Income Tax Appellate Tribunal - Amritsar
Satpal Singh, , Amritsar. vs Assessee on 21 January, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.250(Asr)/2010
Assessment year:2001-02
PAN :
M/s. Amritsar Rice Mills Pvt. Ltd. vs. Asstt. Commr. of Income Tax,
Tarn Taran Road, Amritsar. Circle-III, Amritsar.
(Appellant) (Respondent)
ITA No.248(Asr)/2010
Assessment year : 2001-02
PAN:ABBPS8626A
Sh. Satpal Singh, vs. The Income Tax Officer,
Amritsar. Ward 5(4), Amritsar.
(Appellant) (Respondent)
ITA No.249(Asr)/2010
Assessment year : 2001-02
PAN:AFJPS9572D
Sh. Amandeep Singh, vs. The Income Tax Officer,
Amritsar. Ward 5(1), Amritsar.
(Appellant) (Respondent)
Appellant by:Sh.Ashwani Kalia, CA
Respondent by:Sh.Mahavir Singh, DR
2 ITA Nos. 250,248 & 249(Asr)2010
Date of hearing: 21/01/2014
Date of pronouncement:30/01/2014
ORDER
PER BENCH ;
These three appeals of three different assesses arise from three different orders of CIT(A), Amritsar, each dated 15.03.2010 for the assessment year 2001-02. The assesses in the said three appeals have raised following grounds of appeal:
ITA No.250(Asr)/2010 - M/s. Amritsar Rice Mill Pvt. Ltd. AY 2001-02 "1. That the Ld. CIT(A) has erred in dismissing the appeal on technical ground for want of defect in appeal in not depositing prescribed fee through prescribed challan and not removing the defect on account of no PAN with the company.
2. That the Ld. CIT(A) has erred in confirming the action of the AO about reopening of the assessment u/s 148 of the Income Tax Act, 1961 and has also erred in holding that the AO had valid reason to believe & reopen the case.
3. That the Ld. CIT(A) has erred in holding that there was a valid service of notice u/s 148 of the Act and in fact, there was no valid service as per section 282 of the Income Tax Act, 1961.
4. That the Ld. CIT(A) while disposing of ground No. 2.2/3 has erred in holding that the notice and its service issue through S.Hardev Singh is valid. The Ld. CIT(A) has further erred in holding that once a valid service of the notice was made, the legal obligation is cast on the director(s) to comply with the requirement of law.
5. That while disposing of ground No.4 of the appeal in which the assessee has objected that the return signed and filed by 3 ITA Nos. 250,248 & 249(Asr)2010 S.Hardev Singh who is neither director nor holding any position in the company is not a valid return and assessment thus made is had in law and invalid. In this respect the ld. cIT(A) has erred in giving his findings that "the return filed by the company is not the only basis for making assessment by the AO. Even if the return is treated as invalid as contended by the appellant, the AO is empowered under the law to pass assessment u/s 144 of the Act without taking cognizance of the return filed by the appellant. The AO has sufficient material with him to proceed with the ex-parte.
Rather the AO has been generous in not treating the return filed by the company as invalid on the basis of so-called foot note of Sh.Hardev Singh."
6. The Ld. CIT(A) has further erred in giving the findings and dismissing the above mentioned ground of appeal by stating that it was not the duty of the AO to prove that Sh.Hardev Singh was not the director or shareholder of the company. Rather, the legal obligation is cast on the appellant to establish by filing the copies of necessary declaration/forms filed before the Registrar of Companies that he was not the director or shareholder at the relevant time.
7. That the ld. CIT(A) while disposing ground No.5 of appeal has erred in giving his findings that in the case of the appellant assessment was framed under section 143(3) r.w.s. 147 of the Act after issue of notice u/s 148 of the Act. Hence, the ground of appeal is dismissed as the provisions of section 176 are not applicable in this case of the appellant.
8. That the Ld. CIT(A) has erred in upholding addition of RS.86,57,700/- out of addition of RS.91,70,200/- made by the AO as unexplained money u/s 69A on account of cash deposited in the company's bank with Union of Bank of India.
9. That the Ld. CIT(A) has erred in not considering the fact that despite evidence produced by the appellant company with regard to availability of stock, sale proceeds thereof and other assets of the company is not accepted by the AO as the 4 ITA Nos. 250,248 & 249(Asr)2010 company failed to produce the sale bills of having sold the stock and other assets.
10. That addition and other contentions in the aforesaid paras has been upheld by the CIT(A) against the facts and circumstances of the case and by not considering out submissions properly.
11. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off." ITA No.248(Asr)/2010 - Sh. Satpal Singh, Amritsar.AY 2001-02 "1. That the Ld. CIT(A) has erred in confirming the action of the AO in initiating reassessment proceedings and subsequently completing assessment in pursuant to notice u/s 148 of the Act which is bad in law.
2. Notwithstanding the ground of appeal in para No.1 above, it is submitted that the ld. CIT(A) has erred in giving his findings that this was not the case of inheritance of the property which was sold and on which capital gain was leviable) and does not qualify as HUF property.
3. That the Ld. CIT(A) has erred in giving his findings that though the property in question admittedly was purchased in the name of the members/co-parceners of the family but same cannot be considered as HUF property as no evidence was produced before him or before the AO that the same was purchased out of HUF funds.
4. That the Ld. CIT(A) has not considered the fact which is not denied in the remand report that the appellant inherited the property in question which stood mortaged by the previous owners during their life time and whi8ch stood mortaged by the previous owners during their life time and the appellant after inheriting the same, has discharged the mortgaged dbet. That as such the amount paid by the appellant for the purpose of clearing off the mortage is to be regarded as cost of acquisition under section 48 read with the section 55(2) of the Act. This proposition of the law is laid down by the Hon'ble Apex Court 5 ITA Nos. 250,248 & 249(Asr)2010 in the case of Arunachalam (RM) vs. CIT (1997) 227 ITR 222(SC). As such findings given by the ld. CIT(A) that this is also not a case of inheritance of property so as to attract the judicial ruling in the case of Arunachalam and Daksha Raman Lal (supra) on page 12 of this order is against the facts of the case.
5. That the findings as given/addition as upheld by the ld. CIT(A) in the aforesaid paras are against the facts and circumstances of the case and by not considering our submissions properly.
6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off." ITA No.249(Asr)/2010 - Sh. Amandeep Singh, Amritsar.
"1. That the Ld. CIT(A) has erred in confirming the action of the AO in initiating reassessment proceedings and subsequently completing assessment in pursuant to notice u/s 148 of the Act which is bad in law.
2. Notwithstanding the ground of appeal in para No.1 above, it is submitted that the ld. CIT(A) has erred in giving his findings that this was not the case of inheritance of the property (which was sold and on which capital gain was leviable) and does not qualify as HUF property.
3. That the Ld. CIT(A) has erred in giving his findings that though the property in question admittedly was purchased in the name of the members/co-parceners of the family but same cannot be considered as HUF property as no evidence was produced before him or before the AO that the same was purchased out of HUF funds.
4. That the Ld. CIT(A) has not considered the fact which is not denied in the remand report that the appellant inherited the property in question which stood mortgaged by the previous owners during their life time and whi8ch stood mortgaged by the previous owners during their life time and the appellant 6 ITA Nos. 250,248 & 249(Asr)2010 after inheriting the same, has discharged the mortgaged debt. That as such the amount paid by the appellant for the purpose of clearing off the mortgage is to be regarded as cost of acquisition under section 48 read with the section 55(2) of the Act. This proposition of the law is laid down by the Hon'ble Apex Court in the case of Arunachalam (RM) vs. CIT (1997) 227 ITR 222(SC). As such findings given by the ld. CIT(A) that this is also not a case of inheritance of property so as to attract the judicial ruling in the case of Arunachalam and Daksha Raman Lal (supra) on page 12 of this order is against the facts of the case.
5. That the findings as given/addition as upheld by the ld. CIT(A) in the aforesaid paras are against the facts and circumstances of the case and by not considering our submissions properly.
6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off."
2. Since the issues involved in all the appeals are inter-connected, therefore, all the appeals are being taken up together by this consolidated order for the sake of convenience.
3. First of all, we take up appeal of the assessee in the case of M/s. Amritsar Rice Mills Pvt. Ltd in ITA No.250(Asr)/2010 for the A.Y. 2001-
02. The brief facts of the case are that the assessee company was incorporated in the year 1984 and was engaged in the Rice Sheller business. The business of the company was discontinued after 1994 due to financial adversities. The AO received a report from the ADIT (Inv.) Amritsar vide 7 ITA Nos. 250,248 & 249(Asr)2010 letter No. ADIT/Inv/Asr/2006-07/867 dated 11.09.2006 wherein it was reported that there was a Tax evasion Petition against Sh. Tarlochan Singh Narang in which it was alleged that one property of the directors of the company situated at Tarn Taran Road, Amritsar was sold by Sh. Tarlochan Singh Narang, Chairman of M/s. Amritsar Rice Mills Pvt. Ltd. T.T.Road, Amritsar for a consideration of Rs.1.63 crores but the deal was shown for Rs.50 lacs only. The ADIT(Inv.) conducted enquiry and concluded that the land located at T.T.Road, Amritsar and sold belonged to the directors of the company namely, Sh. Sat Pal Singh S/o Sh. Tarlochan Singh, Sh. Amandeep Singh S/o Sh. Tarlochan Singh, R/o 194, Basant Avenue, Amritsar and Sh. Hardev Singh S/o Sh. Bishan Singh, B-3, Gujjaranwala Town, Delhi. The assessee company was availing credit /loan facility from Union Bank of India, Majith Mandi, Amritsar and the bank approved a relief proposal in which the company was required to pay a sum of Rs.190 lacs against the outstanding amount of Rs.591.48 lacs. The ADIT (Inv.) collected the copy of bank account of assessee from the Union Bank of India in which amount of Rs.1,61,00,287/- was deposited during the period from February 2001 to May 2001 including the cash of Rs.91,07,200/- deposited in the month of February and March 2001. As per the evidences collected from the bank in the form of cash deposit slips, the above cash was deposited in the bank 8 ITA Nos. 250,248 & 249(Asr)2010 account by Sh. Tarlochan Singh and Sh. Sat Pal Singh as the pay in slips bore their signatures. During the course of inquiry by the ADIT, Sh. Tarlochan Singh submitted that the company closed its business operations in 1994 and there were no transactions after that. The sales tax number was surrendered and cancelled on 31.03.1997. No Income Tax return of the company was filed after 1994. As regards source of cash deposits in the bank account of company, he submitted that the whole process of sale of property between buyers and sellers was through the bank and he was not resent in the said process. The ADIT, therefore, concluded that Sh. Tarlochan Singh had given evasive reply and his statement was false despite the fact that cash was deposited by him in the bank account of company. Thereafter, the ADIT recorded the statement of Sh. Sat Pal Singh on 20.06.2006 in which he submitted that the cash was deposited by his staff and the source of such cash was from borrowings, sale of property, stocks and also form realization from debtors and machinery etc. However, he could not produce any evidence in support of above submissions. In further statement dated 04.07.206, he submitted that the amount of said cash was received from the sale of 3400 qtls of basmati rice valued at Rs.66 lacs and hypothecated/pledged with bank . It was further submitted that bank filed a case in the Debt Recovery Tribunal, Jaipur ion 1996 and the lower court 9 ITA Nos. 250,248 & 249(Asr)2010 appointed the Commissioner to check the quantity of stock. In the meantime, the whole stock was removed with intention to settle the bank account in 1997. The appointed local commissioner gave the report that the stock had been removed by the party and the stock of only 15 Kg of rice and 200 bags of paddy was found. When this fact came to the knowledge of bank, the bank filed complaint with police and criminal proceedings in the court. Since Shri Sat Pal Singh did not admit the receipt of on money on sale of properties and the submissions regarding source of cash from the sale of stocks etc. was not backed by any evidence as there was also long gap between removal of stock from the godown and deposit of cash in the bank account, the ADIT concluded that the cash deposit in the bank account was from unaccounted sources requiring appropriate action by the AO as per the provisions of the Act.
3.1. In view of the above findings and the fact that assessee did not file the return of income, the AO recorded the reasons and submitted proposal for seeking approval for issue of notice u/s 148 of the Act vide letter No. ACIT/C-III/Asr/2007-08/4238 dated 24/26/03/2006 to the JCIT Range-III, Amritsar, who vide his letter No. JCIT/C-III/Asr/2007-08/4239 dated 26.03.2008 accorded the approval for issue of notice u/s 148 of the Act. Accordingly, vide letter No. ACIT/R-III/Asr/2007-08/4248/4250 dated 10 ITA Nos. 250,248 & 249(Asr)2010 26.03.2008, notice u/s 148 of the Act was issued on 26.03.2008, which was duly served upon the assessee on 28.03.2008. In compliance to the notice, the assessee furnished return of income on 09.06.2008 declaring nil income. The assessee objected to the proceedings u/s 148 of the Act. The AO dealt with the objection vide order dated 02.12.2008. The AO, thereafter asked the assessee for compliance and to explain the source of cash deposits with material evidences and to furnish the documentary evidences in respect of sale of current assets and stock etc. The assessee vide letter dated 02.12.2008 requested the supply of copies of the statements of all persons, copy of the relevant bank statement, copy of relevant pay-in-slip and any other information/document being used against the assessee for the purpose of assessment. The AO supplied the copy of bank account, pay in slips, statements of Sh.Tarlochan Singh and Sh. Sat Pal Singh and relevant part of the report of ADIT. The assessee made written submissions as under:
"That there is no doubt that the company in 1994 had its stock placed with the bank as well as hypothecated being 3,304 qtls. of rice and 21,358 Kg of paddy the inventory was prepared and criminal case on account of breach of trust by the director was launched by the bank. It is under compelling reasons assets of the company were sold to various parties subsequently in a clandestine manner with the object 11 ITA Nos. 250,248 & 249(Asr)2010 to clear the amount due to the bank and the monies were realized from time to time, year to year and kept apart to settle the bank account.
Thus, the existence of the stock, debtors, machinery and Ugrahi cannot be denied. It is only the question of producing evidence and dates sequences of the events for which documentary evidences are neither available nor could be preserved with us at this later date.
That is criminal complaint, Union Bank of India has stated that on 31.3.1994 the accused pledged with the bank 3,304 qtls of basmati rice having value of Rs.66,08,000/- thus, it would be seen that broadly the company was in position to collect funds, realize monies and deposit the same into bank account being Rs.87,89,487/- as computed in para 1 above.
That it is stated in absence of relevant records which was neither maintained nor available at this date and point of time we are unable to furnish the books, sale wills and other information/documents in support of the sale of assets and monies realized therefore, during 1994 till their deposit date in bank it is after closure of business realization process were carried on and money collected and kept apart and later on deposited with companies bank account to settle 12 ITA Nos. 250,248 & 249(Asr)2010 it. In view of the same, the amount of the sale proceeds deposited are not unexplained as is alleged. It is not unexplained deposits but proceeds of the assets in which low income has been earned by the company."
Thereafter, the assessee neither furnished books of account nor any documentary evidence to explain the source of cash deposits of Rs.91,07,200/-. The AO, therefore, passed the order making addition of Rs.91,07,200/- u/s 69A of the Act relying on the ratio laid down in the case of Amal Kumar Chakraborty (207 ITR 376 (Cal) wherein it was held that the amount of fixed deposits in a bank was assessable u/s 69A of the Act as the income from undisclosed sources where no satisfactory explanation was offered and the assessee gave the divergent statements at the various stages.
4. Before the Ld. CIT(A), the assessee submitted written submissions which are available at pages 6-7 of CIT(A)'s order which were sent to the AO for remand report and the AO submitted the remand report dated 20.01.2010 which is reproduced at pages 8 to 11 of CIT(A)'s order. A copy of the remand report was provided to the assessee, who submitted further comments which are reproduced at pages 11 & 12 of CIT(A)'s order in para 5.2.
13 ITA Nos. 250,248 & 249(Asr)2010
5. The Ld. CIT(A) vide para 6 of his order dismissed the appeal of the assessee on technical ground, which para 6 is reproduced for the sake of convenience as under:
"6. I have carefully considered the submissions of ld. counsels for the appellant and gone through the material placed before me as well as various judicial rulings relied on by the appellant. It is seen from the appeal papers that the appellant has not paid the prescribed fee in the prescribed manner. The appellant has enclosed a cheque bearing No.023351 for Rs.1000/- issued from Axis Bank. The fee is required to be paid through prescribed challan. In the very first hearing on 19.11.2009 this defect was pointed out to the ld. counsel for the appellant. However, this defect in appeal has not been rectified which is stated to be on account of no PAN with the company. Hence, the appeal is not maintainable and liable to be dismissed on this technical ground alone. The appeal is accordingly dismissed. However, without prejudice to the above, the appeal is also decided on merits taking into consideration various legal and factual grounds taken up by the appellant.
6. Thereafter, the Ld. CIT(A) upheld the initiation of reassessment proceedings by rejecting the ground of the assessee in paras 6.1 & 6.2. at pages 12 to 16 of his order.
7. The Ld. CIT(A) on merit also upheld the action of the A.O. vide para 6.6 at pages 19-20 except allowing relief of Rs.4,50,000/- mentioned in his order. The said para 6.6. of Ld. CIT(A) at pages 19-20 is reproduced for the sake of convenience as under:
14 ITA Nos. 250,248 & 249(Asr)2010
"6.6. The ground in para 3(1), 3(6) and 3(7) relate to the addition made by the AO on account of unexplained deposit u/s 69 of the Act. The fact that cash of Rs.91,07,200/- was deposited in the bank account of company in the Union Bank of India during the accounting period 2000-01 is not in dispute. Further, the fact that cash was deposited by Sh. Tarlochan Singh and Sh. Sat Pal Singh is also not in dispute as the pay in slips bore their signatures. Strangely, these two persons could not explain the source of cash in the first instance during the inquiry. The fact that the company closed its business operations in 1994 and the sales tax number was surrendered and cancelled on 31.03.1997 is also not in dispute. No income tax return of the company was filed after 1994. The company had mounting bank liability and was required to pay a sum of Rs.190 lacs against the outstanding amount of Rs.591.49 lacs as per settlement with the bank in the year 2001. Sh. Sat Pal Singh has given contrary replies before the ADIT during the inquiry. In the first statement on 20.06.2006 the cash was stated from borrowings, sale of property, stocks, realization from debtors and machinery etc. but on 04.07.2006, the cash was stated to be received from the sale of 3400 qtls of basmati rice valued at Rs 66 lacs and hypothecated/pledged with the bank. The said stock was removed in 1997 and commissioner gave the report that the stock had been removed by the party and the stock of only 15 kg of rice and 200 bags of paddy was found which led to criminal proceedings against the assessee in the court. The assessee during the course of inquiry before the ADIT did not produce even a single evidence to support the fact that the cash was from sale of stock etc. Same was the position before the AO when neither any evidence nor books of account were produced. It is beyond any comprehension that sale proceeds of stock admittedly removed in 1997 shall not be deposited in bank immediately to reduce the mounting liability of interest on huge loan. Since the assessee has not led any evidence to support the cash deposit in the bank account, the AO was fully justified in treating the cash deposits as unexplained deposits and making addition u/s 69A of the Act. Hence, the action of the AO is upheld. This is also an admitted fact that the land belonging to three co-owners was sold to Balbir Kumar Bajaj and family for a consideration of Rs.61,01,800/-. The verification of deposits by cheques in the bank a/c of the company reveals that the total amount deposited at RS.57,51,800/- was received from them leaving a difference of Rs.4,50,000/-. The statement of Sh. Sat Pal was also recorded on oath on 25.03.2008 by the then ITO, 15 ITA Nos. 250,248 & 249(Asr)2010 Ward 5(4), Amritsar, in which he deposed that the amount of Rs.1,41,287/- was deposited in the account of M/s. Amritsar Rice Mills Pvt. Ltd. by FDR in from M/s. Preety Knitting Mills by way of advance for land situated at Hamidpur, Haryana in his name. The amounts of Rs.6,27,000/- and Rs.4,73,000/- were deposited by Mr. Kuldip Singh and Sh. Simarit Singh as advance towards land property situated at Chattiwind Gate which was in the name of his mother Smt. Mohinder Kaur and other partners. Thus, it is established from the facts that the amount deposited by chques in the bank a/c of company as received from Sh. Balbir Kumar Bajaj group was Rs.57,51,800/-. The assessee during the course of assessment proceedings contended that a cheque of Rs.4,50,000/- was received from the Bajaj group in the name of Sh. Sat Pal Singh which was deposited in his bank a/c and cash withdrawn there from was deposited in the bank a/c of the company. Since the amount to this extent was not deposited by cheque in the bank a/c of company although declared in the sale deeds, a reasonable inference would be that cash to the extent of Rs.4,50,000/- has been deposited out of the cash withdrawals against the cheque of Rs.4,50,000/-. Since the above reconciliation is based on facts, the relief to the extent of RS.4,50,000/- is allowable and the addition of Rs.86,57,200/- is sustainable. However, the appeal has been dismissed on technical ground, this is only of academic importance. The appellant has further submitted that under the law there cannot be any multiple additions of the same amount. However, the submissions of assessee in this regard are misplaced. There are always two parties to a transaction. The additions on account of unaccounted income in the hands of recipients and unexplained investment in the hands of other person can be legally made if the nexus of the transaction is established in the facts and circumstances of a particular case."
8. The Ld. counsel for the assessee, Mr. Ashwani Kalia, CA, at the outset with regard to the dismissal of the appeal of the assessee in ground No.1 argued that the Ld. CIT (A) has never issued any defect memo and also nothing has been mentioned or brought to the knowledge of the assessee 16 ITA Nos. 250,248 & 249(Asr)2010 while handing over the remand report to the assessee. Secondly, the ld. counsel for the assessee argued that it is a demand draft of Rs.1000/- which was deposited with the Ld. CIT(A) favouring the Income Tax Department and it was not a Cheque as stated by the ld. CIT(A) in his order. It is also pertinent to mention that the said demand draft f Rs.1,000/- has not been returned to the assessee , which is still lying with the ld. CIT(A). 8.1. He also argued that in order to remove defect, further Rs.1,000/- was deposited on proper challan as filed before the Ld. CIT(A) and copy of the receipted challan, copy of demand draft and covering letter placed on record as part of the paper book before the Bench. Accordingly, there is no defect in filing the appeal. Therefore, the ld. CIT(A) is not justified in dismissing the appeal on technical ground only.
9. The Ld. JCIT(DR), Mr. Mahavir Singh, on the other hand, argued that the amount has not been deposited as fees in the proper challan and therefore, the order of the ld. CIT(A) is correct and prayed to uphold the order of the A.O.
10. We have heard the rival contentions and perused the facts of the case. It was brought to our notice as also arisen from the record that the assessee was not having any PAN and therefore, demand draft was deposited with the ld. CIT(A) as prescribed fee for admitting the appeal before him. The said 17 ITA Nos. 250,248 & 249(Asr)2010 demand draft was not deposited by the Income Tax Department in the absence of PAN of the assessee. In fact, the assessee has discharged its onus by paying Rs.1,000/- to the Income Tax Department. Moreover, if there was any defect, the ld. CIT(A) could have issued a defect memo which was never done and nothing has been placed on record by the Revenue in this regard. Though the appeal is decided on merits also, the assessee has already deposited another Rs.1,000/- for which challan is there with the Income Tax Department and the appeal should not have been dismissed. Accordingly, we cancel the order of the Ld. CIT(A) in para 6 of the said order. Thus, ground No.1 of the assessee is allowed.
11. As regards grounds No. 2, 3, 4, 5, 6 & 7, the same are withdrawn by the ld. counsel for the assessee and accordingly, the same are dismissed as withdrawn.
12. As regards grounds No. 10 & 11, the same are general in nature and therefore, do not require any adjudication.
13. As regards grounds No. 8 & 9, the ld. CIT(A) has upheld the addition made by the AO in para 6.6, which has been reproduced hereinabove.
14. The Ld. counsel for the assessee argued that it was explained to the AO as well as the ld. CIT(A) that the amount was deposited in the bank out of sale proceeds of stock of rice and paddy which was lying pledged and 18 ITA Nos. 250,248 & 249(Asr)2010 hypothecated with the bank as well as realization of other movable assets like fixtures, machinery, ugrahi etc. by the company. It was further submitted that the existence of stocks of rice and paddy and other assets cannot be denied as is evident from the criminal complaint and the criminal suit filed by the bank alleging the removal of stocks by the company which was lying pledged with it. Both the AO and the CIT(A) did not believe the explanation of the assessee simply on the ground that no sale bills or books of account were produced and also on the ground that it is beyond comprehension that sale proceeds of stock in year 1996 was kept in hand and was not deposited in the bank immediately. In rebuttal to the above contention, it is submitted that business of the assessee company was lying closed for the last more than 3 years and there was no staff with the company. The sale of stock was made under extremely dire and difficult conditions and no sale bill could be issued due to the fact that the sale tax registration had already been cancelled by authorities and moreover, the stock was removed clandestinely which was pledged with the bank. The sale proceeds were not deposited in the bank immediately on its sale as it would not have served any purpose and would have been total waste for to the assessee company without arriving at settlement with the bank. It is on record that the company later on got huge relief on account of waiver of 19 ITA Nos. 250,248 & 249(Asr)2010 interest as the bank liability of Rs.3.06 crore was settled for Rs.1.90 crore. It will be appreciated that the company's business was lying closed for the last several years and company had no other means except the sale proceeds of stocks and other movable assets. There were absolutely no other means of funds with the company. The Ld. counsel further stated that the AO has not been able to point out or bring any evidence on record to show that the company had any other source of income from which the said deposit was made in the bank nor the AO has brought any other evidence on record that the sale proceed of stock was utilized anywhere else. The company had already closed don its business completely more than 6 years back and was lying defunct. There was no other source of money with the company. It is pertinent to mention here that the AO made addition of above amount also in the hands of two directors of the company, namely Satpal Singh and Amandeep Singh and a guarantor S.Hardeep Singh on the ground that the cash deposited in the bank was on the money received by them on sale of their properties which were hypothecated to bank over and above the sale price mentioned in the sale deed. Not only that addition of this amount was also made in the hands of buyers of the properties for alleged underhand payment. The existence of stocks and other assets could not be denied and this is also a fact that the company has no other means to deposit the above 20 ITA Nos. 250,248 & 249(Asr)2010 amount. Accordingly, the additions made by the AO and confirmed by the CIT(A) is absolutely without any basis. In this regard, it was submitted that the AO has not denied the existence of stock of paddy and basmati rice available with the assessee, pledged/hypothecated with the bank. In fact para 4 at page 3 of the assessment order refers to a criminal comp0laint filed with the bank against the assessee stating that the company had pledged with the bank as on 31.3.1994, stock of 3304 qtls. of basmati rice of the value of Rs.6608000. Besides, there was a huge stock of paddy available with the assessee as on 31.3.1994. The balance sheet of the company for the year ended 31.3.1994 also showed sundry debtors and other assets like Debtors, Furniture and Machinery etc. The AO has not made any enquiry with the bank to find out the present position of stock pledged with the bank. In other words, there is no evidence brought on record to show that the said stock was still available with the assessee. There is absolutely no mention in the assessment order that sale proceeds of the stock and realization of other current assets had been utilized elsewhere. Thus, the submissions of the assessee with regard to the source of deposits in the bank account remain unrebutted. Since the addition has been made in the reassessment proceedings; the onus was squarely on the revenue to establish that there was escape of income. Reliance in this regard is placed on the judgment of 21 ITA Nos. 250,248 & 249(Asr)2010 Hon'ble Allahabad High Court in the case of Tin Mfg. Co. of India vs. CIT (1996) 222 ITR 323. The AO could not have made the addition merely on the ground that the no sale bill etc. was produced in support of the contention and deposits were made out of sale proceeds of stock and realization of current assets. Without prejudice and independent of the above view, it is submitted that existence of stock and current assets as on 31.3.1994 stand established. It is not the claim of the department that stock position shown in the books of account as on 31.3.1994 was bogus. If the view that the stock was sold during the financial year relevant to Asstt. Year in appeal is not accepted, the only presumption remains is that it was sold in the earlier assessment years still to that extent cash was available with the assessee. The source of the deposits in the bank account is still liable to be accepted by allowing the benefit of telescoping the investment in the bank deposits against the cash available of earlier assessment years. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of Anantha Ram Veera Singhaiah & Co. vs. CIT 123 ITR 457 where it was held that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even through concealed, from which the assesse may draw subsequently for meeting expenditure or introducing amounts in his account books. The court has gone to the extent of saying that 22 ITA Nos. 250,248 & 249(Asr)2010 even intangible addition made to income in the earlier assessment years can be pressed into service to explain un-explained investment/expenditure in the subsequent years.
14.1. The ld. counsel for the assessee further submitted that in the present case since there is no material brought on record to show that stock available with the assessee was still available with the assessee or sale proceeds were utilized elsewhere in the earlier assessment years, the assessee is perfectly justified in explaining the source of the bank deposits out of such sale proceeds. He also placed reliance on the judgment of P & H High Court in the case of CIT vs. Prem Chand Jain 189 ITR 320 where it was held that past intangible additions made in the earlier assessment years could be considered for explaining the source of investments made in the subsequent assessment years. The Hon'ble High Court relied on the judgment of Apex Court in the case of Anantha Ram Veera Singhaiah & Co. vs. CIT (supra). The Ld. counsel further invited our attention to the decision of Hon'ble Rajasthan High Court in the case of Tyaryamal Balchand 165 ITR 453 where it was held that benefit of telescoping has to be allowed to the assessee for explaining the source of investment. The Ld. counsel further relied upon the following judgments of ITAT, Amritsar Bench where the benefits of telescoping has been allowed:
23 ITA Nos. 250,248 & 249(Asr)2010
i) ACIT vs. Ravinder Singh in ITA No.21(Asr)/2004
ii) ITO vs. Harsimran Textiles in ITA No.329(Asr)/2003
iii) Bishamber Dass Hari Krishan v. ITO ITA No.127(Asr)/2001 In view of the above submissions, the ld. counsel submitted that the source of bank deposits stand explained and there is no scope of making the impugned addition and prayed the Bench to delete the addition so made.
15. The Ld. DR, on the other hand, relied upon the orders of both the authorities below.
16. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the stock of rice and paddy was lying pledged/hypothecated with the Bank. The assessee has claimed that the sale proceeds of stock of rice and paddy which were lying pledged and hypothecated with the bank as well as realization of fixtures, machinery, ugrahi etc, were deposited in cash. The existence of stocks of rice and paddy has not been denied. This fact is evident from the criminal complaint and the criminal suit filed by the bank alleging the removal of stocks by the company which was lying pledged with it. As regards the evidence that the assessee has not produced any material with regard to the sale of stock , as has been mentioned hereinabove, the assessee was having stock of rice and paddy and other assets though they were removed by the assessee without 24 ITA Nos. 250,248 & 249(Asr)2010 permission of the bank. Therefore, in the absence of any adverse evidence on record, inference can be drawn that the stock available with the assessee was deposited in the bank. It is not the claim of the revenue that the stock position declared as on 31st March, 1994 was bogus. The allegation of the AO that the own money received by the assessee has been deposited in the bank which is without any basis and therefore, the findings of the authorities below being without any basis and addition so made is directed to be deleted. Accordingly, the explanation given by the assessee is found to be satisfactory and the cash deposited in the absence of any adverse evidence on record, the same is found to be out of sale of the stock pledged and hypothecated alongwith realization of other assets like fixtures, machinery, urgrahi etc. The AO is not justified in making addition on the similar amount being own money in the hands of two directors of the company namely Sh. Satpal Singh and Sh. Amandeep Singh. Thus, additions so made are directed to be deleted. Hence, grounds No. 8 & 9 of the assessee are allowed. The appeal of the assessee in ITA No.250(Asr)/2010 is partly allowed.
17. Now, we take up appeals of the assessees in the case of Sh. Satpal Singh & Sh. Amandeep Singh, where grounds are identical and accordingly, we take up appeal in the case of Sh. Satpal Singh in ITA No.248(Asr)/2010 25 ITA Nos. 250,248 & 249(Asr)2010 as under and our decision hereinbelow shall be identically applicable in the case of Sh.Amandeep Singh, ITA No.249(Asr)/2010.
18. The brief facts of the case are that the return of income declaring income of Rs.48,050/- was filed on 20.01.2002, which was processed u/s 143(1) of the Act. As per information received from ADIT (Inv.) Amritsar, the assessee and two other co-owners had sold immovable property in Feb., 2001 and deposited a sum of Rs.1,61,00,287/- in the bank account of M/s. Amritsar Rice Mills (P) Ltd. Tarn Taran Road, Amritsar. This property was purchased for Rs.15,00,000/- in 1989. Assessee had 1/3rd share in the said property and the assessee had not disclosed any long term capital gain on the sale of the said property. Later on, the case was reopened u/s 147 after recording reasons and with the prior approval of the Addl. Commissioner of Income Tax, Range-V, Amritsar, as conveyed vide letter No.13117 dated 13.12.2007. The notice u/s 148 of the Act was issued on 13.12.2007 and served upon the assessee on 18.12.2007. In response to the notice u/s 148, the assessee filed the return of income on 18.03.2008 declaring same income as shown in the original return. Assessee requested for supply of a copy of reasons recorded which was also supplied by the AO. Thereafter, the assessee was issued notice u/s 142(1)/143(2) and questionnaire dated 14.11.2008. The assessee replied to the questionnaire and thereafter, AO 26 ITA Nos. 250,248 & 249(Asr)2010 passed the following order, which is reproduced for the sake of convenience as under:
The A.O. thereafter, held there was no denying the fact that the assessee alongwith two other co-owners i.e. Amandeep Singh & Hardev Singh owned land situated at Tarn Taran Road, Amritsar and have sold the same through nine registration deeds and deposited Rs. 1,61,00,087/- in the bank account of Amritsar Rice Mills (P) Ltd. The A.O. supported the above facts from a letter dated 08.02.2002 submitted by Shri Satpal Singh, Managing Director, of M/s Amritsar Rice Mills to the Union Bank of India, wherein Shri Satpal Singh submitted that he had deposited Rs. 1.61 Crores within stipulated time and that had been possible only of sale proceeds of the title deeds released by the bank. A Copy of the letter dated 08.03.2002 submitted by Shri Satpal Singh to the bank is re-produced below:
"Apropos to the compromise, against which we were supposed to deposit Rs. 1.50 Crore by 31.03.2011 and Rs. 35.50 Lacs by 31.03.2002 we have deposited Rs. 1.50 Crore + Rs. 11.00 lacs within stipulated time. This deposits form 87% of the total compromised amount and payment of which has been possible only out of the sale proceeds of the title deeds released by the bank."
In order to hold that the land was sold for Rs. 1.61 Crores, the A.O. found support from the Hon'ble I.T.A.T. Pune's decision in the case of Dhunjibhoy Stud & Agricultural Farm Vs. DCIT (2002) reported in 82 ITD 18, where the Hon'ble I.T.A.T. has held as under:
"There cannot be any direct evidence for receipt of 'on money' obviously no sane person would admit that he is receiving 'on money. But this fact can be established by facts and attended circumstance of a particular case."
The A.O. further relied on the decision of Hon'ble supreme Court in the case of Durga Prasad More reported in 84 ITR 540; wherein it has been held that the I.T. authorities are entitled to look into the surrounding circumstances to find out the reality. The A.O., therefore, concluded from the above facts that the source of the case deposits in 27 ITA Nos. 250,248 & 249(Asr)2010 bank account of M/s. Amritsar Rice Mills (P) Ltd. was form the sale of land. This sale of land has not been reflected in the return of income of either the directors/co-owners of the land in their individual return of income or in the return of the company M/s. Amritsar Rice Mills (P) Ltd., Amritsar and they have not paid tax on the capital gain on the sale of land. As per the statement of Shri Satpal Singh recorded by the Investigation Wing on 04.07.2006, the said land has been purchased for Rs. 15,00,000/- in the year 1989. This land was admeasuring 12750 sq. yards and the assessee's share as per copy of memorandum of family settlement comes to 6414 sq. yards. The cost price of the same worked out at Rs. 7,45,590/- with the indexed cost Rs. 17,81,206/-. The total land measuring 12750 sq. yards was sold for Rs. 1,61,00,281/- and the sale price of 6414 works out at Rs. 80,99,390/-. The A.O. therefore, made addition of Rs. 63,18,184/- as long term capital gain. Aggrieve by the order of the A.O., the appellant has filed the present appeal.
19. Before the ld. CIT(A), assessee's AR made the submissions which were sent to the AO for report and after having remand report of the AO., the same was provided to the assessee who also rejoined the same.
20. The Ld. CIT(A) rejected the legal grounds raised by the assessee and observed that the properties were purchased in the name of the family members as individual not as HUF and the assessee has not substantiated that these properties were purchased out of funds of HUF and this is not a case of inheritance. The assessee placed reliance on the decision of Hon'ble Supreme Court, in the case of CIT vs. Arunachalam 227 ITR 222 (SC), as mentioned in the order of the ld. CIT(A).
28 ITA Nos. 250,248 & 249(Asr)2010
21. As regards the taxability of taxable capital gains, the ld. CIT(A) finally observed that property belonging to the HUF cannot be taxed in the individual hands of the assessee and allowed the appeal of the assessee partly. The findings of the ld. CIT(A) at page 14 of his order are reproduced for the sake of convenience as under:
"In view of the above findings, the AO was not justified in assessing the capital gains by taking the sale consideration at Rs.1,61,00,281/-. The appellant alongwith two other co-owners has sold the property for a consideration of Rs.62,01,800/- as per the registered sale deeds. I, therefore, direct that the amount of Rs.62,01,800/- should be considered as sale consideration for the purpose of capital gain. The appellant before me has submitted that the long term capital gain in his case works out to Rs.17,11,680/- with the indexed cost of acquisition of Rs.15,05,505/- and his share of sale consideration at Rs.32,17,185/-. However, in the assessment order, the AO has taken the indexed cost of acquisition at Rs.17,81,206/-. The AO is therefore, directed to verify these factual aspects and re-compute the long term capital gain accordingly. The grounds of appeal on the issue of additions made are therefore, partly allowed."
22. The Ld. counsel for the assessee, Mr. Ashwani Kalia, CA argued that the AO has made the addition of the light amounts in the case of M/s. Amritsar Rice Mills Pvt. Ltd as well as in the case of Sh. Satpal Singh and Amandeep Singh and there cannot be a double taxation. Moreover, the assessee has already denied of having received any own money which is a matter of record and therefore, the ld. CIT(A) is not justified in taking the adverse view. Accordingly, the decisions relied upon by the A.O. and ld. 29 ITA Nos. 250,248 & 249(Asr)2010 CIT(A) are not applicable in the present facts and circumstances of the case. He further argued that the impugned properties were inherited by the various persons including assessee. In fact, these properties were purchased by the Joint Hindu family in the name of various co-parceners and which were mortgaged in favour of Union Bank of India, Majith Mandi, Amritsar for availing credit limits by M/s. Amritsar Rice Mills Pvt. Ltd; on 30.10.1989 and after dispute between the co-parceners of Joint Hindu Family, settlement was made on 25.10.1992 which is a matter of record. Thereafter, family settlement went to the Court of Senior Sub Judge, Amritsar and Court passed decree on 17.11.1992. Therefore, the property at Tarn Taran Road, Amritsar, inherited on the partition of the bigger HUF, devolved on the HUF of the assessee. Accordingly the capital gain of the assessee cannot be taxed in the individual's hands of the assessee.
23. Further, the ld. counsel for the assessee argued that in the remand report, the AO has clearly mentioned that the assessee has inherited the said property which stood mortgaged by the previous owner during his life time and the assessee after inheriting the same, has discharged the mortgaged debt. Thus, as such the amount paid by the assessee for the purpose of clearing of the mortgage is to be regarded as cost of Acquisition u/s 48 read with section 55(2) of the Act. This proposition of the law is laid down 30 ITA Nos. 250,248 & 249(Asr)2010 by the Hon'ble Supreme Court in the case of CIT vs. Arunachalam 227 ITR 222 and accordingly the assessment made is not in accordance with law and prayed to delete the addition by considering the said payment as cost of Acquisition.
24. The Ld. DR, on the other hand, relied upon the orders of both the authorities below.
25. We have heard the rival contentions and perused the facts of the case. As regards the legal ground, as ground No.1, we find no infirmity in the order of the ld. CIT(A) in para 6 on the issue of reopening of the assessment in view of the decision of the Hon'ble Punjab & Haryana High Court in the case of Shri Paul Jain (26 ITR 540) that the proceedings initiated on the basis of report from the Investigation Wing are valid. Accordingly, ground No.1 of the assessee is dismissed.
26. As regards grounds No. 2, 3 & 4 are concerned, in the remand report, the AO has clearly mentioned that this is a case of inheritance of property and there change in the ownership and therefore, this fact cannot be denied and therefore, the submissions of the assessee in para 5.2 of the CIT(A)'s order are found to be convincing and therefore, the amount paid by the assessee for the purpose of clearing of the mortgage is to be regarded as cost of acquisition u/s 48 read with section 55(2) in view of the decision of 31 ITA Nos. 250,248 & 249(Asr)2010 Hon'ble Supreme Court in the case of CIT vs. Arunachalam 227 ITR 222 (surpa). The AO is directed to allow relief to the assessee accordingly and re-compute income accordingly. As held in the case of M/s. Amritsar Rice Mills Ltd and also hereinabove, there cannot be a double taxation and therefore, the capital gains declared by the assessee as per sale deed is directed to be accepted. Accordingly, grounds No.2,3 & 4 of the assessee are allowed.
27. Grounds No. 5 & 6 are general in nature, therefore, do not require any adjudication.
28. The appeal of the assessee in ITA No.248(Asr)/2010 is partly allowed.
29. Now, we take up appeal of the assessee in the case of Sh. Amandeep Singh, in ITA No.249(Asr)/2010. The facts in the present appeal are identical to the facts in the appeal of Sh. Satpal Singh vs. ITO in ITA No.248(Asr)/2010 decided by us hereinabove. As mentioned hereinabove, our decision in the case of Sh. Satpal Singh vs. ITO in ITA No.248(Asr)/2010 is identically applicable in the present appeal in the case of Sh. Amandeep Singh in ITA No.249(ASsr)/2010 and accordingly, the present appeal is partly allowed.
32 ITA Nos. 250,248 & 249(Asr)2010
30. In the result, all the three appeals of different assesses in ITA Nos.250(Asr)/2010, ITA No.248(Asr)/2010 & ITA No.249(Asr)/2010 are partly allowed.
Order pronounced in the open court on 30th January, 2014.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30th January, 2014
/SKR/
Copy of the order forwarded to:
1. The Assessees:i) M/s. Amritsar Rice Mills Pvt. Ltd. Amritsar. (ii) Sh. Satpal Singh (iii) Sh. Amandeep Singh,Amritsar
2. The ACIT Cir.III/ITO 5(4)/ ITO 5(1), Asr.
3. The CIT(A), Amritsar.
4. The CIT, Amritsar.
5. The SR DR, ITAT, Amritsar.
True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar