Income Tax Appellate Tribunal - Ahmedabad
Pawan Prakash Mahajan, Ahmedabad vs Department Of Income Tax on 10 May, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AT AHMEDABAD "A" BENCH
Before: Shri D.K. Tyagi, Judicial Member
and Shri A. K. Garodia, Accountant Member
ITA No. 2326/Ahd/2010
Assessment Year 2007-08
Asstt. Commissioner of Shri Pawan Prakash
Income-tax, Circle-12, Mahajan M/s Rajat
Ahmedabad Vs Engineers,
(Appellant) 17, Laxmanbhai Estate
Revabhai Estate, Nr. CTM
Mill, Ahmedabad
(Respondent)
Revenue by: Sri Rahul Kumar, Sr.D.R.
Assessee by: None
Date of hearing : 10-05-2013
Date of pronouncement : 31-05-2013
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER:-
This is the revenue's appeal against the order of Ld. CIT(A)-XX Ahmedabad dated 12-04-2010.
I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 2 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers
2. The Revenue has taken following three effective grounds of appeal:-
1.0 The Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition of Rs.35,92,134/- out of the total addition of Rs.37,92,134/- made by the AO u/s. 68 of the Act, without properly appreciating the facts of the case and the material brought on record by the AO.
1.2 In doing so, the Ld. CIT(A) has erred in law and on facts in not appreciating that the onus which lay upon the assessee of establishing the identity of the depositor, creditworthiness of the depositor and genuineness of the transaction could not be discharged by the assessee.
2.0 The Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 17,24,028/- made by the AO u/s. 68 of the Act, without properly appreciating the facts of the case and the material brought on record by the AO.
2.1 In doing so, the Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee could not furnish necessary evidence including copies of accounts of various parties as well as the copies of sales bills, etc. before the A.O. to prove that the said sum of Rs.17,24,028/- was actually advance receipt by the assesses during the course of business which were later on converted into sales by him.
3.0 The Ld. C1T(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition of Rs.6,02,858/- made by the AO as business income of the assessee by invoking the provisions of section 145 of the IJ. Act, without properly appreciating the facts of the case and the material brought on record by the A.O."
3. Ground No. 1 & 2 relates to addition of Rs. 37,92,134/- and of Rs. 17,24,028/- made by the assessing officer u/s 68 of the Act. Assessing Officer while making these additions has observed as under:-
I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 3 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers " A Addition u/s. 68 of the IT Act For the year under consideration it is seen that the auditors have in their audit report mentioned that the assessee has accepted fresh loans during the year as under:
Sr. No. Name of the Depositors Amount in R
1. Alok Hand 312000
2. ARK Meditech System 312000
3. Crystal Chemical 150000
4. Jay Chamunda Enterprise 977467
5. Life Enterprise 1000000
6
Naval Arora 200000
7. Nitesh S Mahalan 75000
8. Saurabh Gang 104000
9. Shaktipal R Mahajan 25000
10. Udayan Velvan 206667
11. Vijay Industries L 230000
12. Popatbhai 200000
Total 3792134
The assessee has in his reply dated Nil stated that details of unsecured loans and squared up loan account is as per Annexure B. On going I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 4 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers through Annexure D it is seen that the assessee has only filed copies of accounts of these parties (listed at Sr. No. l to 11) as appearing in his books of accounts. In respect of Sr. No . 12 i.e. Popatbhai even the copy of account from the assessee's books of accounts has not been filed. No evidences what so ever which would cumulatively prove all the three essential ingredients of section 68 viz. i) identity of depositor li) credit worthiness of the depositor and iii) genuineness of the transactions has been filed by the assessee. In absence of the above particulars the credits can not be accepted as genuine borrowings of the assessee and the same are squarely covered by the provisions of the section 68 of the Act. The onus to satisfy the assessing officer and thus meet the burden to prove as cast u/s 68 is squarely on the assessee, who is even otherwise obliged to prove it's return of income or the claims preferred thereby. The three parameters are "identity" and "capacity" of the creditor and genuineness of the credit transaction, each of which is a separate and distinct requirement qua which the "satisfaction" is to be arrived at, so that if there is a failure on even one score, the non-satisfaction would stand to be confirmed. [291 ITR 278 (SC)] Addition u/s. 68 of the Act of Rs. 37,92,134/- is therefore made in the total income computation of the assessee.
Further analysis of the balance also reveals that the assessee has taken advance from sundry debtors Rs. 17,24,028/-. The assessee was asked to file evidence to prove that these receipts were advances received by him during the course of business and which were later on converted into sales made by him. The assessee has not filed copies of account of these parties as well as the copies of the sale bills evidencing the sales made by him to these parties in the subsequent year. Thus as the assessee has failed to prove that the advances received by him were subsequently converted into sales the advances for all practical purposes are cash credits in the books of accounts of the assessee and they are needed to be examined on the touch stone of the provision of section 68 of the IT Act. Since the assessee has not filed any evidence in support of the advances received by him the amount of Rs. 17,24,028/- is squarely covered by the provision of section 68 of the IT Act. Addition u/s. 68 of the Act of Rs. 17,24,028/- is therefore made in the total income computation of the assessee.
I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 5 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers
4. Before Ld. CIT(A) assessee relied on the written submission which has been reproduced by Ld. CIT(A) in his order in para 4.2.
5. After taking into consideration these submissions of the assessee Ld. CIT(A) deleted both these additions by observing as under:-
"4.3 I have considered the assessment order, submissions, case laws relied upon and arguments of the ld. counsel of the appellant. From the evidences record, it is very clear that the appellant received loan of Rs37,92,134/- through proper banking channels. Such loans have also been confirmed by creditors except one Shri Popatbhai and their bank statements, Income details like copies of IT returns, PAN etc, were furnished before the AO during the course of assessment proceedings. As held in by the Hon'ble Patna High Court in the case of ACIT vs. Bahari Brothers Pvt Ltd reported at 154 ITR 244 the creditors were not that they were known only to the bank but they were introduced by a third person who introduced them to the bank. In view of these facts, it could not be said that the creditors were fictitious persons. The expression 'the assesses offers no explanation1 means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. The assessing officer has not made any enquiry and not pointed out in case of any creditor with specific remarks as to how the identity, genuineness of transaction and creditworthiness is not proved. The addition has been made only on the basis of general remark that the three parameters of a genuine credit have not been proved to the satisfaction. The general remark has no meaning when the onus cast on the assessee has been discharged and requirements of the three ingredients are fulfilled. All the transactions are through account payee cheques and all the persons concerned have confirmed I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 6 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers having advanced the loan and all of them were having their different sources of income to justify the amount advanced by them. However, it is noticed that in respect of the addition made by the AO in the case of Shrl Popatbhai of Rs.2 lacs stating that the appellant has not even filed copy of account from assessee's books of account of the party concerned before the AO, therefore, the loan claimed in respect of this party cannot be accepted. Though the Ld. AR of the appellant filed before me the details in respect of this creditor, the same becomes the additional evidence and is hereby rejected. Therefore, the addition of Rs.2 lacs is confirmed. Since, in the facts and circumstances in respect of all other creditors, when all the ingredients are proved with documentary evidences, keeping in view the ratio laid down in the quoted decisions, I hold that the addition of Rs.35,92,134/-(Rs. 37,92,134 - Rs. 2,00,000/-) made u/s.68 of the Act by the AO is not justified. The same is hereby deleted.
4.4 With regard to the advance received by the appellant of Rs. l7,24,028/-, the AO has made the addition as the appellant failed to furnish before him copies of sales bills evidencing that the sales were made by the appellant in the subsequent years and also because the AO was of the view that the appellant failed to prove the identity of the debtors, their creditworthiness and genuineness of the transactions. However, from the details and evidences filed during the course of assessment proceedings, it becomes clear that the appellant has satisfactorily proved the existence, identity and mode of advances on which the AO has not made any specific adverse comments. The advance from debtors have been received by way of account payee cheques. In view of the above, I find that the appellant has discharged its onus and nothing adverse has been brought by the Assessing Officer, in respect of such advances. The AO could have called for the concerned debtors for examination, since, all their details like PAN, Photo ID and addresses were filed before him. In view of the above facts and circumstances, case laws relied upon by the appellant, I hold that the Assessing Officer is not justified in making addition of Rs.l7,24,028/- U/s. 68 of the I.T. Act. The same is hereby directed to be deleted.
Thus, the first ground is partly allowed and the second ground of I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 7 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers appeal is allowed."
6. Aggrieved by this order of Ld. CIT(A) now the revenue is in appeal before us. None appeared on behalf of assessee despite the fact that notice for today's hearing was served upon him through D.R.
7. At the time of hearing learned D.R. submitted that in respect of both these additions made by assessing officer u/s 68 of the Act assessee did not file any details whatsoever except the ledger account of the parties from whom the loans were taken or advances against sales were received while Ld. CIT(A) has given relief to the assessee by observing that all the details like PAN, Photo I.D. and acknowledgement of income tax return filed by these parties was submitted by the assessee before assessing officer therefore the additions made were uncalled for. Since Ld. CIT(A) has given relief to the assessee on wrong facts, the order of Ld. CIT(A) deserves to be set aside and that of A.O. be restored.
8. After hearing Ld. D.R. and perusing the record, we find that assessing officer made the additions of Rs. 35,92,134 and of Rs. 17,24,028/- by invoking provision of section 68 of the Act as no details in respect of the parties who have given these loans or advanced money against sales to the assessee were filed except the copies of ledger account. While Ld. CIT(A) has given relief to the assessee by holding that assessee has filed all the relevant details like confirmation of the parties, PAN Nos of the parties acknowledgement of income tax return filed by them etc and therefore assessing officer was not right in making these additions. This finding of Ld. CIT(A) is without basis as nowhere in the assessment order we find that I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 8 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers assessee filed any such details before him. In case all these details were filed before him, Ld. CIT(A) should have taken comments/obtained remand report from the assessing officer treating them as additional evidence before deciding the issue. As the same has not been done, we are of the considered opinion that matters require fresh adjudication by the Ld. CIT(A) in the light of our above observations. We hold accordingly. Both ground nos. 1 and 2 are allowed for statistical purpose.
9. Ground No. 3 relates to addition of Rs. 6,02,858/- made by the assessing officer invoking the provision 145 of the Act. The A.O. while making this addition has observed as under:-
"The assessee trades in scrap. It follows the mercantile system of accounting and the stock is valued at cost price. The auditors have stated in para 28(l) of form no.3CD that "details not provided for audit purpose". Even in para. 28(b) the same remarks has been made. During the year the assessee has shown gross loss of Rs.3,84,90s/- on turnover of Rs. 97,00,9007- giving a negative G.P. rate of 3.97%, The net loss declared by the assessee is Rs. 10,00,155/- giving a negative N.P. Rate of 10.31%, On comparison with the results for earlier years, the following picture emerges.
Sr. No. Particular AY 2005-06 AY 2006-07 AY 2007-08 s 1 Turnover 1046512 4110820 9700908 2 Gross 233660 321520 -384905 Profit 3 GP% 22.33% 7.82% -3.97% I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 9 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers 4 Net Profit 102552 121154 -1000155 5 NP% 9.80% 2.95% -10.31% The opening stock of the assessee is Rs.13,42,516/- and the closing stock of the assesses is Rs.57,07,732/-. No inventory of either the opening stock or the closing stock has been filed by the assessee. The above chart shows that there is decrease in the net profit rate from 9.80% to -10.31%, The assessee has stated that the loss has been incurred as the purchase made from auction conducted by UCO Bank was not a profitable purchase. The purchase comprised of factory land and building Rs.44,00,000/- and plant and machinery Rs. 35,00,00/-. The plant and machinery was sold at a loss and hence the net loss was incurred by the assessee. On further examination it is seen that the purchase through auction took place on 5/3/2007 hence only the sales made in the month of March 2007 RS.16,39,170/- would have resulted in a loss. Further analysis shows that the assessee has opening stock of machinery Rs,13,42,516/-; further purchase of machinery was made of Rs,65,60,191/- and Rs.35,00,000/-. Thus, the stock available of machinery for sale was Rs.1,14,02,707/-, the closing stock remaining with the assessee would be Rs. 17,01,799/- whereas the assessee has shown closing stock of old machinery of Rs.12,20,930/-only. Thus, it is apparent that the closing stock has been grossly under valued. Both the purchases and sales have remained unverified as the assessee has not filed any particulars of the same. Further, the opening and closing stock inventory has also not been filed by the assessee. It is not the case of the assessee that the sales made upto the end of February 2007 has resulted in losses. Thus the claim of the assessee that it incurred losses is a factually incorrect statement and not supported by any corroborative evidence. The claim of the assessee is therefore rejected. The provision of section 145 is squarely applicable to the facts of the case. Considering the N.P. rate of 9.80 % and 2.95% declared in AY 2005-06 and 2006-07 the N. P., rate of 6.4% being the average rate of the two is adopted for computing the business income of the assessee. The income from I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 10 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers business is therefore computed at Rs.6,02,858/-. However, no separate addition on this score is made as addition u/s.68 has already been made in the total income computation."
10. Ld. CIT(A) deleted this addition by placing reliance on the submissions of the assessee before him which has been reproduced in para 6.2 of his order. In respect of this ground also the Ld. D.R.'s submission was that assessee did not produce books of accounts and other related details before the A.O. therefore books of accounts of the assessee were rejected and assessee's income was estimated by calculating the net profit @ 6.4 % which was added to the income of the assessee while Ld. CIT(A) has given relief to the assessee by accepting the submissions of the assessee that books of accounts were produced before the A.O. and therefore there was no need for adopting the net profit @ 6.4 % and estimating the income of assessee at Rs. 6,02,858/-, he therefore prayed that order of Ld. CIT(A) may kindly be set aside and that of A.O. be restored.
11. After hearing both the parties and perusing the record, we find force in the contention of Ld. D.R. that Ld. CIT(A) has given relief to the assessee in respect of this ground also by simply relying on the submission made by the assessee before him as from the assessment order it is clear that neither books of accounts nor relevant details as pointed out by A.O. were filed before him. In case assessee filed some additional evidence before Ld. CIT(A) which could be the basis for him to give relief to the assessee, Ld. CIT(A) should have obtained remand report and only then he should have proceeded to decide the issue at hand. Since the same has not been done the I.T.A No. 2326/Ahd/2010 A.Y. 2007-08 Page No 11 ACIT vs. Pawan Prakash Mahajan M/s Rajat Engineers matter is restored back to the file of Ld. CIT(A) for fresh adjudication. This ground of the Revenue is also allowed for statistical purpose.
12. In the result, revenue's appeal is allowed for statistical purpose.
Order pronounced in open court on the date mentioned hereinabove at caption page Sd/- Sd/-
(A.K. GARODIA) ( D.K.TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 31/05/2013 ak
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद Strengthened preparation & delivery of orders in the ITAT
1) Date of taking dictation 10/05/2013
2) Direct dictation by Member straight on N.A. computer/laptop/dragon dictate
3) Date of typing & draft order place before 14/05/2013 Member
4) Date of correction 15/05/2013
5) Date of further correction
6) Date of initial sign by Members
7) Order uploaded on
8) Original dictation pad has been enclosed in this Yes file
9) Order Sent to Bench Clerk