Income Tax Appellate Tribunal - Ahmedabad
Shri Ajay Jaysukhlal Mehta,, Ahmedabad vs The Acit, Circle-10,, Ahmedabad on 28 September, 2018
ITA No. 1329/Ahd/2014
Ajay Jaysukhlal Mehta Vs. ACIT
Assessment Year: 2009-10
Page 1 of 5
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD 'B' BENCH, AHMEDABAD
[Coram: Pramod Kumar AM and Mahavir Prasad JM]
ITA No.1329/Ahd/2014
Assessment Year: 2009-10
Ajay Jaysukhlal Mehta ........................Appellant
Prop. of Jay Jewellers,
116, Super Mall, Nr. Lal Bunglow,
CG Road, Ahmedabad
[PAN: AAFPM 9793 D]
Vs.
The Asstt. Commissioner of Income-tax .....................Respondent
Circle-10, Ahmedabad
Appearances by
Aseem L Thakkar, for the Appellant
Mudit Nagpal, for the respondent
Hearing concluded on: 02.07.2018
Order pronounced on : 28.09.2018
O R D E R
Per Pramod Kumar, AM:
1. By way of this appeal, the assessee-appellant has challenged correctness of the order dated 28th February 2014 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2009-10.
2. Grievance of the assessee, in substance, is that, on the facts and in the circumstances of the case, learned CIT(A) erred in upholding the addition of Rs.1,85,64,955, as unexplained credit, being amounts transferred to the Capital Account of M/s. Jay Jewellers by the appellant - despite specific findings, in favour of the assessee, in the remand report given by the Assessing Officer.
3. The issue in appeal lies in a rather narrow compass of material facts. During the course of scrutiny assessment, the Assessing Officer noted that the assessee is sole proprietor of Jay Jewellers and his capital account showed credit of Rs.1,85,64,955 but capital account of the assessee, in his personal accounts, reflected closing balance of only Rs.43,16,557. The credit entry of Rs.1,85,64,955 was thus treated as unexplained, and added to the income of the assessee under section 68. Aggrieved, assessee carried the matter in appeal before the CIT(A) and pointed out that the assessee was maintaining separate set of books of accounts for himself, as distinct from the books of accounts of his sole proprietorship concern Jay Jewellers. Therefore, in substance, comparison of his personal capital account with the capital account of jewellers was meaningless; what should have been seen was the accounts of Jay Jewellers in his personal account vis-a-vis his capital account in the proprietorship concern. In response to the submissions, which included above plea as well, the matter was ITA No. 1329/Ahd/2014 Ajay Jaysukhlal Mehta Vs. ACIT Assessment Year: 2009-10 Page 2 of 5 referred back to the Assessing Officer who accepted the plea and, inter alia, observed as follows:-
"After detailed verification of the contents furnished by the assessee and forwarded along with the Remand Repot, the following situation emerged. • The Opening balance of Shri Ajay Jaysukhlal Mehta is Rs. 11,74,233/- and closing balance of Rs 2,33,87,956/-.
• Equally, jay jewellers has credit of Rs.11,74,233/- and debit of Rs.2,33,87,954/-
• Thus, Rs. 2,33,87,954/- the said amount became an advance of the assessee in his personal books which has been reflected in the balance sheet under asset with a mention of balances with proprietary Jay Jewellers of Rs.2,33,87,955/-.
• Thus the sources of such alleged capital in the personal books stands explained"
4. The Assessing Officer, nevertheless, made some other observations with respect to inadequacy of capital, which are not really relevant for the present purposes, as follows:-
"The assessees balance sheet as on 31.03.2009 shown a total of Rs.8,95,74,579/-.The balance in capital account shows is Rs.43,16.656/- whereas unsecured loans constitute Rs. 8,52,58,022/- which obviously the balance sheet and liabilities side with the properties, Fixed Assets, Investments, Advance, deposits of the assessee has mentioned in the balance sheet. Thus, Rs.2,33,87,955/- was treated as an advance which was invested out of the unsecured loans and incidentally the balance of capital account shown at Rs. 43,16,557/- which includes the receipts occurred during the F.Y. like direct remuneration of Rs.1,95,000/- and profit from proprietary concern of Rs.36,74,590/-. It is dear that the assessee conveniently diverted all the loans towards the advances deposits, investments diversion of funds has occurred for accumulating the assets. So in view of the above facts the appeal may be decided on the merits based on the facts stated above."
5. It was in this backdrop that the CIT(A) confirmed the addition of Rs.1,85,65,955 by observing as follows:-
""4.3 A perusal of the above remand report shows that the AO is in agreement with the contention of the appellant that the original AO has possibly committed a mistake of understanding and appreciation of facts while making the impugned addition. The AO has thus submitted that there is no discrepancy in the contra figures appearing in ledger accounts of Jay Jewellers being proprietary business of Ajay S Mehta and ledger accounts of Ajay S Mehta in his individual capacity. The AO has however also indicated towards a diversion of funds from one entity to another. On careful consideration of the peculiar facts of the case and the evidence available on records, it is noted that the views of the AO given in the remand report that the addition made by the AO is based upon some misunderstanding of facts cannot be accepted. In the instant case, the AO has made addition u/s. 68 as the sources of capital introduction of Rs.1,85,64,955/- in the books of one Jay Jewellers being proprietary business of appellant i.e. Ajay S ITA No. 1329/Ahd/2014 Ajay Jaysukhlal Mehta Vs. ACIT Assessment Year: 2009-10 Page 3 of 5 Mehta remained unexplained. True, there exists some typographical mistakes in the figures adopted by the AO however the same would not be a grave misconduct so as to warrant deletion of the entire addition. In this case there are two sets of accounts which have been examined. Thus, one set pertains to one Jay Jewellers which is proprietary business of appellant i.e. Ajay S Mehta and other set pertain to appellant i.e. Ajay S Mehta in his individual capacity. On examination and consideration of evidence on records, it is noted that the books of appellant i.e. .Ajay S Mehta in his individual capacity are being used to act as a conduit to justify transactions in Jay Jewellers which is proprietary business of appellant i.e. Ajay S Mehta. Thus, capital account of Jay Jewellers shows introduction of capital of Rs. 1,85.64,955/-. The source of the same is reported to be from the capital account of Ajay S Mehta maintained in his individual capacity. The balance sheet of Ajay S Mehta (Indl capacity) as on 31-3-2009, shows that an amount of Rs. 8,52,58,022/- was received as unsecured loans from various sources in private and institutional domain. It is interesting to note that out of above an amount of Rs.7,91,19,400/- was received from one single private person. The hypothesis of appellant actually acting as a conduit for somebody, is further evident from the fact that even though the appellant has taken unsecured loans of Rs. 8,52,58,022/- there are no major interest outgoings on such huge loans taken by the appellant in its personal books. Thus, loans received by Ajay S Mehta (Indl capacity) were partly diverted to be shown as capital in the hands of Jay Jewellers.
4.4 The appellant has argued that there is no justification for making the addition since the capital introduction in the case of Jay Jewellers was fully explained. The question which however remains is that does it than absolve the appellant of any onus u/s. 68 or not. It is an admitted fact of this case that Jay Jewellers and Ajay J Mehta are not two separate entities but are one and same. Hypothetically conceding, for the sake of argument only, on present facts capital introduction in the case of Jay Jewellers, could have been accepted as genuine if, Ajay S Mehta was a separate taxable entity. Section 68 of the Act provides that a credit appearing in the books of accounts of an assessee for which no explanation about the nature, source thereof is offered would be treated as income of the assessee for that previous year. Now in the instant case, the assessee is not Jay Jewellers but the assessee is appellant i.e. Ajay J Mehta. Since the business of Jay Jewellers is done by the appellant in the proprietary capacity therefore the appellant is required to furnish to the A O all the necessary evidences u/s.68. Merely by saying that the capital introduction in Jay Jewellers has come from appellants individual books would not suffice more so because the appellant was not having requisite own funds in the previous year under consideration in his personal capital account. The very fact that the capital introduction in the books of Jay Jewellers in reality relate to a loan in appellants personal books makes the appellant liable for submission of all the information and evidences required u/s.68. Thus, the appellant was required to have established the identity, creditworthiness and genuineness of transaction in respect of loans taken in the personal account. The appellant may take argument that the same were never required by the AO and that he merely attempted to investigate capital introduction in the books of Jay Jewellers. This argument would be irrelevant for two reasons firstly, because the credits inquired by the AO were linked to loans obtained in personal capacity and hence the onus of proving the same was upon the appellant and secondly because AO was making the assessment of Ajay J Mehta and not Jay Jewellers. It is an undisputed fact of record that no evidence ITA No. 1329/Ahd/2014 Ajay Jaysukhlal Mehta Vs. ACIT Assessment Year: 2009-10 Page 4 of 5 what so ever has been provided by the appellant u/s. 68 in respect of loans of Rs. 8,52,58,022/-, to which capital introduction of Rs.1,85,65,955/-.in the case of Jay Jewellers is linked either during the assessment proceedings or even curing the current appellate proceedings. Consequently, it is clear that the amount of Rs. 1,85,65,955/- represents an amount of credit in the books of appellant which remains unexplained within meanings of section 68. Accordingly, the addition made by the ld. AO of Rs.1,85,65,955/- u/s 68 representing unexplained capital introduction is confirmed and the second ground of appeal is therefore dismissed."
6. The assessee is not satisfied and is in further appeal before us.
7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
8. Let us first understand the case of the Assessing Officer. His short point was that since capital shown to have been introduced in the capital account of Jay Jewellers does not find corresponding entries in the capital account of the assessee and are in fact much more than capital account credit in the hands of the assessee, and, therefore, the introduction of capital in the accounts of Jay Jewellers stands unexplained. This point, as noted in the remand report, is fallacious. The assessee has one set of accounts for himself, as an individual, and the other set of accounts for his sole proprietorship concern, Jay Jewellers. It is indeed true that the assessee and his sole proprietorship concern are one unit so far as taxability under the Income Tax Act 1961 is concerned, but, viewed from the accounting perspective, the maintenance of such separate books of accounts are perfectly in order. In such a situation, the capital account of the assessee in his accounts, and capital account of Jay Jewellers, in the name of assessee, cannot be mirror image of each other - as the Assessing Officer erroneously expected these accounts to be. This comparison was incorrect. In a situation in which assessee and it's proprietorship concern are maintaining separate books of accounts - as in the present case, an assessee may have his own capital of 'x' amount, and yet his capital contribution in capital account of a proprietorship concern can be more than 'x' amount because such funding of capital can be not only out of own capital but out of other available funds as well. The Assessing officer should have compared the capital account of the Jay Jewellers, with the account of Jay jewellers in the hands of the assessee, it's proprietor. We have compared these two accounts, which are placed before us at page 5 and 6 of the paper book, and these two accounts are actually mirror images of each other. In these circumstances, as rightly accepted by the Assessing Officer in the remand proceedings, the capital introduction of Rs.1,85,65,955/- stands explained in the books of Jay Jewellers.
9. Learned CIT(A) has, however, given it a different twist. He has noted that the assessee has, in his personal books of accounts, accepted unsecured loans of Rs.8,52,58,022/-, including an amount of Rs.7,91,19,400/- from Harshad Jewellers, and "the assessee was required to have established their identity, creditworthiness and genuineness of transactions in respect of loans taken in the personal account." That, however, was not the case of the Assessing Officer nor any requisition in respect of the same was made at the assessment or appellate stage. The addition under section 68, in such a case, should have been made for Rs.8,52,58,022/-, and not Rs.1,85,65,955/- - as is the situation in the present case. What is before us is the addition of Rs.1,85,65,955/- and that credit is reasonably explained and even admitted to be so by the Assessing Officer. Learned CIT(A) has mentioned about the need of verification ITA No. 1329/Ahd/2014 Ajay Jaysukhlal Mehta Vs. ACIT Assessment Year: 2009-10 Page 5 of 5 about the creditors of Rs.8,52,58,022/- but made no additions in respect of the same. It cannot be open to us to enlarge the scope of proceedings at this stage, or deal with an aspect in respect of which no additions are made. So far as the addition impugned in this appeal is concerned, and that is what we are concerned with, it is explained and we delete the related additions of Rs.1,85,65,955/-.
10. In view of the above discussions, and bearing in mind entirety of the case, we delete the impugned addition of Rs.1,85,65,955/-. As we do so, we may also add that learned counsel has filed copies of confirmations in respect of Rs.8,52,58,022/- and pointed out how all this material was duly submitted at the assessment stage, but then we are not inclined to deal with the same on merits at this stage. We leave it at that.
11. In the result, the appeal is allowed.. Pronounced in the open court today on the th 28 September, 2018.
Sd/- Sd/-
Mahavir Prasad Pramod Kumar
(Judicial Member) (Accountant Member)
Dated: 28 th September, 2018
Bt*
Copies to: (1) The appellant
(2) The respondent
(3) CIT
(4) CIT(A)
(5) DR
(6) Guard File
By order
True Copy
Assistant Registrar
Income Tax Appellate Tribunal
Ahmedabad benches, Ahmedabad
1. Date of taking dictation: ...order prepared as per 8 pages manuscripts of Hon'ble AM, which are attached ...28.09.2018.........
2. Date of typing & draft order placed before the Dictating Member: ...28.09.2018..............
3. Date on which the approved draft comes to the Sr. P.S./P.S.: .........28.09.2018.......................
4. Dt. on which the fair order is placed before the Dictating Member for Pronouncement: ......28.09.2018......
5. Date on which the file goes to the Bench Clerk:.......28.09.2018...............
6. Date on which the file goes to the Head Clerk: ..........................
7. The dt. on which the file goes to the Astt. Registrar for signature on the order: .........................
8. Date of despatch of the Order: ........................