Grewal Motors, Howrah v. ITO, Ward 56(3), Kolkata

1 A IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- A KO LKATA [ . . . . . .. . . .. . ! ! ! !. .. . '# ] BEFORE SHRI B.R.MITTAL JUDICIAL MEMBER & SRI C.D. RAO ACCOUNTANT MEMBER $ $ $ $ / ITA NO. 1830 (KOL) OF 2009 %& '( / ASSESSMENT YEAR 2005-06 M/S. GREWAL MOTORS KOLKATA. (PAN-AADFG1105H) INCOME-TAX OFFICER WARD-56(3) KOLKATA. (+ / APPELLANT ) - % - - VERSUS - (/0+ / RESPONDENT ) + 1 2 '/ FOR THE APPELLANT: / SRI A.K. TIBREWAL /0+ 1 2 ' / FOR THE RESPONDENT: / SRI S. BHADRA '3 / ORDER ( . . . . . .. . ) (B.R.MITTAL) JUDICIAL MEMBER : THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2005-06 AGAINST THE ORDER OF LD. C.I.T.(A)-XXXVI KOLKATA DATED 31/07/2009. THE ASSESSEE HAS ALSO REVISED THE GROUNDS OF APPEAL. 2. THE ONLY ISSUE RAISED IN THE REVISED GROUNDS OF APPEAL IS AS TO WHETHER THE LD. C.I.T.(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.7 15 000/- MADE BY THE A.O. U/S. 68 OF THE I.T. ACT IN RESPECT OF THREE LOAN CREDITORS. 3. THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF TRANSPORTATION OF GOODS AND DEALINGS IN SECOND HAND MOTOR CARS. TH E A.O. OBSERVED THAT THE ASSESSEE- FIRM DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR UNDER CONSIDERATION CLAIMED TO HAVE RECEIVED LOANS FROM THE FOLLOWING THREE PER SONS :- (A) SRI GAJENDRA KUMAR RS.2 38 000 (B) SMT. URMILA DEVI W/O GANEJDRA KUMAR RS.3 25 000 (C) SRI PRITAM SINGH RS.1 52 000 RS.7 15 000/- THE A.O. FURTHER OBSERVED THAT JUST A FEW DAYS BEFO RE THE SAID TRANSACTIONS OF LOAN EQUAL AMOUNTS WERE DEPOSITED IN THE BANK ACCOUNTS OF THE AFORESAID RESPECTIVE LOAN CREDITORS FROM A SINGLE BANK ACCOUNT IN THE NAME OF EAST-COAS T CARRIERS WHOSE ADDRESS WAS THE 2 SAME AS THAT OF THE ASSESSEE AND THE PARTNERS IN TH ESE TWO FIRMS WERE ALSO SAME. THE A.O. FURTHER OBSERVED THAT SRI GAJENDRA KUMAR AND S RI PRITAM SINGH WERE THE EMPLOYEES OF THE APPELLANT-FIRM BUT THEY DID NOT S HOW ANY SALARY INCOME DURING THE YEAR UNDER APPEAL IN THE RETURN FILED. WHEN CONFRO NTED ALL THE THREE LOAN CREDITORS CONFIRMED HAVING GIVEN INTEREST-FREE LOAN TO THE AS SESSEE-FIRM BY ACCOUNT PAYEE CHEQUES OUT OF GRATITUDE AND GOOD RELATION WITH THE PARTNER S OF THE ASSESSEE-FIRM. DEPOSITIONS OF ALL THE THREE LOAN CREDITORS WERE RECORDED BY THE A .O. DURING ASSESSMENT PROCEEDINGS AND AS PER THEIR VERSION EAST-COAST CARRIERS WAS C LOSED FOR ALL PURPOSES IN THE SAME ASSESSMENT YEAR AND FURTHER THEY DID NOT HAVE ANY D OCUMENTARY EVIDENCE IN SUPPORT OF ADVANCING LOANS TO THAT FIRM OR REPAYMENT MADE BY T HE SAID FIRM. ON THE ABOVE FACTS THE A.O. EXPRESSED DOUBT ABOUT SUCH EXTENDING OF INTERE ST-FREE LOANS BY THE AFORESAID THREE LOAN CREDITORS TO THE ASSESSEE-FIRM AS ACCORDING T O HIM THE FINANCIAL CONDITIONS AND CAPABILITIES OF THE PERSONS GIVING LOANS WERE HIGHL Y DOUBTFUL. ACCORDING TO HIM FURTHER THE ASSESSEE-FIRM IN DISGUISE HAS BROUGHT IN ITS OW N MONEY INTO THE BUSINESS. THE A.O. THEREFORE TREATED THE INTEREST-FREE LOANS FROM THE AFORESAID THREE PERSONS AGGREGATING TO RS.7 15 000/- AS UNEXPLAINED CASH CREDIT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S. 68 OF THE ACT. 4. THE ASSESSEE CAME IN APPEAL BEFORE THE LD. C.I. T.(A). HE OBSERVED THAT THE ALL THE THREE LOAN CREDITORS OPENED THEIR BANK ACCOUNTS WIT H THE SAME BANK VIZ. BANK OF INDIA SHIBPUR BRANCH AND VERY NOMINAL BALANCES WERE LYING IN THEIR CREDIT. HE FURTHER OBSERVED THAT AMOUNTS WERE CREDITED TO THEIR RESPEC TIVE ACCOUNTS IN THE SAID BANK STATED TO BE RETURN OF LOAN BY M/S. EAST-COAST CARRIERS AN D THE CHEQUES FOR THE EQUAL AMOUNTS WERE ISSUED ON THE SAME DAY IN FAVOUR OF THE ASSESS EE. ACCORDING TO THE LD. C.I.T.(A) FURTHER ALTHOUGH THE LOAN CREDITORS HAVE STATED TH AT THE LOANS TO THE ASSESSEE WERE INTEREST-FREE AND WERE GIVEN OUT OF GRATITUDE AND G OOD RELATIONS WITH THE PARTNERS OF THE ASSESSEE-FIRM BUT THE GENUINENESS OF THE TRANSACTI ONS AND CREDITWORTHINESS OF THESE LOAN CREDITORS COULD NOT BE ESTABLISHED BY THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE AND RELYING ON THE DECISION OF HONBLE APEX COURT IN TH E CASE OF SUMATI DAYAL VS. CIT [214 ITR 801 (SC)] THE LD. C.I.T.(A) HELD THAT AS THE A SSESSEE HAS FAILED TO SUBSTANTIATE THE CREDITWORTHINESS OF THE CREDITORS AND THE GENUINENE SS OF THE TRANSACTIONS THE ADDITION MADE BY THE A.O. IN THIS RESPECT AGGREGATING TO RS .7 15 000/- U/S. 68 OF THE ACT WAS 3 JUSTIFIED. HE THEREFORE UPHELD THE ADDITION OF R S.7 15 000/-. HENCE THIS APPEAL BY THE ASSESSEE. 5. DURING THE COURSE OF HEARING THE LD. A/R SUBMI TTED THAT THE ASSESSEE RECEIVED LOANS FROM THE THREE LOAN CREDITORS VIZ. SRI GAJEN DRA KUMAR (RS.2 38 000) SMT. URIMLA DEVI (RS.3 25 000) AND SRI PRITAM SINGH (RS.1 52 00 0) AGGREGATING TO RS.7 15 000/- BY ACCOUNT PAYEE CHEQUES. THE LD. A/R REFERRED PAGES 5 & 6 15 & 16 AND 21 & 22 OF THE PAPER BOOK WHICH ARE COPIES OF BANK PASS BOOK OF T HE AFORESAID THREE LOAN CREDITORS RESPECTIVELY AND SUBMITTED THAT THE LOANS WERE DULY REFLECTED IN THEIR BANK STATEMENTS. HE FURTHER SUBMITTED THAT THE AFORESAID LOAN CREDIT ORS WERE ASSESSED TO TAX AND REFERRED PAGES 9 TO 12 IN RESPECT OF SRI GAJENDRA KUMAR; PAG ES 17 & 18 IN RESPECT OF SMT.URMILA DEVI; AND PAGES 23 & 24 OF THE PAPER BOOK IN RESPEC T OF SRI PRITAM SINGH WHICH ARE THE COPIES OF BALANCE SHEETS AND ACKNOWLEDGEMENT OF INC OME-TAX RETURNS FILED FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. HE SUBMITTED THAT THE ASSESSEE HAS ESTABLISHED NOT ONLY THE IDENTITY OF THE LOAN CREDITORS BUT ALS O THE GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS OF EACH OF THE LOAN CREDITORS IS ALSO ESTABLISHED BECAUSE THE LOANS WERE RECEIVED BY ACCOUNT PAYEE CHEQUES. HE FURTHER REFERRED PAGE 28 OF THE PAPER BOOK AND STATED THAT THE ABOVE LOAN CREDITORS HAD EARLIE R GIVEN LOANS TO M/S. EAST-COAST CARRIERS WHICH WERE RECEIVED BACK AND CONSEQUENTLY THE LOANS WERE GIVEN BY THESE LOAN CREDITORS TO THE ASSESSEE. THE LD. A/R RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. ROHINI BUILDERS [256 ITR 360 (GUJ)] SUBMITTED THAT THE ADDITION IS NOT JUSTIFIED. 6. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT SRI GAJEN DRA KUMAR AND SRI PRITAM SINGH WERE EMPLOYEES OF THE ASSESSEE-FIRM. HE SUBMITTED THAT IN THE COMPUTATION OF INCOME FILED BY THE ABOVENAMED TWO LOAN CREDITORS THE SALARY IN COME IS NOT SHOWN BUT THE INCOME FROM COMMISSION ETC. HAS BEEN SHOWN. HE FURTHER RE FERRED PAGE-6 OF THE ORDER OF LD. C.I.T.(A) AND SUBMITTED THAT ALL THE THREE LOAN CRE DITORS STATED BEFORE THE A.O. THAT THE SAID LOANS WERE INTEREST-FREE AND THE SAME WERE GIV EN OUT OF GRATITUDE WHICH IS UNBELIEVABLE. THE LD. DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT THE RETURNED INCOME OF SRI GAJENDRA KUMAR WAS RS.99 324/- SMT. URMILA DEVI RS.99 000/- AND SRI PRITAM 4 SINGH RS.97 020/- AND CONSIDERING THEIR INCOME THE A.O. HAS RIGHTLY STATED THAT IT WAS HIGHLY UNREASONABLE FOR THE SAID LOAN CREDITORS TO EXTEND INTEREST-FREE LOANS AS CLAIMED TO THE FIRM WHERE THEY ARE EMPLOYEES OR NEXT KIN TO THE EMPLOYEE. HE SUBMITTED THAT THE CREDITWORTHINESS OF THE SAID LOAN CREDITORS WAS NOT ESTABLISHED CONSIDERING THE FACTS OF THE CASE. HE THEREFORE SUBMITTED THAT THE ORDER OF THE LD. C.I.T.(A) SHOULD BE CONFIRMED. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES. WE HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND GONE THROUG H THE SEVERAL DOCUMENTS PLACED IN THE ASSESSEES PAPER BOOK. THE FACTS ON THIS ISSUE HAVE BEEN DISCUSSED ABOVE. HOWEVER ON APPRECIATION OF FACTS AND MATERIAL ON RECORD TO RE ITERATE IN SHORT THE UNDISPUTED FACTS ARE - (A) THAT THE INTEREST-FREE LOANS WERE ADVANCED TO THE ASSESSEE-FIRM BY ACCOUNT PAYEE CHEQUES AND THE LOAN CREDITORS WERE ASSESSED TO TAX . THEY HAVE ALSO CONFIRMED THE LOAN TRANSACTIONS HAVING BEEN MADE OUT OF GRATITUDE AND GOOD RELATIONS WITH THE PARTNERS OF THE ASSESSEE-FIRM. (B) THAT SRI GAJENDRA KUMAR AND SRI PRITAM SINGH THE LOAN CREDITORS WERE EMPLOYEES OF THE ASSESSEE-FIRM. IN THE COMPUTATION OF INCOME FILED BY SRI GAJENDRA KUMAR ALONG WITH HIS RETURN OF INCOME FOR A.Y. 2005 -06 INCOME FROM COMMISSION ETC. HAS BEEN SHOWN AND NO SALARY INCOME AS SUCH WAS SHO WN BY HIM ALTHOUGH IN THE COMPUTATION OF INCOME FOR A.Y. 2004-05 INCOME FROM SALARY HAS BEEN SHOWN BY HIM. SRI PRITAM SINGH APART FROM SALARY INCOME HAS ALSO SHOWN INCOME FROM OTHER SOURCES IN HIS RETURN OF INCOME. SMT. URMILA DEVI IS THE WIFE OF SRI GAJENDRA KUMAR AN EMPLOYEE OF THE ASSESSEE-FIRM. SHE HAS ONLY DECLARED INCOME OUT OF BROKERAGE AND SERVICE CHARGES. (C) THAT ALL THE LOAN CREDITORS WERE HAVING THEIR BANK ACCOUNTS IN THE SAME BANK VIZ. BANK OF INDIA SHIBPUR BRANCH AND THE AMOUNTS CREDI TED TO THEIR RESPECTIVE ACCOUNTS IN THE SAID BANK CLAIMED TO HAVE BEEN RECEIVED FROM M/ S. EAST-COAST CARRIERS AND THE CHEQUES FOR THE EQUAL AMOUNTS WERE ISSUED ON THE SA ME DAY IN FAVOUR OF THE ASSESSEE. (D) THAT ALL THE THREE LOAN CREDITORS ADMITTED BEF ORE THE A.O. THAT THEY DID NOT HAVE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF GIVING LOANS TO M/S. EAST-COAST CARRIERS AND REPAYMENT THEREOF. 5 ON THE ABOVE ADMITTED FACTS THE IDENTITY OF THE LOAN CREDITORS IS NOT IN DISPUTE. NOW LET US EXAMINE THE OTHER TWO INGREDIENTS CONTAI NED IN SEC. 68 OF THE ACT I.E. GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE LOAN CREDITORS. ALL THAT SECTION 68 OF THE ACT REQUIRES IS AN ACCEPTABLE PRO OF. APART FROM IDENTITY SATISFACTION HAS TO BE WITH REFERENCE TO THE CAPACITY TO PAY FOR PROVING THE GENUINENESS OF THE TRANSACTION. WHEN CONFRONTED BY THE A.O. DURING TH E ASSESSMENT PROCEEDINGS ABOUT DEPOSIT OF MONEY IN THEIR RESPECTIVE BANK ACCOUNTS THE LOAN CREDITORS HAD SAID THAT THE SAID DEPOSITS WERE THE REFUND OF LOAN GIVEN EARLIER TO M/S. EAST-COAST CARRIERS A SISTER CONCERN OF THE ASSESSEE. HOWEVER THE LOAN CREDITOR S IN THEIR DEPOSITIONS HAVE CLEARLY ADMITTED THAT THEY DID NOT HAVE ANY EVIDENCE IN SUP PORT OF ADVANCING LOAN TO M/S. EAST- COAST CARRIERS AND REFUND OF LOAN BY THIS FIRM TO T HEM. WE OBSERVE FROM THE COPIES OF BALANCE SHEETS AS AT 31/3/2005 RELEVANT TO ASSESSME NT YEAR UNDER CONSIDERATION IN RESPECT OF SMT. URMILA DEVI (PAGE-17 OF THE PAPER B OOK) AND OF SRI PRITAM SINGH (PAGE- 23 OF THE PAPER BOOK) THAT ONLY LOAN GIVEN TO THE A SSESSEE-FIRM WAS ONLY MENTIONED. BUT NO SUCH BALANCE SHEET OR OTHER DOCUMENT COULD BE FU RNISHED BY THE ASSESSEE BEFORE US TO SHOW THAT SUCH LOAN WAS GIVEN BY THE SAID TWO LOAN CREDITORS TO M/S.EAST-COAST CARRIERS WHICH WAS REFUNDED DURING THE YEAR UNDER CONSIDERAT ION AND ACCORDINGLY DEPOSITED IN THEIR RESPECTIVE BANK ACCOUNTS. SRI PRITAM SINGH AN EMPLOYEE OF THE ASSESSEE-FIRM AND SMT. URMILA DEVI WIFE OF ANOTHER EMPLOYEE SRI GAJE NDRA KUMAR CLAIMED TO HAVE GIVEN INTEREST-FREE LOAN TO THE ASSESSEE-FIRM. IT I S BEYOND HUMAN PROBABILITY IN ABSENCE OF ANY COGENT MATERIAL ON RECORD THAT AN EMPLOYEE O R NEXT KIN OF AN EMPLOYEE WOULD ADVANCE LOAN TO A BUSINESSMAN WITHOUT ANY GAIN BEHI ND THAT MORE SO WHEN THAT BUSINESSMAN TAKES LOAN FOR HIS BUSINESS PURPOSES ON LY. THE ORAL EVIDENCE OF THE ASSESSEE IN OUR CONSIDERED OPINION IS NOT MATCHIN G WITH THE EVIDENCE ON RECORD THAT THE LOAN WAS EARLIER GIVEN TO M/S. EAST-COAST CARRIERS BY THE AFORESAID TWO PERSONS AND THE SAME WAS REFUNDED TO THEM BY THE SAID FIRM DURING T HE YEAR UNDER APPEAL WHICH FOUND DEPOSITED IN THEIR RESPECTIVE BANK ACCOUNTS. THEREF ORE THE DEFENSE MADE BY THE ASSESSEE BY WAY OF ORAL EVIDENCE DOES NOT INSPIRE CONFIDENCE . FURTHER AS HELD BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRECISIO N FINANCE (P) LTD. [208 ITR 465 (CAL)] MERE PAYMENT BY ACCOUNT PAYEE CHEQUE IS NOT SACROSANCT NOR CAN IT MAKE A NON- GENUINE TRANSACTION GENUINE. IN VIEW OF THE ABOVE A ND CONSIDERING THE TOTALITY OF THE 6 CIRCUMSTANCES OF THE CASE IN OUR CONSIDERED OPINIO N THE ASSESSEE HAS FAILED TO ESTABLISH THE CREDITWORTHINESS OF SMT. URLIMA DEVI AND SRI PR ITAM SINGH AND GENUINENESS OF LOAN TRANSACTIONS WITH THEM. WE THEREFORE UPHOLD THE ADDITIONS OF RS.3 25 000/- AND RS. 1 52 000/- MADE BY THE A.O. AND CONFIRMED BY THE LD . C.I.T.(A) U/S. 68 OF THE ACT ON ACCOUNT OF LOANS RECEIVED BY THE ASSESSEE FROM THE AFORESAID TWO PERSONS RESPECTIVELY. 8. HOWEVER IN RESPECT OF OTHER LOAN CREDITOR VIZ . SRI GAJENDRA KUMAR THE FACTS ARE SLIGHTLY DIFFERENT. IN THIS CASE THE ASSESSEE HAS FILED COPIES OF BALANCE SHEET ANNEXED TO THE RETURN OF INCOME NOT ONLY FOR ASSESSMENT YEARS 2004-05 BUT ALSO FOR A.Y. 2005-06 AT PAGES 7 & 8 OF THE PAPER BOOK. IN THE BALANCE S HEET AS AT 31/3/2004 RELEVANT TO A.Y. 2004-05 IN RESPECT OF SRI GAJENDRA KUMAR A SUM OF RS.2 38 086.80 IS SHOWN UNDER THE HEAD LOAN & ADVANCE AGAINST M/S. EAST-COAST CARRI ERS. FURTHER IN THE BALANCE SHEET AS AT 31/3/2005 RELEVANT TO ASSESSMENT YEAR UNDER C ONSIDERATION LOAN TO GREWAL MOTORS IS SHOWN IN A SUM OF RS.2 38 000/-. THEREFORE THE RE APPEARS TO BE POSSIBILITY THAT THE LOAN OUTSTANDING TO M/S. EAST-COAST CARRIERS WAS RE FUNDED DURING THE YEAR UNDER APPEAL WHICH WAS IN TURN DEPOSITED BY SRI GAJENDRA KUMAR I N HIS BANK ACCOUNT AND THE SAID REFUND WAS AGAIN GIVEN TO THE ASSESSEE AS INTEREST- FREE LOAN. THEREFORE IN OUR OPINION THERE WAS NEXUS BETWEEN REFUND OF OUTSTANDING LOAN BY M/S. EAST-COAST CARRIERS AND ADVANCING OF LOAN TO THE ASSESSEE. IN VIEW OF THE A BOVE WE DELETE THE ADDITION OF RS. 2 38 000/- SUSTAINED BY THE LD. C.I.T.(A) U/S. 68 O F THE ACT. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. 4 '3 #5' 6 5% 7 48 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 25.02 .2011. SD/- SD/- ( . .. . ! ! ! !. .. . ) '# ( . . . . . .. . ) (C.D.RAO) ACCOUNTANT MEMBER (B.R.MITTAL) JUDICIAL MEMBER ( (( (!# !# !# !#) )) ) DATE: 25-02-2011 7 $ $ $ $ / ITA NO. 1830 (KOL) OF 2009 '3 1 /9 :'9';- COPY OF THE ORDER FORWARDED TO : 1. + / THE APPELLANT : GREWAL MOTORS 97/1 FORESHORE ROAD HOWRAH-02 2 /0+ / THE RESPONDENT : I.T.O. WARD-56(3) KOLKATA. 3. 3% () : THE CIT(A)-XXXVI KOLKATA. 4. 3%/ THE CIT KOL- 5 ?7 /% / DR ITAT KOLKATA BENCHES KOLKATA 6 GUARD FILE . 09 // TRUE COPY '3%5/ BY ORDER (DKP) @ A / DY/ASSTT. REGISTRAR .