M/s Virtuoso Netsoft Pvt. Ltd., Chandigarh v. DCIT, C-1(1), Chandigarh

ITA 1326/CHANDI/2019 | 2013-2014
Pronouncement Date: 02-03-2021 | Result: Allowed

Appeal Details

RSA Number 132621514 RSA 2019
Assessee PAN AADCV7174J
Bench Chandigarh
Appeal Number ITA 1326/CHANDI/2019
Duration Of Justice 1 year(s) 4 month(s) 28 day(s)
Appellant M/s Virtuoso Netsoft Pvt. Ltd., Chandigarh
Respondent DCIT, C-1(1), Chandigarh
Appeal Type Income Tax Appeal
Pronouncement Date 02-03-2021
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 02-03-2021
Last Hearing Date 08-07-2020
First Hearing Date 15-02-2021
Assessment Year 2013-2014
Appeal Filed On 04-10-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B CHANDIGARH (VIRTUAL COURT) BEFORE: SHRI. N.K.SAINI VICE PRESIDENT AND SHRI R.L. NEGI JUDICIAL MEMBER ITA NO. 1326/CHD/2019 ASSESSMENT YEAR : 2013-14 M/S VIRTUOSO NETSOFT PVT. LTD. PLOT NO. 10 NETSMARTZ BUILDING 3 RD FLOOR RAJIV GANDHI I.T. PARK CHANDIGARH DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1) CHANDIGARH ./ PAN NO. AADCV7174J / APPELLANT / RESPONDENT / ASSESSEE BY : SHRI SHRI JASPAL SHARMA ADVOCATE / REVENUE BY : SHRI ASHOK KHANNA ADDL. CIT ! ' # / DATE OF HEARING : 15/02/2021 $%&'() # / DATE OF PRONOUNCEMENT : 02/03/2021 / ORDER PER N.K. SAINI VICE PRESIDENT: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-1 CHANDIGARH DT. 05/07/2019. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L: 1. THE IMPUGNED ORDER IS BOTH AGAINST FACTS AND ERRONE OUS IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(APPEALS) HAS ERRED IN HAVING CONFIRMED THE ORDER OF THE LD.AO IN MAKING T HE ADDITION OF RS. 12 20 510/- TREATING THE SAME AS INCOME U/S 68 OF THE INCOME TA X ACT WHICH HAS BEEN FURTHER ENHANCED TO RS. 14 50 000/-. 3. THE LD.CIT(APPEALS) HAS GRAVELY ERRED IN HAVING ENH ANCED THE ADDITION TO RS. 14 50 000/- WITHOUT GIVING ANY SHOW CAUSE NOTICE AG AINST SUCH ENHANCEMENT TO THE ASSESSEE 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(APPEALS) HAS ERRED IN HAVING HELD THAT DISSOLVED FIRM CANNOT EXTEND LOAN TO THE APPELLANT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(APPEALS) HAS ERRED IN HAVING HELD THAT EXPLANATION OF SOURCE IS IMMATERIA L IN THE PRESENT CASE. 2 FROM THE AFORESAID GROUNDS IT WOULD BE CLEAR THAT T HE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF ADDITION OF RS. 14 50 000/- UNDER SECTION 68 OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO A S ACT). 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FIL ED ITS RETURN OF INCOME ON 03/04/2014 DECLARING TOTAL INCOME OF RS. 64 92 640/ - LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS. 40 93 524/- AS A LOAN FROM M/S VASTECH SOLUTIONS WHICH WAS STATED TO BE A PARTNERSHIP FIRM WHER E SHRI NITENDERA TEWARI AND SMT. ASHA PHAGNA WERE PARTNERS. HE ALSO OBSERVED THAT S HRI NITENDRA TEWARI WAS THE DIRECTOR OF THE ASSESSEE COMPANY AND THAT THE FIRM M/S V ASTECH SOLUTIONS WAS STATED TO BE UPGRADED TO M/S VIRTUOSO NETSOFT PVT. LTD. I.E. THE ASSESSEE. THE A.O. ALSO OBSERVED THAT THE FIRM M/S VASTECH SOLUTION WAS DISSOLVED ON 20/0 1/2011 AND IT WAS MENTIONED IN THE DISSOLUTION DEED THAT THE PARTNERSHIP WAS DISSOLVED TO UPGRADE INTO NEW COMPANY. THE A.O. ASKED THE ASSESSEE TO PRODUCE SOURCE OF LOA N GIVEN BY M/S VASTECH SOLUTION. IN RESPONSE THE ASSESSEE FURNISHED THE COPY OF CONFIRMATI ON SIGNED BY SHRI NITENDERA TEWARI ON BEHALF OF M/S VASTECH SOLUTION WHEREIN THE DA TE AND AMOUNT OF LOAN WAS MENTIONED. ACCORDING TO THE A.O. THE ASSESSEE COMPANY N EITHER FURNISHED BANK STATEMENT OR ANY DETAILS OF THE SOURCE AND THAT THE FIR M M/S VASTECH SOLUTION WAS DISSOLVED ON 20/01/2011 THEREFORE THIS COULD NOT HAVE ADVANCED MONEY TO THE ASSESSEE COMPANY. HE ACCORDINGLY MADE THE ADDITION OF R S. 12 20 510/- AND TREATED THE SAME AS INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD.CIT(A) AND FURNISHED THE ADDITIONAL EVIDENCES UNDER RULE 46A OF THE INCOME TAX RULES 1962. THE SAID EVIDENCES WERE FORWARDED BY THE LD. CIT(A) TO THE A.O . FOR HIS REMAND REPORT. IN RESPONSE THE A.O. SUBMITTED AS UNDER: IN THIS REGARD AS PER AOS REPORT IT IS SUBMITTED TH AT THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS WAS GIVEN AMPLE TIME TO EXPL AIN THE IDENTITY OF SOURCE AND GENUINENESS AND CREDITWORTHINESS OF THE TRANSAC TION. HOWEVER THE ASSESSEE FAILED TO DISCHARGE ITS ONUS. NOW THE ASSESSEE ALO NG WITH THE SUBMISSION OF DOCUMENTS BEFORE THE LD. CIT(A) HAS SUBMITTED THAT THESE DOCUMENTS COULD NOT BE FILED DURING THE ASSESSMENT PROCEEDINGS AS THESE WERE NOT TRACEABLE AS THE FIRM WAS DISSOLVED IN JANUARY 2011. THE ASSESSEE ITSELF IS ACCEPTING THAT THE FIRM HAD BEEN DISSOLVED HENCE A DISSOLVED ENTITY COULD N OT ADVANCE MONEY TO 3 ANYONE AND THE IDENTITY OF SOURCE ITSELF AND GENUIN TY OF THE TRANSACTIONS IS UNDER DOUBT IN THESE CIRCUMSTANCES. FURTHER THE ASSETS A ND LIABILITIES OF THE DISSOLVED FIRM HAD BECOME A PART OF THE ASSESSEE COMPANY BY V IRTUE OF THE DISSOLUTION THE SUBMISSION OF THE ASSESSEE IS NOTHING BUT AN AFTERT HOUGHT HENCE THE SUBMISSION OF THE ASSESSEE SHOULD NOT BE ACCEPTED AND RELIANCE OF THE ASSESSEE ON THE DOCUMENTS SUBMITTED SHOULD NOT BE PERMITTED. 2. IN THIS REGARD IT IS SUBMITTED THAT THE WRITTEN SUBMISSION FILED BY THE ASSESSEE HAS BEEN PERUSED. THE ASSESSEE IN HIS WRITTEN SUBMISSIO N DATED 18.02.2019 HAS SUBMITTED COPY OF LEDGER ACCOUNT OF M/S VASTECH SOL UTIONS IN THE BOOKS OF ASSESSEE COMPANY. COPY OF BANK STATEMENT OF M/S VAS TECH SOLUTIONS IN ICICI BANK FOR THE FINANCIAL YEAR 2012-13 RELEVANT FOR TH E AY 2013-14 AND COPY OF BALANCE SHEET OF M/S VASTECH SOLUTION AS ON 31.03.2 012 ALONG WITH LIST OF SUNDRY DEBTORS. 3. IN THIS REGARD IT IS SUBMITTED THAT AS PER THE DEED OF DISSOLUTION DATED 20-JAN- 2011 COPY OF WHICH WAS SUBMITTED BY THE ASSESSEE M/S VIR TUOSO NETSOFT (P) LTD DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE PA RTNERSHIP FIRM SO FAR CARRIED ON UNDER THE NAME AND STYLE OF M/S VASTECH SOLUTIONS WAS DISS OLVED WITH EFFECT FROM 20.01.2011 (COPY ENCLOSED) AND THE PARTNERSHIP FIRM HAD BEEN UPGRADED TO NEW COMPANY M/S VIRTUOSO NETWOFT (P) LTD. 4. NOW THE ASSESSEE HAS SUBMITTED THE LEDGER ACCOUNTS WITH M/S VASTECH SOLUTIONS AND BANK STATEMENTS OF M/S VASTECH SOLUTI ONS FOR THE F.Y. 2012-13 TO INDICATE THAT M/S VASTECH SOLUTIONS HAS ADVANCED MO NEY TO THE ASSESSEE COMPANY DURING THE FY 2012-13. IT IS A NOTABLE FACT THAT M/S VASTECH SOLUTIONS HAS BEEN DISSOLVED ON 20.01.2011 AND UPGRADED TO THE AS SESSEE COMPANY M/S VIRTUOSO NETSOFT (P) LTD WITH EFFECT FROM 20.01.201 1. HENCE THE VERACITY OF THESE DOCUMENTS ARE DOUBTFUL AS IT IS CLEARLY GIVEN IN TH E DEED THAT THE PARTNERSHIP UNDER THE NAME AND STYLE OF M/S VASTECH SOLUTIONS IN THE DEED THAT THE PARTNERSHIP UNDER THE NAME AND STILE OF M/S VASTECH SOLUTION WAS DISSOLVED AND IT WAS UPGRADED INTO NEW COMPANY WITH SAME PART NERS UNDER THE NAME AND STYLE OF M/S VIRTUOSA NETSOFT PVT. LTD. A DISSOLVED ENTITY COULD NOT HAVE ADVANCED MONEY TO THE ASSESSEE COMPANY. 5. FURTHER THE ASSESSEE DURING THE ASSESSMENT PROCEED INGS HAS BEEN SUBMITTED VIDE ITS LETTER DATED 20.01.2016 AS UNDER WHICH IS A PART OF ASSESSMENT RECORD 'M/S VASTECH SOLUTIONS WAS A PARTNERSHIP FIRM BETWE EN SH. NITENDRA TIWARI AND SMT. ASHA PHAGNA 50% SHARE EACH. THIS FIRM HAS BEEN UPGRADED WITH M/S VIRTUOSO NETSOFT (P) LTD. DURING THE YEAR.' IT IS PERTINENT TO MENTION HERE THAT AS PER THE MAT ERIAL AVAILABLE ON RECORD THE DIRECTORS OF M/S VIRTUOSA NETSOFT PVT. LTD. DURING THE YEAR UNDER CONSIDERATION WERE SH. NITENDRA TIWARI AND SMT. ASHA PHAGNA THE SAME INDIVIDUALS WHICH WERE PARTNERS IN THE DISSOLVED FIRM M/S VASTECH SOLUTION S. FURTHER FROM THE ROC SITE IT HAS BEEN OBTAINED THAT THE ASSESSEE COMPANY I.E. M/ S VIRTUOSA NETSOFT PVT. LTD. WAS INCORPORATED ON 21.01.2011 JUST A DAY AFTER WHE N THE PARTNERSHIP FIRM M/S VASTECH SOLUTIONS WAS DISSOLVED TO UPGRADE IT INTO A NEW COMPANY THAT IS THE ASSESSEE COMPANY M/S VIRTUOSA NETSOFT PVT. LTD. 6. IT IS A MATTER OF FACT THAT THE SAME WAS CONFRON TED TO THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 27.01.2016 WHICH READS AS U NDER: 4 '2. YOU HAVE PRODUCED DISSOLUTION DEED OF M/S VASTE CH SOLUTIONS AS PER WHICH THE FIRM WAS DISSOLVED ON 20.01.2011. HOWEVER YOU ARE SHOWING LOAN FROM M/S VASTECH SOLUTIONS STANDING AS ON 31.03.2012 AMOUNTI NG TO RS.25 31 765/- AND RECEIVED DURING THE YEAR RS. 12 20 510/-. EXPLAIN F ROM WHERE THIS FRESH AMOUNT OF RS.12 20 510/-RECEIVED. GIVE DETAILS OF THE SOURCE. ALSO EXPLAIN IN THE EVENT OF NO SOURCE WHY NOT THIS AMOUNT BE TREATED AS YOUR INCOM E U/S 68 AS CREDITS?' 7. THE ASSESSEE WAS GIVEN AMPLE TIME TO EXPLAIN THE IDENTITY OF SOURCE AND GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTION . HOWEVER THE ASSESSEE FAILED TO DISCHARGE ITS ONUS. NOW THE ASSESSEE ALON G WITH THE SUBMISSION OF DOCUMENTS BEFORE THE LD. CIT(A) VIDE LETTER DATED 1 8.02.2019 HAS SUBMITTED THAT THESE DOCUMENTS COULD NOT BE FILED DURING THE ASSES SMENT PROCEEDINGS AS THESE WERE NOT TRACEABLE AS THE FIRM WAS DISSOLVED IN JAN UARY 2011. THE ASSESSEE ITSELF IS ACCEPTING THAT THE FIRM HAD BEEN DISSOLVED HENCE A DISSOLVED ENTITY COULD NOT ADVANCE MONEY TO ANYONE AND THE IDENTITY OF THE SOU RCE ITSELF AND GENUINENITY OF THE TRANSACTIONS IS UNDER DOUBT IN THESE CIRCUMS TANCES. FURTHER THE ASSETS AND LIABILITIES OF THE DISSOLVED FIRM HAD BECOME A PART OF THE ASSESSEE COMPANY BY VIRTUE OF THE DISSOLUTION THE SUBMISSION OF THE AS SESSEE IS NOTHING BUT AN AFTERTHOUGHT HENCE THE SUBMISSION OF THE ASSESSEE S HOULD NOT BE ACCEPTED AND RELIANCE OF THE ASSESSEE ON THE DOCUMENTS SUBMITTED SHOULD NOT BE PERMITTED.' 4.1 THE LD. CIT(A) PROVIDED THE COPY OF THE REMAND REPO RT TO THE ASSESSEE AND IN THE REJOINDER THE ASSESSEE SUBMITTED AS UNDER: 'SIR FOR THE SAKE OF CONVENIENCE I BEG TO MAKE THE FOLLOWING WRITTEN SUBMISSIONS WHICH MAY KINDLY BE CONSIDERED WHILE DISPOSING OF T HE APPEAL NOTED IN THE SUBJECT. 1. THE RELEVANT FACTS IN BRIEF ARE THAT THE ASSESSE E IS A SERVICE PROVIDER AND IS ENGAGED IN THE BUSINESS OF MAKING APPLICATION OF AN DROID PHONES AND RELATED SOFTWARE. THE COMPANY ALSO PROVIDED SOFTWARE DEVELO PMENT SERVER SOLUTIONS AND E-BUSINESS SOLUTIONS. THE REVISED RETURN OF INCOME WAS FILED ON 03.04.2014 DECLARING TOTAL INCOME AT RS. 64 92 640/- UNDER THE HEAD BUSINESS/PROFESSION. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND ASSES SMENT WAS MADE U/S 143(3) VIDE IMPUGNED ORDER DATED 15.02.2016 DETERMINING TO TAL INCOME AT RS. 77 13 150/ 2. THE ONLY ISSUED INVOLVED IN THE PRESENT APPEAL I S REGARDING ADDITION OF RS. 12 20 510/- MADE U/S 68 BY THE LD. AO. ON PERUSAL OF BALANCE SHEET OF ASSESSEE COMPANY THE LD. AO FOUND THAT THE ASSESSEE COMPANY RECEIVED AN AMOUNT OF RS. 40 93 524/- AS LOAN FROM M/S VASTECH SOLUTIONS. IT WAS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS THAT M/S VASTECH SOLUTIONS W AS A PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS NAMELY SH. NITENDRA TEWA RI AND SMT. ASHA PHAGNA. THE SAID FIRM M/S VASTECH SOLUTIONS WAS DISSOLVED O N 20.01.2011. A COPY OF DISSOLUTION DEED WAS FILED DURING ASSESSMENT PROCEE DINGS (COPY ATTACHED AT PAGES 1-2). THE ASSESSEE COMPANY NAMELY M/S VIRTUOS O NETSOFT PVT. LTD. CAME INTO EXISTENCE ON 21.10.2011 WITH ITS PROMOTER DIRE CTORS SHRI NITENDRA TEWARI AND SMT. ASHA PHAGNA. AS REGARDS THE SOURCE OF LOAN GIV EN BY M/S VASTECH SOLUTIONS TO ASSESSEE COMPANY A CONFIRMATION WAS SUBMITTED T O THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS SIGNED BY SHRI NI TENDRA TEWARI AS PARTNER ON BEHALF OF M/S VASTECH SOLUTIONS WHEREIN DETAILS OF LOAN WITH DATES AND AMOUNT WAS GIVEN (CERTIFIED COPY OF CONFIRMATION ATTACHED AT PAGE 3). IT IS RESPECTFULLY 5 SUBMITTED THAT IT WAS ON ACCOUNT OF RECOVERY FROM S UNDRY DEBTORS IN THE HANDS OF M/S VASTECH SOLUTIONS AS REFLECTED IN BALANCE SHEET AS ON 31.03.2012 (PG 4 8 OF ADDITIONAL EVIDENCE) RELATING TO M/S VASTECH SOLUTI ONS AND FURTHER RECEIPTS RECEIVED BY M/S VASTECH SOLUTIONS DURING THE FINANC IAL YEAR 2012-13. A COPY OF LEDGER ACCOUNT OF M/S VASTECH SOLUTIONS IN THE BOOK S OF ASSESSEE COMPANY DURING THE PREVIOUS YEAR IS ATTACHED HEREWITH AT P AGE 1 OF ADDITIONAL EVIDENCE. IT IS EVIDENT FROM THIS ACCOUNT THAT AGGREGATE PAY MENTS OF RS.20 50 000/- WERE RECEIVED FROM THE SAID FIRM THROUGH BANK ON DIFFERE NT DATES WHICH ARE CREDITED IN AXIS BANK PERTAINING TO ASSESSEE. FURTHER KIND ATTE NTION IS INVITED TO BANK STATEMENT OF M/S VASTECH SOLUTIONS RELATING TO PREV IOUS YEAR (PAGES 2-3 OF ADDITIONAL EVIDENCE) IN WHICH PAYMENTS MADE TO ASSE SSEE COMPANY (VIRTUOSO NETSOFT) ARE REFLECTED IN COLUMN 'WITHDRAWAL AMT'. ON COMBINED PERUSAL OF COPY OF LEDGER ACCOUNT OF M/S VASTECH SOLUTIONS AND BANK STATEMENT OF M/S VASTECH SOLUTIONS IT IS CLEAR THAT ALL CREDIT ENTRIES IN T HE LEDGER ACCOUNT OF M/S VASTECH SOLUTIONS IN THE BOOKS OF ASSESSEE COMPANY ARE DIR ECTLY LINKED WITH DEBIT ENTRIES (WITHDRAWAL SIDE) IN THE BANK STATEMENT OF M/S VAST ECH SOLLUTIONS. NOW COMING TO SOURCE OF CREDIT ENTRIES IN BANK STATEMENT OF M/S V ASTECH SOLUTIONS IT IS RESPECTFULLY SUBMITTED THAT AS PER BALANCE SHEET OF M/S VASTECH SOLUTIONS AN AGGREGATE AMOUNT OF RS. 15 94 258/- WAS RECOVERABLE AS ON 31.03.2012 FROM TWO PARTIES I.E. M/S CAIN TECHNOLOGY AND M/S TRIOTECH S OLUTIONS (PAGES 4 AND 8 OF ADDITIONAL EVIDENCE). IT IS EVIDENT FROM THE NARRAT ION OF CREDIT ENTRIES (DEPOSIT SIDE) OF BANK STATEMENT OF M/S VASTECH SOLUTIONS (P AGES 2-3 OF ADDITIONAL EVIDENCE) THAT THERE WAS OPENING BALANCE OF RS.5 4 7 719/- AND FURTHER DEPOSITS WERE ON ACCOUNT OF BANK TRANSFERS FROM THE ABOVE SA ID TWO PARTIES SHOWN IN THE BALANCE SHEET AS SUNDRY DEBTORS OF M/S VASTECH SOLU TIONS. THEREFORE SOURCE OF THE AMOUNT IN THE HAND OF M/S VASTECH SOLUTIONS STO OD FULLY EXPLAINED. THE IDENTITY OF M/S VASTECH SOLUTIONS IS NOT DOUBT AS I T WAS A REGULAR ASSESSEE TILL A.Y. 2013-14 AND GENUINENESS OF TRANSACTIONS ALSO STOOD FULLY EXPLAINED AS THE FUNDS HAVE BEEN RECEIVED THROUGH BANKING CHANNELS WHICH I S EVIDENT FROM THE .EVIDENCE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS ADDITIONAL EVIDENCE SUBMITTED DURING THE APPELLATE PROCEEDINGS. AS REGARDS CAPACITY OF M/S VASTECH SOLUTIONS THAT CANNOT BE D OUBTED IN VIEW OF SUBSTANTIAL INCOME SHOWN IN ITRS BY CREDITOR. COPIES OF ITRS RE LATING TO VASTECH SOLUTIONS ALONGWITH COMPUTATION CHART OF TOTAL INCOME FOR THE A. Y. 2012-12 ATTACHED AT PAGES 4-7 AND ITR FORASSTT. YEAR 2013-14 ATTACHED A T PAGE 8. THUS THE ASSESSEE HAS DISCHARGED THE ONUS PLACED UPON IT U/S 68 OF TH E INCOME TAX ACT. THE LD. AO MADE THE ADDITION OF RS. 12 20 510/- WITHOUT CONSID ERING THE FACTS CORRECTLY. 3. AS FOR COMMENTS OF AO IN REMAND REPORT THAT M/S VASTECH SOLUTIONS WAS DISSOLVED AND THAT IT COULD NOT HAVE ADVANCED MONEY TO THE ASSESSEE COMPANY IT IS RESPECTFULLY SUBMITTED THAT M/S VASTECH SOLUT IONS HAS BEEN A REGULAR ASSESSEE TILL A.Y. 2013-14 (PAGES 4-8) SHOWING RECEIPTS FROM CUSTOMERS TILL THE CONTRACTS LASTED WITH SOME PARTIES. ON THE OTHER HAND THE ASSE SSEE COMPANY STARTED ITS BUSINESS EFFECTIVELY DURING THE PREVIOUS YEAR RELAT ING TO THE ASSTT. YEAR 2013-14 BY WAY OF NEW CONTRACTS WITH PARTIES. COPIES OF ITRS O F ASSESSEE COMPANY FOR THE A.YS. 2012-13 AND 2013-14 RESPECTIVELY ARE ATTACHE D AT PAGES 9-11. IT IS RESPECTFULLY SUBMITTED THAT PARTNERSHIP FIRM AND A PRIVATE LIMITED COMPANY ARE TWO DIFFERENT AND INDEPENDENT PERSONS UNDER THE LAW . A PARTNERSHIP FIRM CAN RUN ITS BUSINESS BY MUTUAL UNDERSTANDING OF THE PARTIES . IT CANNOT BE SAID THAT ASSETS AND LIABILITIES OF DISSOLVED FIRM HAD BECOME PART O F ASSESSEE COMPANY BY VIRTUE OF DISSOLUTION DEED. A COMPANY IS CREATED AND FORMED U NDER THE COMPANIES ACT AND CAPITAL IS GENERATED BY ISSUING SHARES TO THE S HAREHOLDERS. IT IS FURTHER 6 SUBMITTED THAT THE FIRM WAS DUTY BOUND TO COMPLETE THE ONGOING CONTRACTS WHICH LASTED TILL ASSTT. YEAR 2013-14. IT IS EVIDEN T FROM ITR COMPUTATION OF INCOME AND BALANCE SHEET FOR YEAR ENDED ON 31.03.2012 THAT THE RECEIPTS WERE SHOWN BY THE FIRM M/S VASTECH SOLUTIONS WHICH WERE MADE BY T WO PARTIES NAMELY M/S CAINS TECHNOLOGIES INDIA PVT. LTD AND M/S TRIO TECH SOLUT IONS PVT. LTD AFTER TPS. THE LD. AO HAS NOT CONSIDERED THE FACTS CORRECTLY WHICH ARE ON RECORD. FURTHER IT IS SUBMITTED THAT THE LD. AO HAS NOT GIVEN ANY SPECIFIC COMMENTS ON THE DOCUMENTS ATTACHED WITH APPLICATION FOR ADDITIONAL EVIDENCE WHICH ARE SELF EXPLANATORY AND HAVE DIRECT LINK TO DECIDE THE POIN T AT ISSUE. IT IS THEREFORE PRAYED THAT THE ADDITIONAL EVIDENCE MAY KINDLY BE A DMITTED AND ADJUDICATED UPON. 4. IT IS PRAYED THAT ADDITION OF RS. 12 20 510/- MA DE BY THE LD. AO U/S 68 OF THE INCOME TAX ACT MAY KINDLY BE DELETED KEEPING IN VI EW THE ABOVE SUBMISSIONS.' 4.2 THE LD. CIT(A) AFTER CONSIDERING THE REMAND REPORT O F THE A.O. AND THE REJOINDER TO THE REMAND REPORT BY THE ASSESSEE ADMITTED THE ADDIT IONAL EVIDENCE UNDER RULE 46A OF INCOME TAX RULES 1962 BY OBSERVING IN PARA 5.2.4 T O 5.2.7 OF THE IMPUGNED ORDER AS UNDER: 5.2.4. IN THE DECISION RENDERED IN THE CASE OF SMT. PRABHAVATI S. SHAH VS. CIT REPORTED AT 231 ITR 1 THE HON'BLE BOMBAY HIGH COUR T CATEGORICALLY POINTED OUT THAT WITH THE AVOWED OBJECT OF ENSURING THAT EVIDEN CE IS PRIMARILY LED BEFORE THE ASSESSING OFFICER RULE 46A(1) PUTS FETTERS ON THE R IGHT OF THE APPELLANT TO PRODUCE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ANY ADDITIONAL EVIDENCE NOT PREVIOUSLY RAISED BEFORE THE ASSESSING OFFICER. PUTT ING FETTERS ON THE RIGHT OF APPELLANT IN THE MATTER OF PRODUCING ADDITIONAL EVI DENCE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) CLARIFIED THE COURT DOES NOT MEAN AFFECTING IN ANYWAY THE POWERS OF THE FIRST APPELLA TE AUTHORITY CONFERRED BY SUB- RULE (4) AND SECTION 250 OF THE ACT. THE COURT HELD AS UNDER: '3 ........ ON A PLAIN READING OF RULE 46A IT IS CLEAR THAT THIS RULE IS INTENDED TO PUT FETTERS ON THE RIGHT OF THE APPELLANT TO PRODUCE BE FORE THE AAC ANY EVIDENCE WHETHER ORAL OR DOCUMENTARY OTHER THAN THE EVIDENC E PRODUCED BY HIM DURING THE COURSE OF THE PROCEEDINGS BEFORE THE ITO EXCEPT IN THE CIRCUMSTANCES SET OUT THEREIN. IT DOES NOT DEAL WITH THE POWERS OF THE AA C TO MAKE FURTHER ENQUIRY OR TO DIRECT THE ITO TO MAKE FURTHER ENQUIRY AND TO REPORT THE RESULT OF THE SAME TO HIM. THIS POSITION HAS BEEN MADE CLEAR BY SUB-RULE (4) W HICH SPECIFICALLY PROVIDES THAT THE RESTRICTIONS PLACED ON THE PRODUCTION OF ADDITI ONAL EVIDENCE BY THE APPELLANT WOULD NOT AFFECT THE POWERS OF THE AAC TO CALL FOR THE PRODUCTION OF ANY DOCUMENT OR THE EXAMINATION OF ANY WITNESS TO ENABL E HIM TO DISPOSE OF THE APPEAL. UNDER SUB-SECTION (4) OF SECTION 250 THE AAC IS EM POWERED TO MAKE SUCH FURTHER INQUIRY AS HE THINKS FIT OR TO DIRECT THE ITO TO MAKE FURTHER INQUIRY AND TO REPORT THE RESULT OF THE SAME TO HIM. SUB-SECTIO N (5) OF SECTION 250 EMPOWERS THE AAC TO ALLOW THE APPELLANT AT THE HEARING OF T HE APPEAL TO GO INTO ANY GROUND OF APPEAL NOT SPECIFIED IN GROUNDS OF APPEAL ON HIS BEING SATISFIED THAT THE OMISSION OF THE GROUND FROM THE FORM OF APPEAL WAS NOT WILLFUL. IT IS CLEAR FROM THE ABOVE PROVISIONS THAT THE POWERS OF THE AAC ARE MUCH WIDER THAN THE POWERS OF AN ORDINARY COURT OF APPEAL. THE SCOPE OF HIS POWERS IS COTERMINOUS WITH THAT O F THE ITO. HE CAN DO WHAT THE ITO CAN DO. HE CAN ALSO DIRECT THE ITO TO DO WHAT HE 7 FAILED TO DO. THE POWER CONFERRED ON THE AAC UNDER SUB-SECTION (4) OF SECTION 250 BEING QUASI-JUDICIAL POWER IT IS INCUMBENT ON HIM TO EXERCISE THE SAME IF THE FACTS AND CIRCUMSTANCES JUSTIFY. IF THE AAC FAILS T O EXERCISE HIS DISCRETION JUDICIALLY AND ARBITRARILY REFUSES TO MAKE ENQUIRY IN A CASE W HERE THE FACTS AND CIRCUMSTANCES SO DEMAND HIS ACTION WOULD BE OPEN F OR CORRECTION BY A HIGHER AUTHORITY. 4. ON A CONJOINT READING OF SECTION 250 AND RULE 46A IT IS CLEAR THAT THE RESTRICTIONS PLACED ON THE APPELLANT TO PRODUCE EVIDENCE DO NOT AFFECT THE POWERS OF THE AAC UNDER SUB-SECTION (4) OF SECTION 250. THE PURPOSE OF RULE 46A APPEARS TO BE TO ENSURE THAT EVIDENCE IS PRIMARILY LED BEFORE THE ITO. 5. WE ARE SUPPORTED IN OUR ABOVE CONCLUSION BY THE DEC ISION OF THE ORISSA HIGH COURT IN B.L. CHOUDHURY V. CIT [1976] 105ITR 371 IN WHICH IT WAS HELD: 'WIDE PROVISION HAS THUS BEEN MADE CONFERRING JUR ISDICTION ON THE FIRST APPELLATE AUTHORITY TO MAKE SUCH INQUIRY AS HE DEEMS FIT. THE PROVISION SEEMS TO HAVE BEEN BASED ON THE FACT THAT BEFORE THE APPELLATE ASSISTA NT COMMISSIONER THERE IS GENERALLY NO OPPOSITE PARTY. THE APPELLATE AUTHORIT Y HIMSELF IS THE DEPARTMENTAL AUTHORITY REPRESENTING THE REVENUE. THEREFORE HE H AS BEEN INVESTED WITH THE POWER OF MAKING FURTHER INQUIRY. HE DOES NOT EXCEED HIS JURISDICTION IF HE ASKS OR A LLOWS THE ASSESSEE TO PRODUCE OR FILE ADDITIONAL PAPERS OR ADDITIONAL EVIDENCE IN TH E MATTER HE THINKS FIT . . . .'(P. 376) IT WAS FURTHER HELD THAT '. . . IN FACT RECEIVING NEW MATERIAL BY THE APPEL LATE ASSISTANT COMMISSIONER CANNOT BE EQUATED WITH RECEIPT OF ADDITIONAL EVIDEN CE AS CONTEMPLATED IN ORDER 41 RULE 27 OF THE CODE OF CIVIL PROCEDURE OR EVEN AT THE STAGE OF SECOND APPEAL BY THE TRIBUNAL . . . .'(P. 376)' THUS A CONJOINT READING OF SECTION 250(4) AND (5) OF THE ACT AND RULE 46A(1) AND (4) OF THE RULES CLARIFIES THAT RESTRICTION IS ONLY IMPOSED ON THE A PPELLANT'S RIGHT TO PRODUCE ADDITIONAL EVIDENCE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 5.2.5. IN THE DECISION RENDERED IN THE CASE OF K. RAVINDRANATHAN NAIR REPORTED AT 184 CTR (KER) 46 THE KERALA HIGH COURT TOOK COGNIZANCE OF THE DECISION IN THE CASE OF PRABHAVATI S. SHAH AND FURT HER SPECIFIED THAT 'IF THE PROVISIONS OF R. 46A SUB-RULE (1) THEREOF IS HELD T O BE MANDATORY THAT WILL GO AGAINST THE PROVISIONS OF SECTION 250 OF THE ACT CO NFERRING POWER ON THE FIRST APPELLATE AUTHORITY TO ENQUIRE INTO THE MATTER AND PASS APPROPRIATE ORDERS. IN OTHER WORDS RULE 46A WITHOUT SUB-RULE (4) WILL BE OPEN TO CHALLENGE AS ULTRA VIRES SECTION 250 OF THE ACT'. 5.2.6. THUS A READING OF THE EXPOSITION OF LAW RELATING T O THE POWER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) TO ADMIT ADDIT IONAL EVIDENCE AS MADE BY THE BOMBAY HIGH COURT AND RELIED ON BY THE KERAL A HIGH COURT (DISCUSSED ABOVE) REVEALS THAT EVEN IF REPEATED OPPORTUNITIES WERE GIVEN TO THE AP PELLANT TO PRODUCE EVIDENCE AND EVEN IF THE APPELLANT DOES NOT SUO MOTU PRODUCE ANY EVIDENCE IN THE SPIRIT OF JUSTICE AND FAIR-PLAY I T IS INCUMBENT ON THE FIRST APPELLATE AUTHORITY BEING A QUASI-JUDICIAL AUTHORITY TO REQ UIRE THE APPELLANT TO PRODUCE 8 REQUISITE EVIDENCE OR TO MAKE NECESSARY INQUIRY AND ADMIT ANY SUCH FRESH AND ADDITIONAL EVIDENCE OF COURSE BY VIRTUE OF SECTIO N 250(4) AND (5) READ WITH SUB- RULE (4) OF RULE 46A. ' 5.2.7. IN THE PRESENT CASE THE DETAILS SUBMITTED B Y THE APPELLANT ARE CRUCIAL TO THE ADJUDICATION OF THE GROUNDS RAISED IN APPEAL IN ASMUCH CONFIRMATION AND BANK ACCOUNTS STATEMENTS SUBMITTED BY THE APPELLANT WILL HELP TO ADJUDICATE THE MATTER IN JUDICIOUS WAY. THE MAJOR ADDITION ON THE APPELLANT'S CASE HAVING BEEN MADE ON ACCOUNT OF NON SUBMISSION OF EVIDENCE TO PR OVE CREDITWORTHINESS AND GENUINENESS OF UNSECURED LOAN. IN VIEW OF THESE FAC TS AFTER CONSIDERING THE PRINCIPLES LAID DOWN BY THE BOMBAY HIGH COURT IN TH E CASE OF SMT. PRABHAVATI S. SHAH (CITED SUPRA) THE ADDITIONAL EVIDENCE SUBMITTED BY THE APPELLANT IS ADMITTED WITH REFERENCE TO THE ADDITION ON ACCOUNT OF UNSECURED LOANS. HENCE AS THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE IN NOT PRODUCING THESE DOCUMENTS BEFORE THE ASSESSING OFFICER AND THESE WE RE RELEVANT TO THE GROUND OF APPEAL THESE DOCUMENTS ARE ADMITTED UNDER RULE 46A. 4.3 THE LD. CIT(A) FURTHER OBSERVED THAT AS PER THE BANK STATEMENT SUBMITTED AS ADDITIONAL EVIDENCE THE AMOUNT EXTENDED TO THE ASSESSEE B Y M/S VASTECH SOLUTIONS WAS RS. 14 50 000/- THE RELEVANT OBSERVATIONS ARE GIV EN IN PARA 5.3.1 TO 5.3.2 WHICH READ AS UNDER: 5.3.1. SECTION 39 OF THE INDIAN PARTNERSHIP ACT 193 2 STATES THAT THE DISSOLUTION OF PARTNERSHIP FIRM LEADS TO CEASE OF THE EXISTENCE OF THE ORGANIZATION. AFTER THIS THE PARTNERSHIP FIRM CANNOT ENTER INTO ANY TRANSACTION WITH ANYBODY. IT CAN ONLY SELL THE ASSETS TO REALIZE THE AMOUNT PAY THE LIABILITI ES OF THE FIRM AND DISCHARGE THE CLAIMS OF THE PARTNERS. NOW IF WE SEE THE ACCOUNTIN G TREATMENT ON DISSOLUTION THE BOOKS OF THE FIRM ARE TO BE CLOSED. DISSOLUTION PRO CESS STARTS BY OPENING THE FOLLOWING ACCOUNTS IN THE FIRM'S BOOKS: REALISATION ACCOUNT PARTNER'S LOAN ACCOUNT PARTNERS' CAPITAL ACCOUNTS BANK OR CASH A CCOUNT. THE OBJECT OF PREPARING OF REALISATION ACCOUNT IS TO CLOSE THE BO OKS OF ACCOUNTS OF THE DISSOLVED FIRM AND TO DETERMINE PROFIT OR LOSS ON T HE REALISATION OF ASSETS AND PAYMENT OF LIABILITIES. IT IS PREPARED BY TRANSFERR ING ALL THE ASSETS EXCEPT CASH OR BANK ACCOUNT TO THE DEBIT SIDE OF THE ACCOUNT. TRAN SFERRING ALL THE LIABILITIES EXCEPT PARTNER'S LOAN ACCOUNT AND PARTNERS' CAPITAL ACCOUNTS TO THE CREDIT SIDE OF THE ACCOUNT. CREDITING THE RECEIPT ON THE SALE O F ASSETS TO THE ACCOUNT. DEBITING THE PAYMENT OF LIABILITIES TO THE ACCOUNT. DEBITING THE DISSOLUTION EXPENSES OF THE FIRM. THE BALANCE IN THE ACCOUNT MA Y BE EITHER PROFIT OR LOSS. THEN THE BALANCE IS TRANSFERRED TO THE CAPITAL ACCOUNTS OF THE PARTNERS IN THEIR PROFIT- SHARING RATIO. 5.3.2. IT IS IN THESE FACTS AND CIRCUMSTANCES AO HA S RIGHTLY HELD THAT A DISSOLVED FIRM CANNOT EXTEND LOAN TO THE APPELLANT. HERE EXPL ANATION OF SOURCE IS IMMATERIAL. HENCE ADDITION TO THE CORRECT AMOUNT O F RS.14 50 000/- [INSTEAD OF RS. 12 20 510/-] IS CONFIRMED. THE GROUND OF APPEAL IS NO.2 IS DISMISSED. 5. NOW THE ASSESSEE IS IN APPEAL. 9 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT ONLY BUSINES S ACTIVITY OF THE PARTNERSHIP FIRM M/S VASTECH SOLUTION WERE SEIZED HOWEVER THE SAID FIRM WAS REGULARLY FILING THE RETURN OF INCOME AND MAINTAINING THE BOOKS OF ACCOUNT THEREFORE THE IDENTITY OF THE FIRM AND THE CAPACITY TO ADVANCE THE LOAN TO THE ASSESSEE COMPANY WAS VERIFIABLE FROM THE RECORD AS THE SAID FIRM WAS MAINTAINING THE BOOKS OF AC COUNT THE REFERENCE WAS MADE TO PAGE NO. 1 TO 3 OF THE ASSESSEES COMPILATION WHICH A RE THE COPIES OF THE LEDGER ACCOUNT OF M/S VASTECH SOLUTION IN THE ASSESSEES BOOKS OF ACCOUNT AND THE BANK STATEMENT OF THE SAID FIRM. IT WAS ALSO SUBMITTED THAT THE ASSESSEE PROVED THE IDENTITY AS WELL AS CREDIT WORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION THEREFORE THE ADDITION MADE BY THE A.O. AND SUSTAINED BY THE LD. C IT(A) UNDER SECTION 68 OF THE ACT WAS NOT JUSTIFIED. 7. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE FIRM M/S VASTECH S OLUTION WAS DISSOLVED THEREFORE THE ASSESSEE COULD NOT HAVE TAKEN LOAN FROM THE FIRM WHIC H WAS NOT IN EXISTENCE. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE I T IS NOT IN DISPUTE THAT THE ASSESSEE RECEIVED THE LOAN FROM M/S VASTECH SOLUTION THR OUGH BANKING CHANNEL COPY OF THE DETAILS OF LOAN RECEIVED THROUGH CHEQUES OF AXI S BANK IS PLACED AT PAGE NO. 1 OF THE ASSESSEES COMPILATION WHICH IS COPY OF THE LEDGER A CCOUNT OF M/S VASTECH SOLUTION IN THE BOOKS OF THE ASSESSEE COMPANY THE SAID LEDGER AC COUNT REVEALS THAT THE ASSESSEE COMPANY NOT ONLY RECEIVED THE AMOUNT THROUGH CHEQU ES BUT ALSO MADE THE PAYMENTS. THE A.O. AS WELL AS THE LD. CIT(A) DOUBTED T HE AMOUNT RECEIVED BY THE ASSESSEE BUT NO EYEBROW WAS RAISED ON THE PAYMENTS MAD E BY THE ASSESSEE TO M/S VASTECH SOLUTION DURING THE YEAR RELEVANT TO THE ASSESSM ENT YEAR UNDER CONSIDERATION. IT IS ALSO NOTICED THAT THE FIRM M/S VASTECH SOLUTION WA S FILING THE RETURNS OF INCOME AND COPY OF THE RECEIPT OF INCOME TAX RETURN FOR THE ASSE SSMENT YEAR UNDER CONSIDERATION I.E A.Y. 2013-14 IS PLACED AT PAGE NO. 13 OF THE ASSESSE ES PAPER BOOK WHEREIN THE TOTAL TAXABLE INCOME WAS DECLARED AT RS. 1 69 080/- AND THE TAX PAYABLE WAS RS. 52 246/-. THE SAID RETURN WAS SIGNED BY ONE SHRI NITENDRA TIWARI I N CAPACITY OF THE PARTNER ON 31/03/2014 THEREFORE THE IDENTITY OF THE FIRM M/S VA STECH SOLUTION CANNOT BE DOUBTED. 10 THE SAID FIRM ALSO CONFIRMED THE LOAN GIVEN TO THE ASSESS EE TO THE A.O. COPY OF THE SAID CONFIRMATION IS PLACED AT PAGE NO. 19 OF THE ASSESSEES COMPILATION. WE THEREFORE CONSIDERING THE PECULIAR FACTS OF THE PRESENT CASE ARE OF THE VIEW THAT THE ADDITION MADE BY THE A.O. AND ENHANCED BY THE LD. CIT(A) WAS NOT JUSTIFIED ACCORDINGLY THE SAME IS DELETED. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 02/03/2021) SD/- SD/- (R.L. NEGI) (N.K. SAINI) JUDICIAL MEMBER VICE PRESIDENT DATED : 02/03/2021 AG *% + -. -( / COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT 4. THE CIT(A) 5. DR ITAT CHANDIGARH 6. GUARD FILE