Income Tax Appellate Tribunal - Mumbai
M/S. Swaroop Group Of Industriaes P. ... vs Assessee on 27 October, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "I", MUMBAI
Before Shri D. Manmohan, Vice President and Shri P.M. Jagtap, A.M
I.T.A. No.7063/Mumbai/2008
Assessment Year: 2005-06
M/s. Swaroop Group of Industries Asst. Commissioner of Income
Pvt. Ltd. Tax
C -153, City Mall, Andheri Link Central Circle-41,
Road, Andheri (W), Mumbai
Vs.
Mumbai-400 053
PAN NO: AAJCS2778K
(Appellant) (Respondent)
Appellant by : Shri Sharad Patel
Respondent by : Shri Sanjeev Dutt
ORDER
Per P.M. JAGTAP (AM) :
This appeal filed by the assessee is directed against the order of learned CIT(Appeals)-III, Mumbai dated 27.10.2008 and in the solitary ground raised therein, the assessee has challenged the additions of Rs.15,83,00,000/- and Rs.2,47,25,000/- made by the AO and confirmed by the learned CIT (Appeals) on the basis of provisional balance sheet submitted to the bank.
2. The assessee in the present case is a company which is incorporated for carrying on the main business of manufacturing electro forged gratings. The return of income for the year under consideration was filed by it on 31.03.2006 declaring total income at Nil. The assessee had submitted a proposal for availing export credit of Rs.25 crores from M/s. Lord Krishra Bank 2 Ltd. Along with the said proposal, statement of accounts and documents were filed by the assessee including a provisional balance sheet and profit and loss account. From the copies of the said documents obtained directly from the bank, the Assessing Officer noticed that profit of Rs.15.88 crores was shown by the assessee for the year ended on 31.03.2005. In the return of income filed for the year under consideration, the assessee however, had shown total income at Nil. During the course of assessment proceedings, the assessee was called upon by the AO to explain the said difference. In reply, a letter dated 20.10.2007 was filed by the assessee making the following submissions:-
"With reference to your letter No.ACIT/CC-41/"Profits and gains of business or profession"/2007-08 dated 14-12-2007, we are instructed to submit that papers submitted to Lord Krishna Bank Ltd. by our client during Feb,05 were for the purpose of obtaining a financial assistance of RS.25 crores and keeping this in view wrong financial statement were submitted by the company. Kindly note that the company was incorporated on 17-09-2004 with the object of taking over the business of proprietary concern of its promoter called Swarup Group of Industries (A copy of the memorandum of Association is enclosed). It opened a bank account on 6-10-04 with Standard Chartered Bank and another on 30-03-2005 with Vijaya Bank. It received Capital infusion as on 30-102004. Copies of the bank statements in full are enclosed for your perusal. Books of Accounts are produced in person for your verification. You will kindly observe that there are no cheques issued for any purchase and no cheques received for any sales.
The statement submitted by you to us shows projected balance sheet as on 31-03-2005 and then subsequent operating years. Unfortunately, the provisional profit and loss account for the period from 01-04-2004 to 31-03-2005 is absolutely imaginary. No sales took place, no purchases took place. There were no employees in the company. No Sales Tax Registration and no sales tax were paid. There was no loan taken.3
Coming to the provisional balance sheet as on 31-12-2004; the export business of Shri Guru Swarup Srivastava, the main promoter that was to be taken over by the company was never taken over. All the figures mentioned in the provisional balance sheet and profit and loss account upto 31-12-2004 were imaginary. Therefore, provisional balance sheet and profit and loss account upto 31-03-2005 is also imaginary.
The following points will make it very clear. In the provisional balance sheet, a loan has been shown as received from NAFED at Rs.98.73 crores. No such loan was received or given by NAFED to the company. This loan was given to M/s. Swarup Group of Industries and Mr. Guruswarup Srivastava was contemplating the transfer of his export business into this company. As state above, as this transfer never took place, al the papers submitted to Lord Krishna Bank have no meaning and may please be ignored. You will also kindly observe that the projected balance as on 31-03- 2005 shows a payment of Rs.505 lakhs as income tax. You can verify this point from your own records. The company never paid one rupee as tax.
It is therefore, requested that the papers received by you from Lord Krishna Bank should be ignored for the purpose of assessment.
An Affidavit of Mr. Guru Swarup Srivastava to the above effect will be submitted by 24-12-2007 as Mr. Guruswarup Srivastava is not in town.
Without prejudice to the above, in case you still want to rely on the above projected balance sheet of 31-03-2005. Please note that the company never purchased any property at Kalbadevi or at Andheri. In fact Guru Swarup Srivastava (individual) does own an office premises in Andheri.
Even Guru Swarup Srivastava does not own any property in Kalbadevi but he did bid for a property in Kalbadevi, which he never got and never purchased.
All the movable assets like air conditioner, building interior, electric installations, EPBS, computers and furniture are installed in the office premises at Andheri owned by Guru Swarup Srivastava and shown in his balance sheet of 31-03-2005 a copy of that balance sheet is enclosed.4
The business of Iron ore has also been done by Guru Swarup Srivastava (individual). The company did not take any loan from any bank amounting to Rs.25 crores, it never took any loan. Similarly, the company does not owe any amount to NAFED. As submitted above the company never paid any tax. Although the said balance sheet reflects a payment of Rs.5.04 crores.
From the above it is quite clear that the company neither owned any immovable property or any asset nor it had any liability. The correct audited balance sheet of the company has been filed with the return of income. The balance sheet has only two assets viz. loan due from a Director and cash in bank balance in current account. It has no liability except the paid up capital."
3. The stand taken by the assessee thus was that the balance sheet and profit and loss accounts submitted to M/s. Lord Krishna Bank Ltd. was imaginary and the figures reflected therein were just the projections given to avail the export credit of Rs.25 crores from the bank. The stand of the assessee was not found acceptable by the AO. According to him, the submission of the assessee that neither any sales nor any purchases had actually taken place was without any basis. He also held that the claim of the assessee of non payment of Income Tax of Rs.505 lakhs contrary to the figures reflected in the provisional balance sheet was not sufficient to prove that assessee had not earned profit of Rs.15.88 crores as shown in the profit and loss account. The AO also declined to take cognisance of an affidavit filed by Shri Guru Swarup Srivastava, director of the assessee company on the ground that it had not been notarized. He also noted that the provisional balance sheet and profit and loss account submitted by the assessee company to the bank was signed by one of its directors. In his statement recorded u/s.131 by the AO, Shri Guru Swarup Srivastava, director of the assessee company stated that the figures reflected in the provisional balance sheet were actually projected figures given to express the future plans of the assessee company inorder to avail the export credit of 5 Rs.25 crores. He also made an attempt to explain that the assets appearing in the said balance sheet were not really belonging to the assessee company. All these arguments raised on behalf of the assessee company however, were not found to be tenable by the AO. According to him, when a director of the assessee company had signed the financial statements submitted to the bank, the full responsibility about the authenticity of the figures reflected therein was lay on him and he could not change the stand before the tax authorities that the said figures are only projected figures based on imagination. Accordingly, relying on the financial statements submitted by the assessee company to the bank, the Assessing Officer treated the profit shown therein as income of the assessee company and such profit amounting to Rs.15.88 crores was added by him to the total income of the assessee in the assessment completed u/s.143(3) vide an order dated 28.12.2007. In the financial statements submitted to the bank, the assessee had shown payment of Rs.2,47,25,000/- on account of sales tax. The assessee, however, could not produce the proof of the said payment stating that there was neither any liability on account of such sales tax nor any actual payment thereof. This stand of the assessee company was also found to not acceptable by the AO and relying on the financial statements submitted by the assessee company to the bank which was signed by one of its directors, he added a further sum of Rs.2,47,25,000/- to the total income of the assessee u/s.43B in the absence of any proof of payment of Sales Tax. The total income of the assessee thus was computed by the AO for the year under consideration at Rs.18,35,25,000/- as against the income of Rs.Nil returned by the assessee.
4. Against the order passed by the AO u/s.143(3), an appeal was preferred by the assessee before the learned CIT(Appeals) challenging both the additions of Rs.15,83,00,000/- and Rs.2,45,25,000/- made by the AO therein relying on the financial statements submitted to the bank. During the course of appeal proceedings, the following submissions were made on behalf of the 6 assessee company in support of its contention that both the said additions made by the AO were not sustainable :-
"In course of hearing fixed on 05.08.2008, your honour have asked us to submit the written submission. In response to that we have been instructed by our client to submit as under :
Our client filed an imaginary set of accounts with Provisional Balance sheet, provisional profit and loss account, provisional cash flow with the bank in order to obtain a loan of Rs.25 crores. It is common knowledge that businessman very often give inflated figures to their bankers for obtaining loans.
In order to run a business a person has to have some staff, some registration in some government offices like sales tax department, excise department, Provident Fund Department etc., if the person is doing export, he has to have IEC No. from the DGFT & RBI. The assessee company did not have any registration with any Government body or any private body not did it have any export registration.
Income-tax Act taxes real income. it does not tax imaginary income. Moreover, all the papers submitted by the assessee company showed "PROJECTED" figures. Projected figures do not have to be defended. These can be wrong by millions. Nowhere, has the company filed any statement showing actual sales, actual purchases or actual profit and loss account. You are requested to ignore the papers filed by our clients with banker as imaginary and not real.
Without prejudice to the above, kindly go through the alleged profit and loss account. It shows income-tax payment of Rs.501 lakhs when our client has not made any payment. It also shows sales-tax payment of Rs.247 lakhs which also our client has not made. These tow facts can be get verified by your own Department and Sales -Tax Department. It also shows Remuneration to employees (Rs.127.56 lakhs). Our client did not have any employee during the year under consideration. Kindly note that no person was employed by our client at all. In fact the business was never started.7
Please note that the balance sheet filed with the return of income is audited. The auditors have certified that there was no business in the year 2004-05 (kindly seen para (i) of Annexure to Auditors Report dated 03.09.2005 (copy of all connected papers enclosed).
The imaginary profit & loss account also shows interest paid at Rs.606 lakhs. Our client did not borrow any money and did not pay any interest.
Kindly also see that the imaginary balance sheet shows a loan from NAFED at Rs.9873.23 lakhs. Our client denies having taken any loan form NAFED. Nafed is a big corporation and of government of Indian. Please verify from NAFED whether NAFED has given any loan to our client.
It has been submitted to the assessing officer and is now again submitted to you that company never got any loan from NAFED. At least you can verify this fact, if the company did receive the loan than our client will accept the assessment.
Coming to the imaginary balance sheets, it shows that our client owned commercial property at Kalbadevi, Mumbai. Our client denies owning any property anywhere in the world. Our client denies owning any air conditioner, computers and other movable assets.
We have conclusively proved that all figures in the imaginary balance sheet and profit and loss account filed by our client with its bankers are non existent and incorrect. You can accuse our client of wasting bankers' time and causing wastage of department's time but you cannot tax our client without any evidence with you except this imaginary balance sheet and profit and loss account.
If nothing is proved by the department it cannot impose a tax on the assessee for the mere fault that the assessee foolishly submitted to a bank imaginary figures of sales, purchases, staff salary, sales- tax paid, income-tax paid, properties purchased, loan.
As the assessee has denied on an affidavit doing of any business and has explained why these imaginary figures were made and filed with the bank. The department should be able to prove by 8 corroborating evidences one fact or figures in the projected figures to be correct.
The Supreme Court in the case of K.P. Verghese Vs. ITO [131 ITR 597 (SC) held that if the department wants to tax an amount it has to prove by some evidence that the said amount was received or earned by the assessee.
All our submission made to the assessing officer were made vide letters dated 09.10.2007, 20.1.2007, 22.12.2007, 28.12.2007 and an affidavit of Shri Guru Swarup Srivastava filed with assessing officer on 22.12.2007 are enclosed.
In the light of the facts of the cases, it is apparent that the addition made by the assessing officer on the basis of imaginary balance sheet and profit and loss account are bad in law and is liable to be deleted. Therefore, we request your honour to delete the addition of Rs.18,35,25,000/-"
5. The learned CIT (Appeals) did not find any merit in the submissions made on behalf of the assessee before him and proceeded to confirm both the additions of Rs.15,83,00,000/- and Rs.2,45,25,000/- made by the AO for the following reasons given in paragraph no. 5 of his impugned order.
"I have carefully considered the facts and submissions. There is no dispute that the balance sheet and profit & loss account submitted to the Lord Krishna Bank were signed by one of the directors. There is no evidence to show that the figures contained in statements filed with the bank were found to be imaginary by the bank or any such stand was taken by the appellant before the bank. In my opinion, any statement or document submitted to the bank cannot be taken lightly particularly when it is duly signed by the director and has been submitted for the purpose of obtaining credit to the tune of Rs.25 crores. Since the balance sheet and profit and loss account stood signed by the director himself, the appellant company was bound with the correctness thereof and the figures were imaginary or fictitious cannot be accepted unless there is some conclusive evidence to disprove the correctness of the above documents. There is no evidence whatsoever on record with the 9 bank to the effect that aforesaid details and figures filed by the appellant were imaginary and were not intended to be acted upon by the bank. The defence taken by the appellant that the document contained imaginary figures of sales, purchases, taxes paid and property purchased, etc. is only self serving as it came form the very same person who has duly signed the projected balance sheet and profit & loss account. The aforesaid balance sheet and profit & loss account were signed on 21.03.2005 and, thus, only prior to a period of 10 days from the end of the relevant financial year. Therefore, there was not much scope for variation in figures projected and actual as on 31.03.2005. The contention that it was the duty of the department to bring on record factual evidence in support of provisional documents before relying on the same is not convincing particularly when all the statements/documents furnished to the bank stood duly signed and owned up by the director. In the circumstances, various explanations put forth before the AO and before me do not look convincing. The appellant is bound by the statements/ documents submitted to the bank and duly signed by the director. Since in the profit & loss account profit was shown at Rs.15,83,00,000/-, the AO was fully justified to include it into the income of the appellant. With regard to the further addition of Rs.2,47,25,000/- u/s.43-B of the IT Act, since the appellant had failed to furnish the evidence of the payment of sales-tax amounting to Rs.2,47,25,000/-, the action of the AO in disallowing the same u/s.43-B is considered justified. Therefore, the additions made at Rs.15,83,00,000/- and Rs.2,47,25,000/- are hereby confirmed. This ground of appeal is dismissed."
Aggrieved, by the order of the learned CIT (Appeals), the assessee has preferred this appeal before the tribunal.
7. The learned counsel for the assessee submitted that both the additions disputed by the assessee in the present appeal have been made by the AO and confirmed by the CIT(Appeals) mainly on the basis of figures reflected in the provisional balance sheet and profit & loss account filed by the assessee with the bank for availing export credit of Rs.25 crores. He submitted that the said figures were only projected figures based on imagination given inorder to 10 obtain the bank finance. He contented that submissions to this effect was made on behalf of the assessee company before the AO as well as before the learned CIT (Appeals) pointing out that the said figures were not the real one. He contented that the profit reflected in the said financial statements as well as the payment of sales tax shown therein, however, were added by AO to the total income of the assessee and confirmed by the learned CIT (Appeals) without bringing anything on record to corroborate the figures reflected in the said financial statements which were stated by the assessee time and again as not the real one. He submitted that in the case of Shri Guru Swarup Srivastava belonging to the same group, additions were similarly made on the basis of financial statements submitted to the bank and the co-ordinate bench of this Tribunal has already deleted the said additions vide its order dated 09.06.2009 passed in ITA No.551 -553/M/2009. He also placed on record a copy of the said order and invited our attention to the observations made by the Tribunal in paragraph no.12 while deleting the additions similarly made in the case of Shri Guru Swarup Srivastava.
8. The learned DR, on the other hand, strongly relied on the orders of the authorities below in support of the revenue's case that both the additions made to the total income of the assessee on the basis of the financial statements submitted to the bank are fully justified. He also relied on the decision of the Hon'ble Madras High Court in the case of Coimbatore Spinning & Weaving Company Ltd. Vs. CIT 95 ITR 375 in support of the revenues case on this issue. He contented that merely because the balance sheet and profit and loss account submitted by the assessee to the bank was stated to be provisional one, it cannot be said that the figures reflected therein were all imaginary figures.
9. In the rejoinder, the learned counsel of the assessee submitted that the decision of the Hon'ble Madras High Court in the case of Coimbatore 11 Spinning & Weaving Company Ltd. Vs. CIT (supra) is not applicable to the facts of the present case. He also submitted that the provisional figures are always subject to correction.
10. We have considered the rival submissions and also perused the relevant material on record. It is observed that both the impugned additions have been made by the AO and confirmed by the learned CIT (Appeals) relying mainly on the profit & loss account and balance sheet submitted by the assessee to the bank for availing export credit facility. Although the assessee took a stand before the AO as well as before the learned CIT(Appeals) that the figures reflected in the said balance sheet and profit & loss account were only imaginary figures and not real one, both these authorities did not accept the said stands of the assessee and proceeded to make the additions relying on the balance sheet and profit & loss account submitted by the assessee to the bank on the ground that the said financial statements were duly verified and signed on behalf of the assessee company. The learned counsel for the assessee has contented before us that the additions made by the AO and confirmed by the learned CIT (Appeals) mainly on the basis of the said balance sheet and profit & loss account are not sustainable in the absence of any evidence brought on record to corroborate the same. In support of this contentions, he has relied on the decision of co-ordinate bench of this Tribunal in the case of Shri Guru Swarup Srivastava (supra). A perusal of the order passed by the Tribunal in the said case, however, shows that the main addition made in the said case was u/s.68 and since the said addition was made by treating the opening balance in the capital account of the assessee as unexplained cash credit, the Tribunal held that the opening balance representing cash credits of the earlier years could not be added in the year under consideration. Moreover, the issue relating to both the additions involved in the present case is purely a factual issue and the same has to be considered and decided keeping in view the relevant facts involved in 12 the present case. In this regard, we have perused the copies of profit & loss account and balance sheet submitted by the assessee to the bank which are placed at page no. 10 & 11 of the assessee's paper book. A perusal of the same shows that the same are clearly referred to as "Provisional balance sheet as on 31.03.2005" and "Provisional profit & loss account for the year ended 31.03.2005. As rightly observed by the learned CIT (Appeals) in this context, the said financial statements were prepared and furnished by the assessee to the bank on 21.03.2005 and it, therefore, cannot be said that the figures reflected therein were mainly projected figures given to avail the bank finance. No doubt, the figures given in the provisional profit & loss account and balance sheet are always subject to corrections. However, it is for the assessee who has signed and verified the said provisional figures to explain and reconcile them with the final figures. In the present case, the assessee's claim as per the financial statements filed along with the return of income is that there was not even commencement of business during the year under consideration. In the provisional balance sheet and profit & loss account submitted to the bank, the assessee, however, had disclosed a turnover of Rs.159 crores resulting into a profit of Rs.15.88 crores. If the explanation of the assessee in this regard is that the entire provisional balance sheet and profit & loss account submitted by it to the bank were fabricated one and none of the figures reflected therein was a real one, the authorities below cannot still rely on the provisional balance sheet and profit & loss account merely because the said statements were verified and signed on behalf of the assessee company. In our opinion, the explanation of the assessee needs to be verified by making verification and cross verification of all the relevant aspects including an enquiry which can be directly made with the concerned bank to find out whether the assessee had filed any other documents in support of the figures given in the provisional balance sheet and profit & loss account. It may also be relevant to find out whether any independent enquiry was made by the bank to ascertain the correctness of figures given by the 13 assessee in the provisional balance sheet and profit & loss account submitted along with loan proposal. We therefore, find it far and proper and in the interest of justice to set aside the impugned order of the learned CIT (Appeals) on the issue involved in this appeal and restore the matter back to the file of the AO with a direction to decide the same afresh after making necessary examination/verification and after giving the assessee sufficient opportunity of being heard.
11. In the result, the appeal of the assessee is treated as allowed for statistical purpose.
Order pronounced on this 15th day of December, 2010.
Sd/- Sd/-
( D. MANMOHAN ) ( P.M. JAGTAP )
VICE PRESIDENT ACCOUNTANT MEMBER
MUMBAI, DATED: 15/12/2010
Copy forwarded to :
1. The Appellant,
2. The Respondent,
3. The C.I.T.
4. CIT (A)
5. The DR, I - Bench, ITAT, Mumbai
//True Copy//
BY ORDER
ASSISTANT REGISTRAR
ITAT, Mumbai Benches, Mumbai
Roshani