthiness was established even until 7.3.2001. Accordingly, relying upon the decision in the case of CIT Vs. Precision Finance Pvt. Ltd.,208 ITR 465(Cal),the AO added deposits of Rs. 3,32,65,000/- received in the year under consideration to the income of the assessee.
3. On appeal, it was contended before the ld. CIT(A) that schedule 4 forming part of the audited accounts, revealed that there was net increm ent of Rs. 1,25,75,000/- in the deposits. It was explained to the AO that deposits were either renewal of deposits received in the preceding years or had been received through account payee cheques, for which the company not only advertised its public deposit scheme but also appointed brokers. W hile submitting a chart showing name, address ,amount of deposit etc., it was contended that all the deposits had been repaid back. The assessee further requested the AO that the depositors being located at different places, relevant information may be called f or from the parties directly. Relying upon their submissions before the ld. CIT(A ) for the preceding assessment year, wherein a similar addition had been made, the assessee contended that they had discharged the initial burden placed on 5 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 them u/s 68 of the Act. The assessee also furnished a statement of deposits, incorporating the following details:
Deposits received by No. of Total amount
company deposit
By cheque/D.D. 1364 2,11,96,000/-
By Cash 313 36,86,000/-
By Renewal 639 83,83,000/-
Total 2316 3,32,65,000/-
It was pointed out that repayment of deposits of
Rs.1,23,07,000,included deposits received in the earlier year to the extent of Rs.89,24,000/- and Rs. 33,83,000/- received in the year under consideration. Relying upon their contentions in the preceding assessment year, it was argued that the AO was not justified in making the addition.
4. In the light of aforesaid submissions, ld. CIT(A), while relying upon his own decision in the preceding assessment year, deleted the entire addition, holding that deposits of Rs. 83,83,000,being renewal of deposits received in the preceding year could not be added. As regards remaining am ount, the ld. CIT(A) observed that the assesee had furnished complete details and had requested the AO to issue summ ons to examine the depositors. Since the AO had not done so while complete details were filed in Decem ber,2000 and details of deposits exceeding Rs. 20,000 each were available with the tax audit report as also the deposits of Rs.1,23,07,000 having been repaid in the year under consideration, the ld. CIT(A) deleted the entire addition.
5 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR, while carrying us through the order of the AO and written submissions filed by him, contended that the attitude of assessee was non-cooperative during the assessm ent proceedings. It was contended that the ld. CIT(A) in total disregard of settled position of law, had cast the 6 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 burden on the AO even before the assessee could prima facie establish nature and source of deposits. The findings of the AO that the assessee furnished complete details of deposits ,is factually incorrect,when the assessee did not file even a single confirmation. The AO has given reasons on page 17 of his order for not issuing the summons. Relying upon a number of decisions in the case of S umati da yal Vs. CIT,214 ITR 801(SC),CIT Vs. United Commercial & Industrial Co. P Ltd.,187 ITR 596(Cal.), CIT Vs. Precision Finance Pvt. Ltd.,208 ITR 465(Cal), Shankar industries vs. CIT,114 ITR684(Cal),Oceanic Products exporting Co. Vs. CIT,241 ITR 497(Ker),ITO Vs. Diza Holdings P Ltd.,255 ITR 573(Ker),Muralidhar Lahorimal Vs. CIT,280 ITR 512(Guj),Indus Valley promoters Ltd. Vs. CIT,305 ITR 202(Del.),R.B.Mittal Vs. CIT,246 ITR 283(AP),Maru Ram Makhan Lal vs. CIT,300 ITR 12(P&H),CIT V s. Himala ya International Ltd.,214CTR(Del.)437 and distinguishing the decision of the ITAT for the preceding year, the ld. DR vehemently contended that the assessee has not discharged the initial burden cast on them to establish the identity and creditworthiness of the depositors and genuineness of the transactions. Theref ore, order of the ld. CIT(A) should be set aside, the ld. DR added.
5.1 On the other hand ld. AR on behalf of the assessee stressed that issue is squarely covered by the decision dated 23.5.2008 of the ITAT for the preceding assessment year in ITA no. 1981/Ahd./2002 in the assessee's own case.
6. W e have heard both the paties and gone through the facts of the case as also decisions relied upon by both the parties. Facts in this case are not in dispute. Only dispute is regarding discharging of onus in terms of provisions of section 68 of the Act. In this case the assessee company solicited deposits through advertisements/ brokers. Details of amount and 7 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 num ber of depositors have already been given in para 3 above. W e find that a similar addition was made by the AO in respect of deposits received through the advertisements in the preceding assessm ent year in the assessee's own case. On appeal, vide their order dated 23.5.2008, the ITAT deleted the addition in following terms:
5. W e have heard rival contentions and gone through the facts of the case as also decisions relied upon by both the parties.
Facts in this case are not in dispute. Only dispute is regarding discharging of onus in terms of provisions of section 68 of the Act. In this case the taxpayer company solicited deposits through advertisements/ brokers. Details of amount and number of depositors have already been given in para 2.11 & 2.12 of the order of the ld. CIT(A) and have been extracted in para 3.6 above. A cursory look at these details reveals that out of 1462 deposits, 1194 are by way of cheque/DD and 48 are renewal. Remaining 220 deposits in cash total up to Rs.23,94,000. Ld. CIT(A) deleted renewal amount of Rs. 5,21,000 in respect of 48 deposits because these were not received in the year under consideration and had been accepted in earlier years. We are in agreement with the ld. CIT(A) on this nor ld. DR could point out any infirmity in this finding of ld. CIT(A). As regards other deposits, we find from the orders of lower authorities that
i) in this case details of deposits exceeding Rs. 20,000 each, were furnished along with the return of income filed on 27.11.1997, as part of Tax A udit Report, in which complete address of all such depositors was given(pg. 58 to 62 of the PB). However, the AO chose not to make any enquiries on his own. Ld. CIT(A) points out that the case records revealed that that for the first time a detailed questionnaire was issued on 28/1/2000, fixing the date of hearing on 8/2/2000. However, the said questionnaire and notice under section 142(1) was served on the appellant on 12/2/2000, well after the date of hearing. Apparently, for more than two years, AO was sitting over the details available with him and did not initiate any inquiry. In the case of CIT v. Sophia Finance Ltd. reported in [1994] 205 ITR 98 [FB],which the ld. DR also stated is applicable, the Hon'ble Delhi High Court has observed that an enquiry by the AO as to the existence or non-existence of the shareholder and about their creditworthiness is condition precedent for treating the cash credit as the income of the company. No such enquiry was conducted by the Assessing Officer in this case in the case of any of the depositor. Instead the AO asked the taxpayer to file confirmations vide letter dated 7/3/2000 of all the depositors, though he was fully aware from the list of fixed depositors, that the number wa s Iarge and by that date no enquiry whatsoever was made by the AO though he was in 8 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 knowledge about all deposits exceeding Rs.20,000/-. In response to this letter, reply dated 15/3/2000 was filed, part of which is extracted on page 5 of the assessment order. Ld. CIT(A ) further noticed that along with this reply, photo copies of all application forms of depositors of Rs.20,000/- and above were filed, which indicated the relevant details. It was also mentioned in the reply that if the AO had any doubt, he may make enquiries from the addresses given in the application forms. However, the AO did not consider it necessary to make any enquiries in this regard though except few, most of the depositors were from Ahmedabad. The AO has stated that neither any evidence was filed for deposits below Rs.20,000/- nor any further time was sought is also not in accordance with facts available on record because as the ld. CIT(A) mentioned, he has conveniently ignored that part of reply furnished vide taxpayer's letter dated 15/3/2000 which covers deposits below Rs. 20,000/-. Para 10 of the said letter which covers these deposits is already extracted above in para
2.Thereafter, AO did not act on the offer of taxpayer to produce FD applications as were deemed fit by the AO. A pparently, AO proceeded to add the amount u/s 68 of the Act without any inquiry whatsoever.
5.2 As regards scope of section 68 of the Act and burden of proof on the taxpayer,Hon'ble Supreme Court in the case of CIT v. P. Mohanakala reported in [2007] 291 ITR 278 after referring to section 68 of the Act held :
"The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances would section 68 of the Act come into play? A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the asses sees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression 'the assessees offer no explanation' means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion."
9 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 If the above observation of the Supreme Court is applied to the facts of the present case, the decision stares at the Revenue because the details furnished and explanation offered by the taxpayer cannot by any stretch of imagination be considered as unreasonable or not acceptable -explanation as regards the sum credited in the books maintained by the taxpayer. No inquiry was made by the AO at all in respect of deposits exceeding Rs. 20,000 each, even when details were annexed with the return of income. The AO has stated that neither any evidence was filed for deposits below Rs.20,000/-nor any further time was sought is also incorrect in view of taxpayer 's letter dated 15/3/2000 which covers deposits below Rs. 20,000/-. Para 10 of the said letter which covers these deposits is already reproduced in para 2.17 of the order of ld. CIT(A),extracted above. Further, the opinion of the AO which was required to be formed objectively with reference to the material available on record was also not formed nor viewed as directed by the Supreme Court in the abovesaid decision.
5.3. In another decision relied upon by the taxpayer in the case of CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), where the increase in subscribed capital of the respondent-company, accepted by the Income-tax Officer and rejected by the Commissioner on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares, with the help of formation of an investment, which was reversed by the Tribunal, the Delhi High Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. The view taken by the Delhi High Court in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), was confirmed by the apex court and the same was reported in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. In the case of CIT v. Sophia Finance Ltd. reported in [1994] 205 ITR 98 [FB], the Delhi High Court has observed that an enquiry by the Assessing Officer as to the existence or non-existence of the shareholder and about their creditworthiness is condition precedent for treating the cash credit as the income of the company. No such enquiry was conducted by the Assessing Officer in this case.In the case of Sophia Finance Ltd. [205 ITR 98], it was clearly held that the AO has jurisdiction to make enquiries with regard to the nature and source of sums credited in the books of the assessee. In that very judgment, the Full Bench also stated that in the case of Stellar Investments Ltd., 192 ITR 287 (Delhi), section 68 was not referred to and that that judgment cannot mean that the AO cannot go into the question as to whether the alleged shareholders actually existed or not. From this observation at page 105 of 205 ITR, it is clear that the Supreme Court decision affirming the Delhi High Court judgment in the case of Stellar Investment Ltd. does not mean that the AO does not have jurisdiction to make enquiry on share capital.
5.4 Sumati Dayal vs. CIT,214 ITR801 (SC) is another authority on the essentials of income-tax liability .In that case it was held:
10 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 "It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. (See Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. (See Sreelekha Banerjee's case [1963] 49 ITR 112 (SC) at page 120).
5.5 As regards decision relied upon by the ld. DR in the case of Commissioner Of Income-Tax.vs Kundan Investment Ltd. 263 ITR 626(Cal), in that case in respect of share capital : public issue, Hon'ble High Court found in this case, notices under section 133(6) of the Income-tax Act, 1961, were issued. About 82 subscribers holding 44,000 shares were selected out of the total number of subscribers of public issue. Out of these subscribers, 24 had responded. These 24 subscribers represented 29,500 shares, which were accepted to be genuine. Ten persons representing 2,300 shares could not be served. About 48 persons, though served, did not respond. The Assessing Officer calculated this figure of persons responding at 40 per cent. In respect of these 48 shareholders who did not respond till the assessment was made and this information was communicated to the assessee,the assessee did not take any steps either to obtain confirmatory letters from these non-responding subscribers nor had attempted to produce the subscribers nor any to disclose the income-tax file numbers of these subscribers. Neither he had ever applied for issuing any notice/summons under section 131 nor took any other steps to prove the same. The burden, which was initially discharged by the assessee shifted on the Revenue. This stood discharged by the Revenue after the enquiry was made through issuing notice; under section 133(6). When this was so communicated to the assessee, it was incumbent on the assessee to take appropriate steps to substantiate the credit worthiness of the subscribers and prove the genuineness of the transactions. But, it had not done so. . It is an admitted proposition that the burden lies on the assessee. After this was communicated to the assessee that these persons were not responding, it was the responsibility of the assessee to prove the creditworthiness of the subscribers or the genuineness of the transactions, but it had done nothing.
Therefore, the Hon'ble Court reversed the findings of ITAT and affirmed the decision of the Commissioner (Appeals) with regard thereto.
11 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 5.51 How this case helps the revenue has not been explained by ld. DR, especially when no inquiry was even attempted by the AO . In the cited case, after the inquiry by the AO, burden shifted to the taxpayer. Unless inquiry was conducted by the AO and if as a result of such inquiry any incrimination material was found and unless the same was confronted to the taxpayer, burden could not shift.
5.6 Another two decisions relied upon by the ld. DR are in the case of CIT v. Ruby Traders and Exporters Ltd. [2003]263 ITR 300(Cal)& Commissioner Of Income-Tax.vs Nivedan Vanijya Niyojan Ltd.263 ITR 623(Cal). The decision in Ruby Traders and Exporters Ltd has been considered in the latter case, wherein the Hon'ble High Court found that issue related to addition of Rs. 3,93,000 on account of the subscription to share capital being held as ingenuine transaction under section 68 of the Income-tax Act, 1961. Hon'ble High Court held:
"The law with regard thereto has since been crystallised. Similar question was involved in I.T. Reference No. 20 of 1996) (Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289 (Cal)) and I.T. Reference No. 78 of 1995 (CIT v. Ruby Traders and Exporters Ltd. [2003] 263 ITR 300 (Cal)) disposed of by this court on March 11 and 12, 2003. The principal ingredient that has to be satisfied is to establish the identity of the subscribers and prove their creditworthiness and the genuineness of the transaction. We have gone through the order of the Assessing Officer at pages 9-13 of the paper book. It appears that the assessee had failed to establish any of these three ingredients in respect of the said amount. The Commissioner (Appeals) modified the order to Rs. 83,000 and accepted the balance simply because income-tax file numbers of the other subscribers were disclosed. It appears from pages 36-37 of the paper book containing the order of the Commissioner (Appeals) that these few persons who had subscribed 8,300 shares were not income-tax assessees. Therefore, only these were added.
Mr. Som had relied on a decision in CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal), where it was held that furnishing of income-tax file number is not sufficient to discharge the burden. The proposition may be correct. But when some material is produced, it is incumbent on the Revenue to enquire into the same. In this case after the initial onus was discharged by the assessee, the income-tax authority had made enquiries and had communicated the result of the enquiry to the assessee and required the assessee to produce the subscribers and establish its case. But the assessee did not do so. Therefore, we do not think that the Commissioner (Appeals) had rightly approached the case. The principle is already laid down in the aforesaid two decisions, namely, Hindusthan Tea Trading Co. Ltd.'s case [2003] 263 ITR 12 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 289 (Cal)--I.T. Reference No. 20 of 1996 and. Ruby Traders and Exporters Ltd.' s case [2003] 263 ITR 300 (Cal)-I.T. Reference No. 78 of 1995.
The learned Tribunal, however, proceeded on the basis of the ratio decided in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi). According to the learned Tribunal, if the subscribers were not available, in that event, it can be assessed at the hands of such subscribers, not at the hands of the assessee. But this decision was overruled by the Full Bench decision in CIT v. Sophia Finance Ltd.
[1994] 205 ITR 98 (Delhi). Therefore, the ratio decided in Stellar Investment Ltd.'s case [1991] 192 ITR 287 (Delhi) is no more good law. Though an S.L.P. was preferred against Stellar Investment Ltd.'s case [1991] 192 ITR 287 (Delhi) and the S.L.P. was dismissed (CIT v. Steller Investment Ltd. [2001] 251 ITR
263), yet the order of the apex court while dismissing the S.L.P. is not a ratio decided binding under article 141 of the Constitution of India, as we have held in the said decisions in Ruby Traders and Exporters Ltd.' s case [2003] 263 ITR 300 (Cal) and Hindusthan Tea Trading Co. Ltd.'s case [2003] 263 ITR 289 (Cal). The learned Tribunal, therefore, proceeded on the basis of a wrong proposition of law."
5.61 Apparently, this decision is not of any assistance to the Revenue since Hon'ble High Court found in this case that after the initial onus was discharged by the assessee, the income-tax authority had made enquiries and had communicated the result of the enquiry to the assessee and required the assessee to produce the subscribers and establish its case. But the assessee did not do so. Whereas in the case under consideration AO did not make any inquiries at all , even when the taxpayer requested him to do so. Rather this decision furthers the case of the taxpayer.
5.7 As regards reliance on various decisions by the ld. DR in the case of CIT Vs. United Commercial & Industrial Co. P Ltd.,187 ITR 596(Cal),CIT Vs. Precision Finance P Ltd.,208 ITR 465(Cal),Shankar Industries Vs. CIT,114 ITR 689(Cal).Oceanic Products Exporting Co. Vs. CIT,241 ITR 497(Ker),ITO Vs. Diza Holdings P Ltd.,255 ITR 573(Ker),Ram Lal Agarwal vs. CIT,280 ITR547(All),ACIT Vs. Vishwanath & Company,292 ITR 225(Kar) and ITO vs. Skyjet Aviation (P) Ltd.,71 ITD 95(Ahd.)™ , though these decisions postulate that initial onus is on the taxpayer ,in principle, to prove prima facie the transactions which result in cash credit in his books of accounts and that such proof includes proof of the identity of the creditor, the capacity of such creditor to advance money and lastly the genuineness of the transactions, in none of these decisions, issue of public deposits was involved. Even otherwise, in these cases, the concerned AO had undertaken further inquiries in relation to the cash credits and arrived at the conclusion as a result of such inquiries whereas in the case under consideration , the AO did not even attempt at all to conduct any inquiry whatsoever. Moreover, in none of these decisions credits were in respect of public deposits or share application money. Ld. DR 13 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 has not even attempted to demonstrate as to how the facts in the cited cases were parallel to the facts in the case under consideration. A pparently, aforesaid decisions were not rendered in the context of public deposits or share application money or in respect of onus on the taxpayer in explaining such public deposits credited in his books of accounts. Hon'ble Supreme Court in the case of CIT Vs. Sun Engineering W orks Pvt. Ltd., 198 ITR 257 observed:
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete " law " declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9; AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC)."
Thus, reliance by the ld. DR on the aforecited decisions , which were rendered in a different context, not relevant to the facts in the case under consideration in respect of addition of public deposits under section 68 of the Act, is misplaced.
5.8 In Hindustan Tea Trading Co. Ltd.,263 ITR 289(Cal) relied upon by both the parties, Hon'ble Court while examining the scope of powers of AO under section 68 of the Act held:
"Section 68 of the Income-tax Act, 1961, empowers the Assessing Officer to treat any sum found credited in the books of account of the assessee for any previous year, if the assessee fails to offer explanation about the nature and sources of such fund or if the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, as income from undisclosed sources and charge the same to tax as income of the assessee of that previous year. Therefore, it appears that the power of the Assessing Officer under section 68 is not an absolute one. It is subject to its satisfaction where an explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to the explanation is in effect an in-built safeguard in section 68 protecting the interest of the assessee. It provides for an 14 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 opportunity to the assessee to explain the nature and source of the fund. Once it is explained, it is incumbent on the Assessing Officer to consider the same and form an opinion whether the explanation is satisfactory or not. The expression used in the section clearly lays the burden on the assessee to explain the nature and source of the fund. Unless an explanation is offered, the Assessing Officer is free to treat the fund as income of the assessee from undisclosed sources chargeable to tax. Once an explanation is offered, the Assessing Officer is bound to consider the same. Such consideration is guided by sound principles of law. The opinion so formed must be reasonable and based on materials and shall not be perverse. The extent of the power of the Assessing Officer while considering the materials produced by the assessee is very wide. It is a question of examining as to whether the apparent is real. The Assessing Officer is empowered to lift the corporate veil and examine the real nature of the transaction. In the process, he may exercise its power of examining the materials. He may require the assessee to produce further materials if so required. He may seek information from other sources on the basis of the material produced. In the process of enquiry, the assessee has no right of hearing. But the assessee has a right to challenge the conclusion arrived at on the basis of the enquiry made. The assessee may point out the perversity in the finding. It may question the validity of the process undertaken. It may point out that a particular material was not considered. It may also point out that the enquiry made was not reasonable or was half-heartedly done. The process of enquiry is such that the assessee has to offer the explanation and produce the material in support of such explanation and then it can do no further. The onus then shifts on the Revenue to scrutinise the materials and form an opinion on the basis thereof. For the purpose of scrutinising the materials, it may utilise its powers to seek attendance of any witness or disclosure of any information in exercise of its power under section 131. It may seek information from other sources in exercise of its power under section 133. Once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion on the basis of such materials. If the conclusion is adverse wholly or in part to the interest of the assessee, it is incumbent on the Assessing Officer to intimate or inform the conclusion arrived at to the assessee. When such information or intimation is received by the assessee, the onus shifts on the assessee. It may furnish further explanation or information to support its contention. If further information or materials are furnished, the Assessing Officer is bound to examine the same and form his final opinion and pass an appropriate order. Such opinion is also subject to examination by the Commissioner (Appeals) or the learned Tribunal and if it involves a question of law, it is also subject to scrutiny by the High Court under section 15 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2
256. Findings of fact, may also form the basis of a question of law if the inference drawn from the facts found are not in consonance with legal principles or the findings are perverse. In such a case the High Court may interfere. If two views are possible, even if the High Court is of the other view, it cannot interfere with the view taken by the taxing authority."
5.9 In the decision relied upon on behalf of the taxpayer in the case of Gujarat Fertilisers.vs Commissioner Of Income-Tax, 293 ITR 70(Guj) ,Hon'ble High Court held :
"We will take up the second question first as it was vehemently argued by learned counsel for the assessee that the findings regarding the cash credit entries that those were not genuine, are perverse findings. Learned counsel for the assessee submitted that the basic burden to prove the source of money would be on the assessee, but, he is not required to prove the sources of the source and as the taxing authorities and the Tribunal made an inquiry into the sources of the source, i.e. source of the person who deposited the money, the findings are perverse. In support of his submission, he has relied upon a Division Bench's judgment of this court in the matter of Murlidhar Lahorimal v. CIT [2006] 280 ITR 512.
After going through the facts of the said case, we must immediately say that the facts of the said case were totally different. In the present case, the Assessing Officer when making a fact finding inquiry, examined some of the creditors and after a thorough cross- examination, he was successful in obtaining the information from the witness that the witness, in fact, had no money with him, he was having certain agricultural lands and from the agricultural operations, he could hardly meet both the ends. Not only that, it is to be seen that a sum of Rs. 22,500 was, deposited simply because the partner of the firm, namely, Yogeshbhai, came in contact with the said depositor, he did not charge any interest over it because the money was given in friendship and after receiving the same from the firm, he. again gave it to Yogeshbhai, the partner. A dispassionate look at the facts and the conduct of the witness would provide that he was a cooked-up witness and was brought before the Assessing Officer to save the skin of the original assessee, a partnership firm. We are unable to hold that the findings recorded by the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal into the genuineness of the transaction, call for any interference."
5.10 In another decision relied upon by the taxpayer in the case of Murlidhar Lahorimal.vs Commissioner Of Income-Tax., , 280 ITR 512(Guj) wherein question of genuineness of gift was involved ,Hon'ble High Court held:
16 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 "Section 68 of the Act requires that there has to be a credit in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about the nature and source of such credit; or the explanation offered by the assessee is not, in the opinion of the assessing authority, satisfactory, then the sum so credited may be charged to tax as income of the assessee of the previous year. The apex court, in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570, has laid down that the word "may" indicated the intention of the Legislature that a discretion was conferred on the Assessing Officer in the matter of treating the source of investment/credit which had not been satisfactorily explained as income of the assessee, but it was not obligatory to treat such source of income in every case where the explanation offered was found to be not satisfactory.
As section 68 of the Act denotes, once there is a credit in the books maintained by the assessee, the primary onus is on the assessee, namely, to offer an explanation as to the nature and source of the credit. What would be the degree of the onus and what should be the extent of explanation in such circumstances, is succinctly laid down by this court in the decision in the case of CIT v. Pragati Co- operative Bank Ltd. [2005] 278 ITR 170. Suffice it to state that an assessee can be asked to prove the source of credit in the books, but cannot be asked to prove the source of the source.
Unfortunately, as noted hereinbefore, the Tribunal has proceeded on an entirely fallacious premise, when it is observed, "We have to decide the question about the genuineness of the gift on the balance of probabilities and, in our view, it is not probable that the assessee received Rs. 50,000 or any part thereof as a gift from Ramji Nanji, the donor." Instead of addressing itself to the requirement of section 68 of the Act, the Tribunal has adopted an approach which, to say the least, is unwarranted in law. The Tribunal states that motivation for making the gift is not established. This finding is neither here nor there. The assessee was called upon to explain the credit entry found in his capital account. The assessee pointed out that he had received a gift from Shri Ramji Nanji. Shri Ramji Nanji appears before the Assessing Officer and confirms the fact of having made the gift. He produces evidence in support of the source from which the funds for making the gift are available with him. The gift is given by way of a bank draft. The Revenue does not dispute any of these facts. In fact, the Revenue commences the present proceedings on the day it makes gift-tax assessment qua this very gift in the hands of the donor."
5.11 In the case of Uma Polymers (P.) Ltd. v. Dy. CIT [2006] 100 ITD 1 (Jodh.) (TM), It was held that in respect of share application 17 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 money received from investors, the assessee-company has to prove only existence of persons in whose name share applications are received and when the identity of creditor is established, then the burden to prove that money advanced by the creditor did not belong to him but to somebody else, is on the Revenue who has to find the real investor, and if any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of such shareholder.
6. In the light of aforesaid decisions, if we analyse the facts of the case under consideration, we find that despite having complete details of deposits exceeding Rs. 20,000 each in the return of income filed on 27.11.1997 itself, AO did not make any inquiry l in respect of such deposits .After issuing first notice u/s 143(2) of the Act on 26.8.1998 in this case, when the taxpayer did not respond, the AO went in to a slumber for more than a year. Second notice was issued only on 15.11.1999 i.e. after two years of filing of return when limitation for completion of assessment was nearing and the hearing was fixed for 2.12.1999. As observed by the ld. CIT(A) on perusal of case records, a detailed questionnaire was issued for the first time only on 28.1.2000,fixing the date of hearing on 8.2.2000. But this questionnaire was served upon the taxpayer on 12.2.2000 i.e. much after the date of hearing fixed by the AO. Even in this notice, AO did not insist upon any specific confirmation of the depositors. In reply to this notice, taxpayer submitted relevant details along with complete list of all the fixed deposits indicating depositor's name , date of deposit, scheme and period, amoun t of FDR and broker no. etc. As observed by the ld. CIT(A ), the details being in respect of fixed deposits received from public in general, this amounted to reasonable compliance to the notice. Thereafter, the AO asked the taxpayer to file confirmation vide letter dated 7/3/2000 of all the depositors. In response, taxpayer submitted a reply dated 15/3/2000 alongwith photo copies of all application form of Rs.20,000/- and above. It was also mentioned in that reply that if the AO had any doubt, he may make enquiries from the address given on the application form. However, the Assessing Officer did not make any enquiries The AO has stated that neither any evidence was filed for deposits below Rs.20,000/-, nor any further time was sought, is baseless in view of letter dated 15/3/2000 which covers deposits below Rs. 20,000/-Even when the taxpayer offered to produce the entire F.D. forms, in original for verification or in the alternative xerox of few F.D. receipts, on random basis of the parties as deemed fit by the AO, AO did not react. Apparently, at that stage task of obtaining the confirmation in respect of 1,462 parties was arduous one in view of the time available. In the light of these facts, especially when the AO did not undertake any independent inquiry in respect of any of the deposits, we are of the opinion that the taxpayer had discharged the initial onus laid down upon them and the AO did nothing to rebut the same. Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. reported in [1994] 205 ITR 98 [FB], has observed that an 18 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 enquiry by the Assessing Officer as to the existence or non-existence of the shareholder and about their creditworthiness is condition precedent for treating the cash credit as the income of the company. Similarly, inquiry by the AO was a condition precedent in the light of facts of the case enumerated above. In view of the foregoing , especially when no such enquiry was conducted by the Assessing Officer in this case, we have no alternative but to uphold the order of ld. CIT(A).
7. W e may ,however, reflect upon a submission made by the ld. AR on behalf of the taxpayer to the effect that the taxpayer had vide letter dated 15.3.2000 offered to p roduce the entire F.D. forms in original for verification or in the alternative xerox of few F.D. receipts, on random basis of the parties as deemed fit by the AO, i t is not controverted that no action was initiated by the AO. Instead it is now being argued that onus has not been discharged by the taxpayer. At the cost of repetition, in the present case details regarding deposits exceeding Rs. 20,000 each were available with the AO even when return was filed on 27.11.1997.No action was taken by the AO for more than two years nor the AO chose to make any inquiries. Even when the taxpayer suggested vide letter dated 15.3.2000 to identify deposits below Rs. 20,000 each in which case AO required evidence, no action was taken by the AO. Apparently, AO failed to react to the shifting of burden to investigate in to the creditworthiness of the depositors. Generally speaking, it is incumbent on the AO to manage his schedule in such a manner that he does not run out of time for discharging his duties cast on him by the statute. In the present case, even when details were furnished in respect of deposits exceeding Rs. 20,000 each along with return, he failed to initiate any inquiries. In respect of deposits below Rs. 20,000 each, despite being aware of the limitation of time, AO did nothing to verify such deposits even on random basis. Therefore, there is no infirmity in the findings of ld. CIT(A) and ground of appeal has to be dismissed. "
7. Considering the facts of the case as also the nature and mode of receipt of deposits , we are of the opinion that the aforesaid decision is squarely applicable to the facts obtaining in the year under consideration, especially when there is no material before us to controvert the findings of the ld. CIT(A) that the assesee had furnished complete details in December,2000 and the details of deposits exceeding Rs. 20,000 each were available with the tax audit report filed along with return. In these circumstances, we are not inclined to interfere with the findings of the ld. CIT(A) and accordingly, reject ground no.1 in the appeal.
19 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 ITA No.1704/Ahd/2002-AY 1998-99[ Assessee]
8. Now adverting to the assessee's appeal for the A.Y. 1998-99.Ground no.1 being general in nature nor any submissions having been made before us on this ground , this ground is dismissed.
9. Ground no.2 relates to an addition of Rs.31,355 out of total addition of Rs.4,28,587. The AO pointed out that notices u/s 133(6) of the Act issued to the following parties ,against whom liabilities were outstanding, were returned unserved:
(In Rs.) HCL Ltd. : 14,024/-
India Kingchicken & Engg. Centre : 16,590/-
Shri Sahjanand Construction : 16,590/-
Unicomp.Inds. Ltd. : 3,69,954/-
Sharma Enterprise : 11,429/-
Total :4,28,587/-
Despite confronting the assessee, vide ordersheet entry dated 7.3.2001, the assessee did not file any specific reply. Accordingly, the AO treated these liabilities non-genuine and added to the income.
9.1 On appeal, the assessee explained the circumstances leading to these outstanding liabilities .In the light of submissions of the assessee, the ld. CIT(Appeals) concluded as under:-
"6.4. I have considered these submissions. It is seen that balance in respect of M/s.Kingchickens Engg. Centre as per the books was only Rs.10,331/- and in respect of Sahjanand Construction,it is Rs.7,000/-.
In case of M/s.HCL Ltd. cheque of Rs.14,024/- was returned back, making thereby that nothing was payable by the appellant. The balance as per books in respect of M/s.Sahjanand Construction was only Rs.7,000/-. Thus addition of (Rs.10,331/- + Rs.7,000/- + Rs.14,024/-) = Rs.31,355/- is liable to be sustained.
6.5. However, balances in respect of M/s.Unicorp Industries Ltd and M/s.Sharma Enterprises are in respect of purchases made in Assessment Year 1995-96, and on these items depreciation is also being allowed by the Assessing Officer. Thus action of any was required to be taken in Assessment Year 1995-96, that too after 20 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 verification as M/s.Unicorp Industries Ltd is a known concern and payment has also been made to them in the succeeding year. Thus addition in respect of these two items is deleted and out of addition of Rs.4,28,587/- only a sum of Rs.31,355/- is confirmed.
9.2 The assessee is now in appeal against the aforesaid findings of the ld. CIT(A) and contended that the liabilities were genuine. Since these have not been written off in the books of account, these could not be added u/s 41(1) of the Act. In his connection, the ld. AR relied upon decisions in the case of CIT Vs, Sugauli Sugar Works P Ltd.,236 ITR 518(SC),CIT Vs,. Kesaria Tea Co. Ltd.,254 ITR 435(SC),CIT Vs. Southern Roadways,282 ITR 379Mad.) and Ahuja Graphic Machinery P Ltd.,109 ITD 71(Mum.). The ld. AR pointed out that liability of Rs. 14,024/- was outstanding since cheque issued to the aforesaid company was returned while the other two liabilities of Rs. 7,000 each were included in the separate addition of Rs. 44,92,185/- made by the AO .Thus, the amount was added twice.
10. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. Undisputedly, the liabilities of Rs. 31,355/- are outstanding in the books. Simply because notice u/s 133(6) was returned unserved, for whatever reasons, does not mean that the liabilities are not genuine. The liabilities could be added ,having resort to section 41(1) of the Act only if the liability of the assessee ceased finally without the possibility of reviving it. There is no evidence on record that the liability has ceased in this case nor the amount has been transferred to profit and loss account by the assessee and thus, the amount did not become the assessee's own money. In this connection, Hon'ble jurisdictional High Court in the case of CIT Vs.Silver Cotton Mills Co. Ltd.,254 ITR 728(Guj) held that simply because the period of limitation had come to an end for the purpose of filing a suit for recovery of the said amount or for taking appropriate action against the assessee, it cannot be said that there was a cessation of liability. The liability still remains, though it may not be enforceable at law on account of the provisions of the law of limitation. Relying upon the decision in the case of Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518.SC), Hon'ble jurisdictional High Court further held that unless there is a cessation of liability or there is a 21 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 remission of liability by the creditor, the liability subsists and, therefore, even if the entries are made to write back the expenditure, the amount so written back cannot be added in the income of the assessee as per the provisions of section 41(1) of the Act.
10.1 Hon'ble Supreme Court in the case of Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay, AIR 1958 SC 328, in para 23 of their decision observed as follows :
" 23. It has been already mentioned that when a debt becomes time barred, it does not become extinguished but only unenforceable in a court of law. "
10.2 In view of the foregoing, it is not, therefore, correct to hold that there was cessation of the liability of the assessee in respect of the said amount of Rs.31,355/- . In the instant case, the AO and the ld. CIT(A) have assumed that the assessee had no intention of honouring the liability on demand, from the mere fact that the concerned parties did not respond to notice u/s 133(6) of the Act. In these circumstances, we have no alternative but to vacate the findings of the ld. CIT(A) and the AO is directed to delete the addition. Therefore, ground no.2 in the appeal is allowed.
11. Ground no.3 relates to an addition of Rs.3,89,533 upheld by the ld. CIT(A) out of total addition of Rs.22,05,540/-. The AO noticed from the information collected by the AO u/s 133(6) of the Act that there was difference of Rs. 22,05,540/- on account of liabilities outstanding in their books vis-à-vis shown by the 15 parties in their books ,mentioned on page 8 of the assessment order,. Despite opportunity given by the AO vide ordersheet entry dated 7.3.2001, the assessee did not reconcile the difference. Accordingly, the AO added the amount of Rs. 22,05,440/-.
12. On appeal, the assessee contended that the difference in the amount reflected in the books of the assessee vis-à-vis books of the 15 parties mentioned by the AO arose due to various reasons.The assessee might not have considered certain bills because those were not accepted or bills might have not been received. In the light of these submissions, the ld. CIT(A) observed that the AO did not confront the information collected by him nor 22 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 specific differences were pointed out to the assessee while certain replies on record were not considered by the AO. The Ld. CIT(A) noticed that though M/s Chetan Medical Stores confirmed the balance, still the AO made the addition. After considering the reply of the assessee, the ld. CIT(A) concluded that in respect of seven parties as mentioned in para 7.7 of the impugned order, there was no difference while in respect of M/s Mercury Travels- Rs.6,672,M/s Novatel-Rs.17,505/-,Oberoi Bombay -Rs/87,146/- ,BPL Telecon Ltd. -Rs. 2,54,050/-,Shorilal Kapoor-Rs.864/-,Fitness Finders-Rs.8,260/-,Vijay Modi-Rs.15,016/-, total difference worked out to Rs.3,89,533/- remained unreconciled.Therefore, the ld. CIT(A) sustained the addition to this extent.
13. The assessee is now in appeal before us. The ld. AR on behalf of the assessee pointed out that though a detailed explanation was given before the ld. CIT(A) and it was explained that difference in the accounts of all the parties except Shri Vijay Modi being due to the higher figures returned by the concerned parties vis-vis-figures mentioned in the books, no addition can be made on that basis. Even in respect of difference in the account of Vijay Modi, no addition is possible since the liability is genuine. The ld. DR, on the other hand, relied upon the findings of the ld. CIT(A)
14. After hearing the parties, we are of the opinion that there is nothing to suggest that the liabilities relating to the seven parties mentioned by the ld. CIT(A) in the impugned order and referred to in para 12 above, are not genuine nor the ld. CIT(A) assigned any reasons for sustaining the addition. Simply because these liabilities remained unreconciled, does not prove that the liabilities are not genuine. In these circumstances and in view of reasons given in para 10 to 10.2 above, especially when there is nothing to suggest that the liabilities are not genuine, we have no alternative but to vacate the findings of the ld. CIT(A) and the AO is directed to delete the addition. Therefore, ground no.3 in the appeal is allowed.
15.. Ground no. 4 in the appeal relates to addition of Rs.1,16,130 sustained by the ld. CIT(A) out of total addition of Rs.48,72,502/-. During the course of assessment proceedings, the AO asked the assessee to submit 23 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 names, addresses and confirmations in respect of liabilities of Rs.48,72,502/- Since the assessee did not furnish the requisite details, the AO treated these liabilities as non-genuine and added to the income.
16. On appeal, the assessee contended that the amount of Rs.48,72,502 on account of other liabilities formed part of creditors of Rs. 61,03,645 ,for which the assessee had provided the relevant details. Since the assessee had provided names and addresses of all creditors exceeding Rs.10,000/- each, along with their letter dated 20.12.2000, the AO was not justified in adding the amount. It was further explained that the amount of Rs.48,72,502/- included an amount of Rs. 42.54 lacs on account of hotel expenditure tax, luxury tax, sales tax, PF, ESI, professional tax ,service tax, and similar other items of routine business liabilities. Barring Rs. 3.74 lacs due to American Express Bank Ltd., other small amounts related to reputed parties. While submitting details of Rs. 29,15,566.20 on account various statutory liabilities, the assessee explained that an amount of Rs.12,17,543/- was on account of provision for technical assistance fees payable to East India Hotel Ltd.. The balance amount represented advances received from customers against which bills were issued in subsequent period. The assessee added that the AO did not even call for details of Rs.88,536/- comprising amounts less than Rs. 10,000 each. In the light of these submissions, the ld. CIT(A) deleted the addition except in respect of two amounts of Rs. 56,130/- and Rs. 60,000 on the ground that these were unproved liabilities . The relevant findings of the ld. CIT(A) are a under:-
"8.8. I have carefully considered these submissions and I have also gone through the case records. It is seen that Assessing Officer had asked for details mainly in respect of such liabilities exceeding Rs.10,000/-. It is also seen that no notices under section 133(6) was issued the respect of any of the parties except one. Hence, no addition could be made when the appellant had submitted details as asked for. Besides this it is seen that apart from the sum of Rs.29.15 lakhs as listed on account of govt dues, there were certain other items too which could not have been disallowed for example East India Hotel Ltd to whom notice under section 13(6) was issued had asked for time. Hence, the Assessing Officer could not treat the amount of rs.12,17,543/- as unexplained liabilities. Similarly no addition could be made for membership fee of Rs.5,500/- other smaller amount shown as 24 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 advances from parties were in respect of bills raised later. Besides these except for 6.7 parties all had balances below Rs.10,000/-, which included parties like Corporation Bank, Gujarat Govt.etc. It is seen that only in respect of paid outs at Rs.56,130/- and other liabilities of Rs.60,000/- party wise details was not made available. Thus a sum of Rs.1,16,130/- is correctly disallowable as unproved liabilities. Hence out of Rs.48,72,502/- addition of rs.1,16,130/- is confirmed and the balance amount is deleted."
17. The assessee is now in appeal against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee in their written submission relied upon their arguments adduced in respect of issues raised in ground nos. 2 & 3 above while the ld. DR supported the findings of the ld. CIT(A).
18. We have heard both the parties and gone through the facts of the case. We find that the nature and details of amount of Rs. 56,130 and Rs. 60,000 are neither evident from the impugned orders nor the assessee either in their written submissions and even before us explained the nature of these liabilities. In the absence of relevant details, the ld. CIT(A) upheld the addition observing that liabilities are unproved. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issues raised in this ground afresh in accordance with law, after allowing sufficient opportunity to both the parties. The assessee is also directed to provide relevant details of these liabilities in order to enable the ld. CIT(A) to pass a speaking order. With these directions, ground no. 4 in the appeal is disposed of
19. Ground no. 5 relates to addition of Rs.4,82,759 sustained by the ld. CIT(A) out of total addition of Rs.44,92,185/-. Since the assessee did not furnish any details of Rs. 44,92,185/- nor addresses or confirmation of the parties to whom these liabilities related, the AO treated the entire amount as fictitious and added to the income. On appeal, the ld. CIT(Appeals) concluded as under:-
"9.3. I have considered the submission and I have also gone through the case records. I find that details along with address of parties in respect of items exceeding Rs.10,000/- was furnished by the appellant 25 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 as asked by the Assessing Officer. The Assessing Officer did not issue notices under section 133(6) in respect of all the parties. Hence in respect of items below Rs.10,000/- and cases where no notices were issued, there was no justification of any additions. Similarly where time was sought by the parties there was no justification for addition as regular transactions with these parties was being carried out. Similarly, certain parties had sent confirmations.
In view of the facts narrated above in respect of the creditors (TTA) amounting to Rs. 44,92,185/- the following position would emerge:
Total creditors (TTA) 44,92,185 Less : (i) Creditors each of less than Rs.10,000 379245
(ii) Liabilities provided as per (a) above 1862525 [Tips-Rs.19,649,Salary-Rs.2,65,067, telephone bills-Rs.5,42,702, electricity dues-Rs.10,35,107]
(iii) General Cashier Reimbursement 46373
----------
22,88,143 22,04,042 Less: Balance for which no notice was issued By A.O. out of above Rs.22,04,042 9,76,483
-------------
Balance for which notices were sent by A.O. 12,27,559
Less: Balances confirmed by creditors 66,351
------------
Balance 11,61,208
Less :
Diff. In a/c. of Vijay Kumar Modi
50465 - 15016 = 35,449
Double addition India Kitchen King 10,331
Balance of M/s. Elcon Finlease
(Assessed with same Assessing Officer) 22,280
Cases where time was sought by the
Recipients of notices
(E.I.H. Group) 5,80,081 6,48,141
Balance Rs. 5,13,067
9.4 Besides this certain replies were received b y the Assessing
Officer and actual difference from the accounts was as under:
Oberoi Grand 19,447
Western Sales 10,861
30,308 5,13,067
26 IT A N o. 257 7/ A h d/ 20 0 3 &
IT A N o. 170 4 & 1 98 2/ A hd /20 0 2
30,308
4,82,759
If this is deducted the balance amount remaining unconfirmed works out to Rs.(Rs.5,13,067 - 30,308) = Rs.4,82,759/-. As the appellant did not explain this discrepancy either of the time of assessment or at the time of appellate proceedings, addition to the extent of Rs.4,82,759/- is upheld and the balance is deleted."
20. The assessee is now in appeal against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee in their written submission relied upon their arguments given in respect of issues raised in ground nos. 2 & 3 above while the ld. DR supported the findings of the ld. CIT(A).
21. We have heard both the parties and gone through the facts of the case. We find that the nature and details of amount of 4,82,759/- are neither evident from the impugned orders nor the assessee either in their written submissions and even before us explained the nature of these liabilities and the discrepancy. In the absence of relevant details , the ld. CIT(A) upheld the addition observing that discrepancy is not explained. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issues raised in this ground afresh in accordance with law, after allowing sufficient opportunity to both the parties. The assessee is also directed to provide relevant details of these liabilities and explain the discrepancy in order to enable the ld. CIT(A) to pass a speaking order. With these directions, ground no. 5 in the appeal is disposed of ITA No.2577/Ahd/2003-AY1999-2000[ Revenue]
22. Adverting now to the appeal of the Revenue for the AY 1999-2000, facts, in brief, as per relevant orders are that the return declaring loss of Rs.3,71,45,666/- filed on 31/12/1999, after being processed u/s 143(1) of the Income-tax Act,1961[hereinafter referred to as the 'Act'] was taken up for scrutiny. During the course of assessment proceedings, the Assessing Officer [AO in short] asked the assessee to furnish complete names and addresses of the persons against whom current liabilities of Rs.3,09,24,609/- were outstanding. Though the AO allowed a number of opportunities, vide notice 27 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 dated 24.12.2001, 20.2.2002 and vide ordersheet entry dated 28.2.2002 , the assessee did not file the relevant details ,despite seeking adjournments until 22.3.2002. Accordingly, relying upon his own findings for the AY 1998-99, the AO added an amount of Rs.2,67,62,429/-, treating the same as non-genuine.
22.1. Similarly, the assessee did not file confirmations in respect of unsecured loans of Rs.2,17,29,472/-, despite notice dated 24.12.2001, 14.2.2002 and request made vide ordersheet entry dated 28.2.2002. Since the assessee neither filed any confirmation nor established creditworthiness of the creditors, the AO added the entire amount of Rs.2,17,29,472/-.
23. On appeal, the assessee contended the addition has been made without any basis whatsoever, either in law or on facts. The A.O. has taken A.Y. 98- 99 as the basis wherein similar additions were made. List of other liabilities aggregating to Rs.71.51 lacs furnished to the A.O. included (i) dues to other group companies which were assessed by him (ii) all the remaining items were on account of statutory dues such as TDS, ESI, expenditure tax, luxury tax, sales tax, professional tax, etc. which were bound to arise in the normal course of appellant's business. The assessee pointed out that the AO himself observed that a large number of creditors constituting the aggregate amount of current liabilities this year included only 'some parties in respect of which "adverse findings' had been given in the assessment order for 1998-99. The audit report under section 44AB of the Act, included the required particulars of each loan or deposit covered under sections 269SS/269T of the Act. As regards addition of Rs.2,17,29,472/-, the assessee contended the quantum of addition represents the closing balance of fixed deposits and unsecured loans as appearing in the balance sheet. Out of fixed deposits of Rs.2,06,26,000/-, fresh deposits received during the year amounted to Rs.91,47,000/- though the A.O. made the addition of entire fixed deposits. The assessee furnished confirmation in respect of unsecured loan of Rs.11,03,472/- of Shree Jalaram Metals Pvt.Ltd. also with party's account showing PAN.
24. In the light of aforesaid submissions, the ld. CIT(Appeals) concluded as under while deleting the two additions ::-
28 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 "5. I have carefully looked into the submissions made by the appellant and also gone through the assessment order. The appellant submitted that details regarding current liabilities appearing in the balance sheet were filed as under:-
(a) A statement giving broad break-up of the different components of current liabilities.
(b) List of creditors for capital goods.
(c) List of creditors for operating supplies
(d) List of creditors for expenses
(e) List of parties from whom securities were retained.
(f) List of other liabilities.
Similar information was also supplied to the A.O. vide letter dated 19.2.2002 by the appellant. The question is whether the A.O. could make addition on the ground that the liabilities were found bogus or fictitious or non-genuine by him. In my opinion, the A.O. had ample time to conduct necessary inquiries independently and make suitable addition in respect of those items which were found to be bogus instead of making an adhoc addition or a lumpsum addition. The appellant had supplied all the details regarding the liabilities appearing in the balance sheet at the end of the accounting period. The very basis of addition is that several letters u/s.133(6) of the Act were received back and version of some parties differed. In this regard, the A.O. could confront the above facts before the appellant and accordingly, seek reconciliation or confirmation. The addition of Rs.35,27,689/- on account of retention security deposits has been deleted in A.Y. 98-99 by the CIT(A)-I, Ahmedabad. In view of these facts, the addition of Rs.2,67,62,429/- on account of current liabilities is deleted."
"6. The second ground relating to addition on account of loans or deposits received during the year to be disposed off with regard to the submissions of the appellant in the aforesaid paras. The manner in which such a huge addition is made by the A.O. cannot be appreciated at all. The concluding para of the assessment order is all a sweeping statement made by the A.O. The A.O. has not applied his mind while making addition of Rs.2,17,29,472/- in that he did not bother even of the components or even of the confirmation filed by the appellant. The sweeping conclusion that confirmations could not be filed by the appellant, hence the only option before the A.O. was to make the above addition. There is fairly ample time with the A.O. before completing the assessment when he can make independent inquiries about the new creditors. The A.O. has not even bothered to ascertain whether the amounts of loans or deposits were received in cash or by way of cheque or draft so that his suspicion regarding genuineness or creditworthiness 29 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 would have been satisfied. The A.O. has not only made addition of the fresh deposits but the entire amount of deposits appearing in the balance sheet of the appellant. In the light of aforesaid discussion, the A.O. was not satisfied in making such an addition on account of loans or deposits for which no independent inquiry was made by him. The CIT(A)-I, Ahmedabad vide his order No.CIT(A)-I/CC.1(3)/151/01-02 dated 28.03.2002 has deleted similar addition in A.Y. 1998-99. Thus, the above addition of Rs.2,17,29,472/- is deleted."
25. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A). As regards addition of Rs.2,17,29,472/- , the ld. DR reiterated their submissions in relating ton a similar addition on account of unexplained deposits in the AY 1998-99 [c.f. para 5 above ] and supported the findings of the AO in respect of two additions. The ld. AR ,on the other hand, relied upon the order of the ITAT dated 23.5.2008 for the AY 1997-98 so far as addition of Rs.2,17,29,472/- is concerned. As regards other addition on account of current liabilities of Rs.2,67,62,429/- , the ld. AR conceded that the since the impugned order of the ld. CIT(A) is not a speaking order, matter may be restored to his file for readjudication.
26.. We have heard the rival submissions and gone through the facts of the case. As regards addition of Rs.2,67,62,429/-,we find that the learned CIT(A) has neither analysed the facts in detail nor recorded his specific findings on the nature of the aforesaid liabilities. In these circumstances, we find merit in the contentions of the ld. AR that the ld. CIT(A) has not passed a speaking order. We are of the opinion that the application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision. As is apparent from the impugned order, in our opinion, the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The requirement of recording of reasons and communication thereof by the quasi-judicial authorities has been read as an integral part of 30 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 the concept of fair procedure and is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. We may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)]. In this connection following observations of the Hon'ble Bombay High Court in the case of Anusayaben A Doshi& Others Vs. JCIT And Another,177 CTR 218(Bom.), are relevant:
"It is needless to emphasise that the order or judgment should be self- explanatory. It should not keep the higher court guessing for reasons. Reasons provide a live-link between conclusion and evidence. That vital link is the safeguard against arbitrariness, passion and prejudice. Reason is a manifestation of the mind of the court or Tribunal. It is a tool for judging the validity of the order. It gives an opportunity to the higher court to see whether the impugned order is based on reasons and that the reasons are based on adequate legal and relevant material. Giving reasons is an essential element of administration of justice. A right to reasons is, therefore, an indispensable part of a sound system of judicial review. Reasoned decision is not only for the purpose of showing that the citizen is receiving justice, but also a valid discipline for the authority itself. Therefore, stating of reasons is one of the essentials of justice. In this case, the appellate authority being the final authority on the facts was obliged to appreciate the evidence, consider the reasoning of the primary or lower authority and assign its own reasons as to why it disagreed with the reasons and findings of the primary or lower authority. Unless adequate reasons are given, merely because it is an appellate authority it cannot brush aside the reasoning or finding recorded by the lower authority."
26.1 In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order ,we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issues raised in ground no. 1 afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these directions, ground no. 1 is disposed of.
27. As regards addition of Rs.2,17,29,472/-, we are of the opinion that the facts and circumstances in the year under consideration are similar to the 31 IT A N o. 257 7/ A h d/ 20 0 3 & IT A N o. 170 4 & 1 98 2/ A hd /20 0 2 facts obtaining in the AYs 1997-98 and 1998-99. Undisputedly and as found by the ld. CIT(A), the AO did not apply his mind while making addition of Rs.2,17,29,472/- nor even ascertained the details of deposits taken in the year under consideration. The A.O. has not only made addition of the fresh deposits but the entire amount of deposits appearing in the balance sheet of the assessee. Apparently, the AO was not justified in making addition on account of deposits received in the preceding years. The deposits for an amount of Rs.91,47,000 alone are stated to have been received in the year under consideration. In the light of aforesaid decision dated 23.5.2008 of the ITAT for the AY 1997-98 in the assessee's own case, referred to in para 6 above, since facts and circumstances are similar to facts obtaining in the AY 1997-98 and 1998-99 while there is no apparent justification for addition made by the AO for an amount Rs.2,17,29,472/-, we have no hesitation in upholding the conclusions of the ld. CIT(A). Therefore, ground no.2 in the appeal of the Revenue is dismissed.
28. Ground nos. nos. 2 & 3 in the appeal of the Revenue for the AY 1998- 99 and ground nos. 3 & 4 in the appeal of the Revenue for the AY 1999-2000 and as also ground no. 6 in the appeal of the assessee, being general in nature, do not require any separate adjudication while no additional ground having been raised in terms of residuary ground no.7 in the appeal of the assessee, all these grounds are dismissed.
29. In the result, appeal of the Revenue for the AY 1998-99 is dismissed while appeal of the assessee for the AY 1998-99 is allowed, but partly for statistical purposes, as aforesaid and the appeal of the Revenue for the AY 1999-2000 is partly allowed for statistical purposes.
Order signed, dated and pronounced in the Court on 24th July,2009.
Sd/- Sd/-
( MAHAVIR SINGH) ( A.N.PAHUJA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; 24th July,2009
32 IT A N o. 257 7/ A h d/ 20 0 3 &
IT A N o. 170 4 & 1 98 2/ A hd /20 0 2
Copy of the Order forwarded to :
1. The Assessee
2. The ACIT, Central Circle-1(3),Ahm edabad
3. The CIT Concerned
4. The ld. CIT(Appeals)-I Ahmedabad / CIT(Appeals)-II, Ahmedabad
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER, स×याǒपत ूित //True Copy// (Dy./Asstt.Registrar), ITAT, Ahmedabad