Income Tax Appellate Tribunal - Hyderabad
Gayatri Associates, Hyderabad vs Department Of Income Tax on 10 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNA L
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1026/Hyd/2010
Assessment year 2005-06
The Income Tax Officer vs. M/s. Gayatri Associates
Ward-10(2) Secunderabad
Hyderabad PAN: AAFFG6635E
Appellant Respondent
Appellant by: Smt. Amisha S. Gupt
Respondent by: Sri S. Rama Rao
Date of hearing: 10.01.2013
Date of pronouncement: 11.03.2013
O R D E R
PER CHANDRA POOJARI, AM:
This appeal by the Revenue is directed against the order of the CIT(A), Tirupati dated 28.4.2010 for assessment year 2005-06.
2. The grievance of the Department in this appeal is with regard to deletion of addition of Rs. 64,00,000 made towards unexplained cash credits u/s. 68 of Income-tax Act, 1961.
3. Brief facts of the issue are that the assessee is engaged in the business of disposal of liquidated industrial undertakings. The Assessing Officer while completing assessment u/s. 143(3) of the Act noticed that the assessee has received unsecured loans from the following parties:
2 ITA No. 1026/Hyd/2010M/s. Gayatri Associates ================== S. No. Name Amount (Rs.) Remarks
1. Padmavathi 12,00,000 Loan
2. K. Venubabu 8,00,000 Advance
3. J.S. Chowdary 4,00,000 Advance
4. P. Sailaja 1,61,335 Advance
5. P. Sailal 6,38,665 Advance
6. P. Sridevi 8,00,000 Advance
7. Venkateswar Rao 16,00,000 Advance
8. New Smile 8,00,000 Advance Total 64,00,000
4. As the assessee failed to establish the identity, credit- worthiness and genuineness of the transactions before the Assessing Officer, the Assessing Officer treated the same as unexplained cash credit u/s. 68 of the Act.
5. On appeal, the CIT(A) observed that the assessee furnished addresses and bank accounts of the respective parties. He observed that the Assessing Officer without examining the parties has rejected explanation of the assessee. According to the CIT(A), the assessee has discharged the initial burden cast upon it. The CIT(A) called for a Remand Report from the Assessing Officer. In the remand proceedings, the Assessing Officer confirmed the fact that the assessee has furnished bank accounts through which the transactions took place in respect of four parties out of 8 parties and in respect of the other four parties the assessee failed to produce bank accounts. After considering the Remand Report, the CIT(A) observed that the assessee has commenced its business in August, 2004. The money received in the initial period cannot be treated as cash credits and it is a trade advance. He observed that provisions of section 68 of the Act are not applicable and as the assessee has produced addresses of all the parties, identities of the parties is proved and also the bank accounts of four parties which did not reveal any suspicious 3 ITA No. 1026/Hyd/2010 M/s. Gayatri Associates ================== features, therefore, section 68 of the Act is not applicable. Further, the CIT(A) observed that as the assessee furnished details of all the eight parties along with cheque/DD details and also bank account in respect of four parties and also explained circumstances under which the cash credits were received and the CIT(A) deleted the addition. Against the deletion of addition, the Revenue is in appeal before us.
6. The learned DR submitted that the assessee has not discharged the burden cast upon it with regard to identity and capacity of the parties and genuineness of the transactions. He submitted that bank statement for complete year of those parties was not given. She also submitted that in those creditors' accounts cheque was issued to the assessee on the same day when the cash is deposited. According to her it gives the indication that these are accommodation transactions. She relied on the judgement of Madras High Court in the case of Mangilal Jain vs. ITO (315 ITR 105) (Mad). Further she submitted that in similar circumstances in the case of M/s. Beerelli Damadar in ITA No. 1648/Hyd/2008, the Tribunal vide order dated 9th April, 2010 confirmed the addition made u/s. 68 of the Act by observing that even the credit entries in the accounts of the assessee in the first year also liable for addition u/s. 68 of the Act.
7. On the other hand, the learned AR submitted that the assessee is mainly into the business of acquisition, dismantling and disposal of sick industrial undertakings in the open auction. The firm has been participating in the bidding process for disposal of sick units of M/s. Neyvelli Lignite Corporation, Chennai but the tender has gone in favour of M/s. Chitrahar Traders, Tirupur (CHT). Later CHT came into an understanding with the firm on the condition of contributing Rs. 3 crores which would be adjusted against the disposal of material. As the 4 ITA No. 1026/Hyd/2010 M/s. Gayatri Associates ================== assessee could not mobilise entire Rs. 3 crores, as agreed, but only Rs. 2.36 crores, the CHT mobilised the balance amount from their known associates. Accordingly, the above 8 persons, as tabulated in earlier paras, contributed Rs. 64 lakhs. He submitted that the assessee has filed addresses of all the parties before the lower authorities and also bank accounts of four of them and established authenticity of the transactions. According to the AR the assessee discharged the initial burden cast upon it and to prove it otherwise, the Assessing Officer shall bring the facts to show that the entries are bogus or accommodation entries. Further here relied on the judgement of Supreme Court in the case of CIT vs. Bharat Engineering & Construction Co. (83 ITR 187) for the proposition that the assessee cannot derive huge profit within a few days of commencement of business and it is reasonable to presume that the cash entries are capital receipts and cannot be considered as unexplained cash credits u/s. 68 of the Act.
8. We have heard both the parties and perused material on record. Section 68 of the Income-tax Act, 1961 reads as follows:
"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
9. As per section 68 any cash credits which are not satisfactorily explained may be assessed as income. Where any sum is found credited in the books of account of the assessee, initial burden is on the assessee to offer an explanation of the nature and source of the cash credit. If the explanation is not found satisfactory or reasonable, the Assessing Officer can treat such money as assessee's income from undisclosed sources. It was held by the Supreme Court in the case of A. Govindarajulu 5 ITA No. 1026/Hyd/2010 M/s. Gayatri Associates ================== Mudaliar vs. CIT (34 ITR 807) that section 68 constitutes a charging provision which applies when the assessee's explanation regarding the cash credit is rejected as being unsatisfactory or when the assessee does not render any explanation. Section 68 provides that the Assessing Officer may bring to charge that sum as income of the previous year if (i) the sum is found credited in the books of the assessee for any previous year, (ii) the assessee offers no explanation about the nature of source of that sum and (iii) the explanation is not, in the opinion of the Assessing Officer, satisfactory, where the sum was credited may be in the assessee's name or in the name of a third party, the assessee is liable to place necessary evidence in support of the claim to facilitate the Assessing Officer to cause necessary enquiry. The Assessing Officer has every power to enquire into all the relevant facts brought on record by the assessee.
10. In the present case the assessee has taken a plea that the assessee has furnished requisite details to the Assessing Officer. But the facts brought on record by the Assessing Officer which is evidenced by the Remand Report dated 4.2.2010 placed at page No. 109 of the Paper Book shows that the assessee furnished only details of bank account through which transaction took place in respect of first four parties only out of the 8 parties tabulated in para 3 of this order. In respect of remaining four parties, the assessee failed to submit any details. Even after considering this position, the CIT(A) observed that the assessee has produced addresses of all the 8 parties and bank accounts of four parties of them and he is having no suspicion about the nature of credits. The CIT(A) also recorded a finding that the assessee commenced its business only in the month of August, 2004 and the money received cannot be said as cash credits. This finding of the CIT(A) is totally incorrect.
6 ITA No. 1026/Hyd/2010M/s. Gayatri Associates ==================
11. First of all, the judgement relied on by the CIT(A) in the case of Bharat Engineering Construction Co. (83 ITR 187) was delivered under the Income-tax Act, 1922. Under section 68 of the Income-tax Act even in a case where an amount is credited on the very first day of the accounting year and the explanation offered by the assessee is not accepted, such amount may be assessed as income of the assessee of that accounting year for which the assessee maintained books of account. Further some transaction taken place by cheque which cannot be said that the transaction is genuine. It is the burden on the assessee to establish the identity of the creditors, capacity of the creditors to advance money and genuineness of the transaction. Once the assessee discharged the burden then the burden will shift to the Department. It is not correct to state that the Assessing Officer is not entitled to reject the explanation of the assessee, if in his opinion the evidence produced by the assessee is not enough to believe that the transaction is genuine. It is incumbent upon the assessee to prove that the credit entry in its books of account does not represent any income and that the party in whose name the amount is credited is not fictitious party but real, and the assessee is also required to prove that the entry made in the books of account is genuine. Once the identity of the parties is established before the Assessing Officer by placing necessary evidence and the assessee proved that the entries are not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the creditors given money to the assessee or how and why he received the advances from the parties. As seen from the facts of the case, the assessee for the reasons best known to the assessee, furnished only the bank account details of four parties and not furnished any details of the other four parties. In these circumstances, the Assessing Officer cannot 7 ITA No. 1026/Hyd/2010 M/s. Gayatri Associates ================== make further enquiry and the argument of the assessee's counsel that the assessee discharged the initial burden cast on it, is not correct.
12. In the present case, even assuming that the assessee has discharged the initial burden by proving identity of the creditors and, therefore, the burden shifted to the Department to show as to why the assessee's case should not be accepted, we are of the opinion that the Assessing Officer has no material to cause enquiry or to examine the creditors and for collecting relevant materials in support of Revenue's case. The plea of the AR is devoid of merit. The plea of the AR that under section 68 of the Act, the assessee is not expected to establish the capacity of the creditors to advance money and genuineness of the transaction is not acceptable. We are of the opinion that the assessee is expected to establish proof of identity of the creditors, capacity of the creditors and genuineness of the transactions in order to discharge the onus cast on the assessee. By merely filing bank account details of the alleged creditors, it is not enough to hold that the assessee has satisfied the above ingredients of section 68 of the Act.
13. Our view is fortified by the judgement of jurisdictional High Court in the case of R.B. Mittal vs. CIT (246 ITR 283) wherein similar view has been taken. In view of the above discussion, we are inclined to reverse the order of the CIT(A) and restore the order of the Assessing Officer.
14. In the result, appeal of the Revenue is allowed.
Order pronounced in open court on 11 th March, 2013.
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 11 th March, 2013
tprao
8 ITA No. 1026/Hyd/2010
M/s. Gayatri Associates
==================
Copy forwarded to:
1. The Income Tax Officer, Ward-10(2), Room No. 514, IT Towers, AC Guards, Hyderabad.
2. M/s. Gayatri Associates, H. No. 10-2-274/3, Flat No. 301, Street No. 3, West Marredpally, Secunderabad- 500 026.
3. The CIT(A), Tirupati
4. The CIT-5, Hyderabad.
5. The DR - B Bench, ITAT, Hyderabad.