Income Tax Appellate Tribunal - Indore
Regal Iron & Steel Works, Indore vs Department Of Income Tax on 1 June, 2011
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IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
And
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No. 191/Ind/2011
A.Y.2008-09
Asstt. Commissioner of
Income tax 2(1)
Indore :: Appellant
Vs
M/s. Regal Iron & Steel Works,
Indore
PAN - AADFR 7119 L :: Respondent
Appellant by Shri R.A. Verma, Sr.DR
Respondent by Shri Manjeet Sachdeva,
Advocate
Date of hearing 09.07.2012
Date of
pronouncement 19.07.2012
O R D E R
PER JOGINDER SINGH , judicial member
The Revenue is aggrieved by the impugned order dated 1.6.2011 on the ground that the impugned order is 2 erroneous in law as well as on facts being contrary to the view of the learned CIT(A) itself as enumerated in para 4.1.2 and wrongly deleted the addition on one hand and on other hand agreeing with the view of the Assessing Officer that the source of loan from M/s NF Farms is not genuine.
2. During hearing, we have heard Shri R.A. Verma, learned Senior DR and Shri Manjeet Sachdeva, ld. Counsel for the assessee. The crux of arguments on behalf of the Revenue is that there is a categorical finding in para 4.1.2 of the impugned order that it is difficult to generate over Rs. 80 lacs from agricultural income out of 17.64 acres of land that too with a very nominal investment of Rs.4,36,246/- especially when the learned CIT(A) itself noted that the genuineness of sale of baby corn was not established and it was reflected as cash sales by the assessee. It was also pointed out that even the assessee could not furnish the names and addresses of the parties 3 to whom sales were made except saying that such sales were made to hotels, restaurants and dhabas, etc. Our attention was further invited to the finding in the impugned order that the approach of the Assessing Officer in the cases of partners was not correct. The sum and substance of the arguments of the learned Senior DR is that the amount of Rs.86,30,311/- cannot be generated out of 17.64 acres of land. On the other hand, the ld. Counsel for the assessee contended that the impugned amount can be grown out of the impugned land, the baby corn grown by NF Farms was clearly possible and at the later stage, the another Assessing Officer made inquiries and confirmed that the agricultural produce shown by M/s NF Farms was quite possible, therefore, the addition was rightly deleted. The ld. Counsel for the assessee also filed synopsis/written submissions.
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3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee firm declared income of Rs.26,72,390/- in its return filed on 10.10.2008. The assessee derives income from property, manufacturing, fabrication and trading of corrugated sheets. The assessee firm obtained unsecured loans of Rs. 50 lacs from NF Farms. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny, therefore, notice u/s 143(2) was issued on 28.9.2009. Later on, the case was assigned to Addl. CIT 2, Indore, therefore, fresh notice u/s 143(2) was served upon the assessee on 4.8.2010. In response to the said notice, the assessee filed details and produced books of accounts along with bank statement which were test checked on random basis. It was noticed that the assessee took Rs.50 lacs as unsecured loans from M/s NF Farms which in fact is an AOP of the partners of the assessee firm itself, 5 meaning thereby that the members of the AOP and the partners of the assessee firm are the same persons. The genuineness and source of such unsecured loans was asked to be furnished. The assessee was also asked to furnish various details as mentioned at pages 3 onwards of the assessment order dated 20.12.2010. Subsequently, vide order sheet entry dated Ist December, 2010, the assessee was also asked to explain the following points :-
"(i) How the loan taken from NF Farms is genuine
(ii) The sales shown in the NF Farms are mostly in cash therefore name and addresses are not available. How these sales are genuine.
(iii) How it is possible to have such a whooping baby corn crop ? In the absence of Patwari certification why it should be considered as genuine.6
(iv) Why the NF Farms are not filing Return of income ?
(v) How you justify the receipt of NF Farms with such a meagre expenditure ? Do you have any parallel example in the same area.
(vi) Why the AOP should not be considered as a facade to clean the unaccounted monies available with the assessee.
(vii) Why the agricultural income of NF Farms should not be considered as business income, considering the nature of receipt and moreover non verification possibility of sales ?
(viii) In view of the above why Rs. 50 lacs taken as unsecured loans from the NF Farms should not be considered as non-genuine as the sources of the receipt in the hand of NF Farms 7 are non-verifiable, the NF Farms is not filing Return on the pretext of agricultural income (which is wrong), NF Farms has not obtained PAN and inspite of that opened bank accounts, thus the whole nature of business is under cloud."
In response to the above, the assessee vide letter dated 11th December, 2010 claimed as has been mentioned at pages 4 onwards of the assessment order, the crux of which is that the loan taken from NF Farms is genuine and the AOP was constituted by virtue of deed dated 1.4.1999, the AOP is growing high breed baby corn and the receipt from cash sales of such baby corn is deposited in the bank account and from there through account payee cheques, the assessee received loan from time to time. It was further claimed that NF Farms made sales to restaurants, hotels and dhabas who make cash payment, therefore, the sale 8 should not be doubted. It has been further claimed that the agricultural income is derived from agricultural operation and hence it is exempt under the Act. The expenditure for agricultural production was also claimed to be normal and such income cannot be termed as business income. The Assessing Officer analysed the genuineness of agricultural income and found the same to be questionable firstly by doubting the cultivation of 4 crops in a year and secondly the genuineness of agricultural produce. The yieldwise receipt and expenditure account of NF Farms gave the following results :-
Year Expenses Receipt Profit
31.3.02 508160 3568844 3060684
31.3.03 478647 4059355 3580708
31.3.04 1346552 7980879 6634327
31.3.05 434597 7164393 6729796
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31.3.06 459136 8229379 7770243
31.3.07 432911 8442293 8009382
31.3.08 436246 8671924 8235678
If the aforesaid table is analysed, we find that as on 31.3.2002, the expenses claimed were to the tune of Rs.5,08,160/- against the receipt of Rs. 35,68,844/- and the resultant profit was Rs.30,60,684/- whereas as on 31.3.2003 the expenses lowered down to Rs.4,78,647/- whereas the profit increased to Rs.35,80,708/- out of total receipt of Rs. 40,59,355/- and immediately next year as on 31.3.2004 the expenses steeply increased to Rs.13,46,552/- and the profit was Rs.66,34,327/- out of Rs.79,80,879/-. Surprisingly, as on 31.3.2005, the expenses steeply reduced to Rs.4,34,597/- and profit rose to Rs. 67,29,796/- out of receipt of Rs.71,64,393/-. As on 31.3.2008 the expenses again decreased to Rs.4,36,246/- 10 and the profit rose to Rs.82,35,678/- out of total receipt of Rs.86,71,294/-. From any angle, about 98% profit even cannot be imagined. Even otherwise, the Indian agriculture is gamble of monsoon and depends upon so many weather conditions including supply of water, labour problem, insects, manure and fertilizers, high cost of agricultural produce, etc. The profit is alarmingly very high. We will be glad if such a huge profit is actually earned from farming. The claim mentioned in the chart is, therefore, factually incorrect. From any angle, roughly the agricultural production cost cannot be less than 50% of the agricultural production. It is pertinent to mention here that the assessee claimed that majority of cash sales was made to restaurant, hotels, dhabas, etc. but no proof of the same was produced by the assessee at any stage. Even otherwise, the sale was made to particular hotels then nothing prevented the assessee to submit the details of 11 such sales with the help of vouchers or other documentary evidence but that was not done by the assessee which further fortifies the suspicion raised by the revenue authorities. It seems that the camouflage formula has been devised by the assessee to give the deposits the colour of genuineness by drawing the amounts through cheque. As mentioned earlier, the members of the AOP and the partners of the assessee firm are the same person and it is not the case that the members of the AOP are altogether different persons and has nothing to do with the assessee firm. In the absence of rain fall, sometimes the crops are destroyed and the lands are tilted by the farmers without any agricultural produce. However, there is a steep increase in the production every year which is practical not possible. Before coming to any conclusion, we are reproducing hereunder the observation even made by the CIT(A) as contained in para 4.1.2 :-
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"4.1.2 The issue is concerned. It is really difficult to comprehend that income of over Rs. 80 lakhs could be earned from the agriculture out of 17.64 acres land that too with a very nominal investment of Rs. 4,36,246/-. It is noted that out of total sales of Rs. 86,30,311/- the cash sales amounts for Rs. 84,81,160/-. I agree with the Assessing Officer that assessee could not establish the genuineness of the sales of babycorn for the reasons that most of it has been reflected as cash sales. The assessee also could not furnish the name and addresses of the parties to whom the sales were made except saying that sales were made to Restaurants, hotels, Dhabas etc. But the question arises as to whether any addition for this reason could be made in the hands of the assessee firm. The Assessing Officer in the case of partners have not even questioned the genuineness of huge sales made by N/s NF Farms rather they ahve satisfied themselves by simply making an addition as regards to the unexplained expenses in the agricultural operation in production of the babycorn. No effort has been made by any of them to ascertain whether M/s NF Farms has really been producing the socalled hybrid babycorn and if so whether four rotations were made in a year before accepting the huge share of their products from the said AOP M/s NF Farms. In my considered view, the approach of the Assessing Officer in the cases of partners have not been correct. Detailed invfestigations are required in the case of all the four members of the said AOP. It is noted that Rs. 50 lakhs was given by the said AOP M/s NF Farms to the assessee firm but at the same time repayment of Rs. 80 lacs wasa made (there was opening balance also). It si also noted that huge withdrawal were made year after eyar by the partners of the assessee firm out of their capital in the said AOP as a result of such huge abnormal agricultural income. In principal, I agree with the conclusion of the Addl. CIT Range 1, Indore, in the case of the assessee firm that sources of loan from M/s NF Farms is not genuine. In other words, the claim of sales of hybrid babycorn so as to enable the said AOP to earn such an abnormal profit is not acceptable. In the circumstances, addition if any on this aspect need to be made in the hands of the members of the AOP and not in the hands of the assessee firm. It is also noted that these members have made up their 13 huge capital without payment of due taxes by way of introducing the unaccounted money in the garb of exempted share of profit from the said AOP. Accordingly, addition of Rs. 50 lakhs u/s 68 in the hands of the assessee firm is deleted. The Addl. CIT Range 1, Indore, nevertheless is directed to issue appropriate directions to the Assessing Officer concerned in the cases of members of the said AOP to ascertain the genuineness and extent of the agricultural income and to tax the surplus shown by them in the hands of those members itself.
5. In the result, the appeal is allowed."
3.1 If the reasoning and the facts mentioned in the assessment order, observations made in the impugned order specifically in para 4.1.2 (reproduced hereinabove) and the assertion made by the learned respective counsel, are analysed, the undisputed fact is that the members of the so called AOP (M/s NF Farms) and the partners of the assessee firm are the same persons. There is a categorical finding in the assessment order, impugned order and also in our view that the agricultural income of Rs.86,30,344/- is practically not possible to be grown out of 17.64 acres of land. The claim of M/s NF Farms and also of the assessee is that the agricultural produce (babycorn) were sold to 14 hotels, restaurants and dhabas. However, no evidence in any manner of such sale was produced at any stage. It is not the case that cash sale was made to the passerby or the persons who are going here and there on the roads rather the sale was made to hotels, restaurants and dhabas, therefore, nothing prevented the assessee to produce the proof of such sales at any stage. The learned CIT(A) even in principle agreed with the conclusion of the learned Additional CIT that the source of loan from M/s NF Farms is not genuine, however, deleted the addition by opining that the addition, if any, can be made in the hands of the AOP. We are not agreeing with this proposition because the ultimate beneficiaries of this colourable device is the assessee itself. As mentioned earlier, the members of the AOP and the partners of the assessee firm are the same persons, therefore, keeping in view the principle of natural justice and no grievance is caused to either side, we 15 remand this appeal to the file of the learned Assessing Officer to examine the respective claims of M/s NF Farms and also of the assessee. The Assessing Officer while examining the nature of the amounts involved and then decide in accordance with law after seeing the ground realities. Needless to mention here that due opportunity of being heard be provided to the assessee. The appeal of the Revenue is, therefore, allowed for statistical purposes only.
Finally, the appeal of the Revenue is allowed for statistical purposes.
This order was pronounced in the open Court on 19th July, 2012.
Sd sd (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19 July,2012
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/- 161919 16