M/s Paras Collins Distilleries, Hyderabad v. ITO, Hyderabad

ITA 204/HYD/2010 | 2006-2007
Pronouncement Date: 23-07-2010 | Result: Dismissed

Appeal Details

RSA Number 20422514 RSA 2010
Assessee PAN AABCP2155M
Bench Hyderabad
Appeal Number ITA 204/HYD/2010
Duration Of Justice 5 month(s) 15 day(s)
Appellant M/s Paras Collins Distilleries, Hyderabad
Respondent ITO, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 23-07-2010
Date Of Final Hearing 06-07-2010
Next Hearing Date 06-07-2010
Assessment Year 2006-2007
Appeal Filed On 08-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.204/HYD/2010 ASSESSMENT YEAR 2006-07 M/S PARAS COLLINS DISTILLERIES HYDERABAD. ( PAN AABCP 2155 M) VS ITO WARD NO.6(3) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.C. DEVDAS RESPONDENT BY: SMT. VASUNDHARA SINHA DR O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) IV HYDERABAD DATED 2011.2009 AN D PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 2. THE CIT(A)-IV HYDERABAD ERRED IN CONFIRMING THE AD DITION OF RS.2 04 41 483/- ON ACCOUNT OF UNEXPLAINED CASH CRE DITS UNDER THE NAME OF PARTNER SHRI P. THIKKA REDDY IN THE HANDS O F THE ASSESSEE. 3. THE CIT(A) IV HYDERABAD IN UPHOLDING THE ASSESSME NT OF LOAN OF RS.1 50 73 244/- IN THE NAME OF PARTNER P. THIKKA R EDDY REDDY U/S 68 OF THE IT ACT 1961 IN THE HANDS OF THE ASSESSEE IS UNSUSTAINABLE IN LAW. 4. THE CIT(A) HYDERABAD ERRED IN UPHOLDING THE ADDITIO N OF UNEXPLAINED CREDIT OF RS.52 82 152/- IN THE NAME OF PARTNER CH. RAVI IN THE HANDS OF THE ASSESSEE U/S 68 OF THE IT ACT 1961. 5. THE CIT(A) FAILED TO NOTE THAT THE PARTNERS OF THE FIRM HAD EXPLAINED THE INVESTMENTS/LOANS AS FLOWING FROM THEIR OWN SOU RCES AND THEREFORE ERRED IN CONFIRMING THE AFORESAID ADDITIO NS IN THE HANDS OF THE ASSESSEE U/S 68 OF THE IT ACT 1961. ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 2 3. THESE GROUNDS ARE WITH REGARD TO SUSTENANCE OF ADDI TION MADE U/S 68. 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE RE WERE ADDITIONS OF RS.2 25 08 914/- AND RS.73 73 244/- IN TH E CAPITAL ACCOUNTS OF SHRI P. THIKKA REDDY AND CH RAVI RESPECTIVELY. BOT H OF THESE PARTNERS HAD BEEN ADMITTED INTO THE FIRM IN THE MONT H OF SEPTEMBER 2004. ON BEING REQUIRED TO FURNISH THE SOURCES FOR T HE SAID AMOUNTS INTRODUCED AS CAPITAL THE ASSESSEE SUBMITTED THAT SHRI P. REDDY OWNS AGRICULTURAL LANDS TO THE TUNE OF 34.01 ACRES AND THE A GRICULTURAL INCOME EARNED THERE FROM HAD BEEN INTRODUCED AS CAPITAL. IT WAS ALSO SUBMITTED THAT IN ADDITION TO THE SAID CAPITAL RS.1 5 0 73 244/- HAD BEEN INTRODUCED IN THE FIRM AS UNSECURED LOANS AGAIN OUT OF THE AGRICULTURAL INCOME OF THE ASSESSEE AND HIS FATHER SHRI P. S. REDDY A ND BROTHER SHRI P. SRINIVAS REDDY. IT WAS AVERRED THAT HIS FATHER OWN S AGRICULTURAL LANDS TO THE EXTENT OF 40.31 ACRES WHILE HIS BROTHER OWNS 3. 4 ACRES. 5. IT IS FURTHER SUBMITTED THAT AS AGAINST THE CLAIM OF AGRICULTURAL LAND HOLDING THE ASSESSEE COULD SUBMIT COPIES O F PATTADAR PASS BOOKS IN RESPECT OF 30.31 ACRES OWNED BY HIS FATHER. IN RESPECT OF HIS OWN HOLDING PATTADAR PASSBOOKS TO THE EXTENT O F 33.02 ACRES WERE FURNISHED. WITH REGARD TO HIS BROTHER PATTADAR PASSBOOKS TO THE EXTENT OF 3.345 ACRES WERE PRODUCED. ON BEING REQUIR ED TO CLARIFY WHETHER THE AMOUNTS WERE RECEIVED FROM THE FATHER AND THE BROTHER AS LOAN OR GIFT IT WAS STATED THAT SHRI P. TIKKA REDDY HAD RECEIVED THE SAID AMOUNTS AS GIFTS ONLY. NO CONFIRMATION OR GIFT DEEDS HO WEVER COULD BE FURNISHED IN THIS REGARD. THE ASSESSEE DID NOT EVEN FURN ISH THE DETAILS ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 3 OF AMOUNTS RECEIVED AS GIFTS BY SHRI P. TIKKA REDDY FR OM HIS FATHER AND BROTHER. 6. IT IS FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE ALSO FURNISHED A COPY OF CERTIFICAT E DATED 17.12.2000 ISSUED BY THE TAHASILDAR KURNOOL DISTRICT CERTIFYING THAT THE VALUE OF FRUIT CROP RAISED IN THE LAND BELONGING TO S HRI P. NARAYAN REDDY IS ABOUT RS.65 000 PER ACRE PER CROP. THE SAID CERTIFICA TE HAD BEEN ISSUED IN THE NAME OF LATE SHRI NARAYAN REDDY AND THE CROPS MENTIONED THEREIN WERE SWEET LIME WATERMELON SAPOTA TOMATO ETC. 7. IT IS ALSO FURTHER SUBMITTED THAT BEING REQUIRED BY THE ASSESSING OFFICER TO FURNISH DETAILS OF EXPENDITURE INCURR ED FOR AGRICULTURAL OPERATIONS AS ALSO THE COPIES OF BILLS EVIDEN CING THE SALE OF AGRICULTURAL PRODUCE AND RECEIPT OF AGRICULTURAL INCOME THE ASSESSEE SUBMITTED THAT THE INCOME PERTAINED TO EARLIER YEARS A ND THEREFORE IT WAS DIFFICULT TO SUBMIT THE NAMES AND ADDRESSES OF THE BU YERS AND BILLS/VOUCHERS IN RESPECT OF SEEDS/PESTICIDES/FERTILIZE RS WITHIN THE TIME ALLOWED. THE ASSESSEE HOWEVER FURNISHED COPIES OF LETTER S FILED BY SHRI P. T. REDDY WHEREIN THE FOLLOWING INCOME HAS BEEN SHOW N IN THE EARLIER YEARS ASSESSMENT TAXABLE INCOME AGRICULTURAL INCOME TAXES PAID 2006-07 360000 15000 88475 2005-06 74200 842500 213828 2004-05 126000 596000 22800 2003-04 66000 546000 4800 7.1 FROM THE FACTS AS STATED ABOVE THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD NOT BEEN ABLE TO FILE CONF IRMATION/GIFT DEEDS IN RESPECT OF THE AMOUNTS RECEIVED FROM HIS FATHER BROTHER AND COULD NOT EVEN FURNISH THE DETAILS OF EXACT AMOUNTS RECEI VED FROM EACH ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 4 OF THEM. HE OPINED THAT MERE OWNERSHIP OF AGRICULTURA L LANDS IS NOT CONCLUSIVE PROOF OF EARNING AGRICULTURAL INCOME AND SUCH CL AIM OF INCOME WAS REQUIRED TO BE SUPPORTED WITH PROOF OF AGRICULTURA L ACTIVITIES UNDERTAKEN EXPENSES INCURRED AS ALSO SALE OF THE PRODUCE TO IDENTIFIABLE PERSONS AND THE FINAL PROOF OF RECEIPTS FROM THEM. HE F URTHER NOTED THAT THOUGH THE ASSESSEE HAD CONTENDED THE CONSTRAINT OF TIME FOR THE DIFFICULTY IN PRODUCTION OF DETAILS/EVIDENCE IT WAS T HE ASSESSEE WHO DID NOT COOPERATE WITH THE DEPARTMENT SINCE THE BEGINNING AND STARTED RESPONDING TO THE NOTICES ONLY ONE MONTH BEFORE THE EN D OF LIMITATION DATE OF ASSESSMENT. HE FELT THAT EVEN THE CERTIFICATE ISSUE D BY THE TAHASILDAR WAS OF NO HELP AS EVEN THOUGH IT SPOKE ABO UT THE YIELD OF ABOUT RS.65 000 PER ACRE PER CROP IT DID NOT STATE ANY THING REGARDING EXPENDITURE TOWARDS SEEDS FERTILIZERS PESTICIDES LABOUR ETC. HE NOTED THAT THE ASSESSEE HAD NOT EVEN GIVEN DETAILS REGARDING T HE EXPENDITURE TOWARDS MAINTENANCE OF FAMILIES BY HIS FATHER AND BROTH ER SO AS TO GIVE AN INDICATION OF THEIR SAVINGS AND SURPLUS AVAILABLE WIT H THEM. HE ALSO TOOK NOTE OF THE FACT THAT THE POSITION OF THE FARME RS IN THE STATE OF ANDHRA PRADESH IS NOT AT ALL SATISFACTORY AND THEY ARE EVEN RESORTING TO THE EXTREME STEP OF COMMITTING SUICIDES ON ACCOUNT OF LOSSE S IN AGRICULTURAL OPERATIONS. THE ASSESSING OFFICER ALSO OBSERVE D THAT THE CERTIFICATE DATED 17.12.2000 HAD BEEN ISSUED IN THE NAM E OF LATE SHRI P. NARAYAN REDDY AND THEREFORE IT WAS TO BE SEEN AS TO A FTER HIS DEATH EARLIER THAN 2000 WHO HAD CARRIED OUT THE LANDS OWNE D BY HIM. HE OBSERVED THAT THE ASSESSEE HAD NOT EVEN SUBSTANTIATED AS T O HOW THE INCOME FROM THE LANDS OF A DECEASED PERSON HAD PASSED ON TO SHRI P. THIKKA REDDY. ACCORDINGLY HE CONCLUDED THAT NO RELIE F COULD BE GRANTED ON ACCOUNT OF EXPLANATION SO GIVEN. 8. WITH REGARD TO THE OWN SOURCES OF SHRI P.T. REDD Y THE ASSESSING OFFICER NOTICED THAT THE AMOUNTS INTRODUCED INTO THE CAPITAL ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 5 ACCOUNT WERE DURING THE PERIOD FROM APRIL 2005 TO JUN E 2005 ONLY. HE THEREFORE OBSERVED THAT THE INCOME EARNED DURING THE ASSESSMENT 2006- 07 COULD NOT HAVE BEEN AVAILABLE FOR INTRODUCTION AS CA PITAL AT THE TIME. THOUGH HE NOTED THAT THE ASSESSEE HAD NOT EVEN FURNISHED ANY EVIDENCE REGARDING ANY SAVINGS FROM INCOME OFFERED IN EARLIER YEARS GIVING THE BENEFIT OF DOUBT HE ALLOWED THE BALANCE AS AVAILABL E WITH HIM AFTER EXCLUDING AN ESTIMATED SUM OF RS.2 LAKHS EACH YEAR TOWARD S HOUSE HOLD EXPENSES. ACCORDINGLY THE BALANCE AMOUNT AVAILABLE WIT H P.T. REDDY WAS WORKED OUT AT RS.11 70 672/- FOR THE ASSESSMENT 2005- 06 RS.4 99 200/- FOR 2004-05 AND RS.3 97 200 FOR 2003-04 TOTALING TO RS.20 67 072. 9. IN VIEW OF THE ABOVE FACTS THE BALANCE RS.2 04 4 1 843/- (RS.2 25 08 914 - RS.20 67 072) INTRODUCED AS CAPITAL WAS CONSIDERED AS INCOME OF THE ASSESSEE FIRM U/S 68. 10. IT IS ALSO FURTHER NOTED THAT UNSECURED LOANS OF RS.1 50 73 244/- HAD ALSO BEEN INTRODUCED BY SHRI P. T . REDDY. ON VERIFICATION OF THE BOOKS OF ACCOUNTS IT IS NOTICED THAT A NARRATION REGARDING RELATIVES WAS MADE THEREIN. IT IS FURTHER SUBMITTED THAT THE RELATIVES ARE NOTHING BUT FATHER AND BROTHER OF SHRI P. THIKKA REDDY. HOWEVER THE ASSESSING OFFICER NOTED THAT SHRI P. T. REDD Y HAD NOT FURNISHED ANY DETAILS REGARDING EXACT CONTRIBUTION OF EACH OF THEM NOR HE HAD FURNISHED CONFIRMATION LETTERS FROM THEM. HE FE LT THAT EVEN IF IT IS CONSIDERED THAT THE AMOUNTS HAVE BEEN CONTRIBUTED BY HIS FATHER AND BROTHER THOSE WERE REQUIRED TO BE ADDED U/S 68 AS THE ASSESSEE DID NOT FURNISH ANY CONFIRMATION OR BANK ACCOUNT OR EVIDENCE THA T THE AMOUNTS HAD BEEN RECEIVED FROM THEM. ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 6 11. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FIRM HAD BEEN CONVERTED INTO A COMPANY W.E.F. 1.6.2005 AND THE ASSETS AND LIABILITIES OF THE FIRM WERE TAKEN OVER BY THE COMPAN Y AS A GOING CONCERN. IT IS OBSERVED THAT SHRI P. T. REDDY HAD BEE N ALLOTTED SHARES IN RESPECT OF HIS CAPITAL INTRODUCED ONLY AND THE UNSECURED LOANS REMAINED THE SAME IN THE HANDS OF THE COMPANY. HE THEREFORE C ONCLUDED THAT THE UNSECURED LOANS WOULD NOT HAVE BEEN CONTRIBUTED BY HIM. SHRI REDDY COULD HAVE BEEN ALLOTTED SHARES IN RESPECT OF SUCH AMOUNT ALSO. ACCORDINGLY HE CONCLUDED THAT SUCH UNSECURED LOANS WERE GIV EN BY SOMEBODY ELSE OR THE UNACCOUNTED INCOME OF THE FIRM HAD BEEN INTRODUCED IN THE FORM OF UNSECURED LOANS. HE FURTHER OBSERVED THAT IN VIEW OF THE FINDING IN RESPECT OF THE CLAIMED CONTRIBUT ION OF CAPITAL THERE WAS NOTHING FURTHER TO SUBSTANTIATE THE CLAIM OF CONTRIB UTION TOWARDS UNSECURED LOANS. ACCORDINGLY AN ADDITION OF RS.1 50 73 244/- WAS MADE U/S 68. 12. IT IS ALSO FURTHER NOTICED THAT AN AMOUNT OF RS.7 3 73 244/- HAD BEEN INTRODUCED AS CAPITAL IN THE NAME OF ANOTHER PARTNER OF THE FIRM SHRI RAVI. ON BEING REQUIRED TO PROVE HIS CR EDITWORTHINESS THE ASSESSEE SUBMITTED THAT SHRI RAVI HAD RECEIVED A GIFT OF RS.35 LAKHS FROM HIS FATHER IN LAW WHO OWNS AGRICULTURAL LANDS OF 6 ACRES. A CONFIRMATION FROM HIS FATHER IN LAW SHRI ABV SATYABA RAYANA WAS ALSO FILED STATING THAT HE HELD AGRICULTURAL LANDS OF 6 ACRE S AND SINCE HE DID NOT GIVE ANY STRIDHAN TO HIS DAUGHTER ON HER MARRI AGE THE GIFT OF RS.35 LAKHS WAS BEING GIVEN FOR THE SETTLEMENT OF HIS SON IN LAW WHO IS PURCHASING A UNIT ALONG WITH OTHER PARTNERS. THE ASSESSEE STATED THAT ANOTHER GIFT OF RS.15 LAKHS HAD BEEN RECEIVED BY SHRI RAVI FROM HIS FATHER CH. BHASKAR RAO WHO OWNS AGRICULTURAL LANDS TO THE TUNE OF 3 ACRES ONLY. SHRI BHASKAR ALSO FILED A CONFIRMATION LE TTER IN RESPECT OF SUCH GIFT. THE REMAINING AMOUNT OF RS 23 73 744 WAS E XPLAINED AS ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 7 CONTRIBUTED OUT OF THE PERSONAL SOURCES AND SAVINGS OF SHR I RAVI GIVING THE FOLLOWING DETAILS OF RETURNS FILED BY HIM IN T HE EARLIER YEARS. ASSESSMENT TAXABLE INCOME AGRICULTURAL INCOME TAXES PAID 2006-07 225000 300000 46050 2005-06 355000 208000 79358 2004-05 74500 228000 7350 2003-04 59000 206000 2700 13. HE FURTHER OBSERVED THAT DESPITE THE CLAIM OF GI FTS SHRI RAVI HAD NOT FURNISHED ANY DOCUMENTARY PROOF EXCEPT CONFIRM ATION LETTERS FROM THE SAID PERSONS. HIS FATHER IN LAWS PATTADAR P ASSBOOK WAS NOT FURNISHED. THE ASSESSING OFFICER FURTHER FELT THAT A GIF T OF RS.35 LAKHS COULD NOT HAVE BEEN GIVEN BY AN AGRICULTURIST OWNING 6 ACRES OF LAND. HE NOTED THAT EVEN THE DETAILS OF FAMILY MEMBERS OF H IS FATHER IN LAW WERE NOT FURNISHED REGARDING THEIR FAMILY EXPENDITUR E AND SAVINGS. NO EVIDENCE REGARDING EXPENDITURE INCURRED TOWARDS AGRIC ULTURE AND PROOF IN RESPECT OF AGRICULTURAL PRODUCE AND SALES THEREOF HAD ALSO BEEN FURNISHED BY THE RESPECTIVE PERSONS. HOWEVER NO ACKNOWLE DGEMENT THAT IT IS COMMON AND CUSTOMARY IN THE STATE OF AP TO G IVE SOME AMOUNTS TO THE DAUGHTERS AT THE TIME OF THEIR MARRIAG E AS STRIDHAN WAS ALSO FURNISHED. ACCORDINGLY AN AMOUNT OF RS.10 LAKHS WAS ACCEPTED BY HIM AS GIFT FROM THE FATHER IN LAW. WITH REGARD TO THE GIFT FROM THE FATHER OF SHRI RAVI THE ASSESSING OFFICER NOTED THAT SI MILAR QUESTIONS HAD NOT BEEN ANSWERED AND THEREFORE THE CLAIM OF GIFT WA S NOT ACCEPTABLE TO THE EXTENT OF RS.15 LAKHS. HOWEVER THE ASSESSING OFFICER GENEROUSLY ACCEPTED AN AMOUNT OF RS.5 LAKHS AS GIFT RECEIVED BY SHRI RAVI FROM HIS FATHER CONCLUDING THAT CONFIRMATION IN RESPECT OF RS.15 LAKH HAD BEEN RECEIVED ONLY TO SUIT HIS CONVENIENCE. 14. WITH REGARD TO SOURCES OF SHRI RAVI THE ASSESSING O FFICER NOTED THAT HE HAD INTRODUCED A CAPITAL DURING THE PER IOD APRIL 2005 TO ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 8 JUNE 2005 AND THEREFORE THE INCOME SHOWN FOR THE ASSE SSMENT 2006-07 COULD NOT HAVE BEEN AVAILABLE FOR CONTRIBUTION AS CAPIT AL. CONSIDERING THAT RS.1.5 LAKHS MUST HAVE BEEN SPENT BY HIM TOWARDS F AMILY MAINTENANCE HE WORKED OUT THE BALANCE OUT OF INCOME SH OWN IN THE RETURNS AT RS.3 32 642/- FOR ASSESSMENT YEAR 2005-06 RS.1 45 150/- FOR THE ASSESSMENT 2004-05 AND RS.1 12 300 FOR ASSESSMENT 20 03-04 WHICH TOTALED TO RS.5 91 092/-. 15. IN VIEW OF THE ABOVE THE BALANCE AMOUNT OF RS. 52 82 152/- (73 73 244 MINUS RS.20 91 092/-) INTRODUCED IN THE FI RM AS SHARE CAPITAL IN THE NAME OF SHRI CH RAVI WAS ADDED TO THE I NCOME U/S 68. AGAINST THE ABOVE ADDITIONS MADE BY ASSESSING OFFICER THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO HAS CONFIRMED TH E ORDER OF THE ASSESSING OFFICER. 16. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMIT TED THAT WHILE MAKING THE ADDITION IN RESPECT OF PARTNERS CAPITAL THE ASSESSING OFFICER DID NOT GIVE ANY CREDIT FOR AGRICULTURAL INCOME EARNED FOR THE ASSESSMENT 2006-07 AS THE PERIOD COVERED WAS ONLY OF THREE MONTHS. HE OBSERVED THAT AN INCOME OF RS.15 LAKHS COULD N OT HAVE BEEN EARNED WITHIN A SPAN OF 3 MONTHS FROM AGRICULTURA L OPERATIONS. THE AUTHORISED REPRESENTATIVE ARGUED THAT THE ENTIRE CAPITAL AND UNSECURED LOANS HAD BEEN TENDERED BY SHRI P.T. REDDY O UT OF AGRICULTURAL INCOME EMANATING FROM THE LANDS HELD BY H IM HIS LATE FATHER AND BROTHER. HE AVERRED THAT GIFTS HAD BEEN R ECEIVED BY SHRI P.T. REDDY FROM HIS FATHER AND BROTHER OR IN THE ALTERNA TIVE THE AGRICULTURAL INCOME ARISING FROM THEIR LANDS WAS UTILIZED FOR THE CAP ITAL/LOANS INVESTED. THE AUTHORISED REPRESENTATIVE ARGUED THAT T HE CERTIFICATE FROM THE THASILDAR REGARDING YIELD OF RS.65 000 PER ACRE P ER CROP WAS TOTALLY DISREGARDED BY THE ASSESSING OFFICER. HE AVERRED THAT THE ASSESSEE WAS ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 9 ENTITLED FOR CREDIT FOR AGRICULTURAL INCOME FOR ASSESSMENT 2006-07 ALSO AS THE ENTIRE CROP IS RECEIVED ONLY IN THE MONTH OF MAY AND AGRICULTURAL INCOME DOES NOT ACCRUE EVENLY DURING THE YEAR. 17. THE AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT HAVING ACCEPTED THE INVESTMENT TO THE EXTENT OF RS.20 67 072 THE ASSESSING OFFICER OUGHT TO HAVE ACCEPTED THE SOURCES IN RESPECT OF TH E BALANCE INVESTMENTS/LOANS. HE FURTHER ARGUED THAT SINCE SHRI P. T. REDDY ADMITTED THAT THE ENTIRE CAPITAL AND LOANS HAD BEEN I NVESTED OUT OF HIS PERSONAL FUNDS AND EVEN SUBSTANTIATED THE SOURCES THEREOF WHICH WERE NOT APPRECIATED BY THE ASSESSING OFFICER SUCH CAPITAL/LOANS SHOULD HAVE BEEN TREATED AS UNEXPLAINED INVESTMENTS IN HIS HANDS AS HE HAD EXPLAINED THE NATURE AND SOURCE/LOANS. HE THEREFORE A VERRED THAT NO ADDITION COULD HAVE BEEN MADE IN THE HANDS OF THE ASSESS EE FIRM. WITH REGARD TO THE INTRODUCTION OF CAPITAL BY SHRI CH. RAV I THE AUTHORISED REPRESENTATIVE ARGUED THAT THOUGH THE ASSESSING OFFICER ACCEPTED INVESTMENT TO THE TUNE OF RS.20 91 092/- BY HIM THE BALANCE INVESTMENT OF RS.52 82 152 SHOULD HAVE BEEN TREATED AS UNEXPLAINED INVESTMENT IN THE HANDS OF SHRI RAVI AS HE HAD EXPLAI NED THE NATURE AND SOURCE THEREOF. 18. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIE D ON THE JUDGEMENT OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. LANCO INDUSTRIES LTD. (242 ITR 0357) CONTENDING THAT A S PER THE SAID DECISION IF THE OSTENSIBLE SHARE HOLDERS HAVE FAILED T O EXPLAIN THE MEANS OF INVESTMENT THAT SHOULD HAVE BEEN TREATED AS UNEXPL AINED INCOME IN THEIR HANDS. RELIANCE WAS PLACE ON THE DECISION IN THE CA SE OF INDIA RICE MILLS VS. CIT (218 ITR 508) TO SUPPORT THE CLAIM. ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 10 19. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMI TTED THAT THOUGH THE ASSESSING OFFICER HAD ACCEPTED THE YIELD OF RS.65 000 PER ACRE HE WAS NOT SATISFIED ABOUT THE EXTENT OF EXP ENDITURE INCURRED FOR OBTAINING THE CROPS. THE ASSESSEES COUNSEL ARGUED THA T INITIALLY EXTENSIVE EXPENDITURE HAS TO BE INCURRED FOR SUCH CULTIVA TION. IN THE LATER YEARS NO EXPENSES ARE REQUIRED TO BE INCURRED AS T HE FRUIT PARENT TREES AND CROPS DO NOT REQUIRE MUCH TIME AND ATTENTION FOR THEIR NATURAL GROWTH. HE AVERRED THAT AT RS.65000 PER ACRE THE ASSESSE E AND HIS FAMILY MEMBERS WERE IN A POSITION TO EARN AGRICULTURAL INCOME OF RS.50 LAKHS FOR THE 78 ACRES OWNED BY THEM. HE FURTHER STATE D THAT EVEN THE ASSESSING OFFICER HAD GIVEN CREDIT TO THE EXTENT OF RS.20 67 072 FOR THE ASSESSMENT 2003-04 TO 2005-06 AS AGRICULTURAL INCOME THOUG H NO SUCH CREDIT WAS GIVEN IN RESPECT OF ASSESSMENT YEAR 2006-07 AS T HE INVESTMENTS WERE MADE IN THE FIRST THREE MONTHS OF THE FINANCIAL YEAR. HE CONTENDED THAT THE CROP ARRIVES IN THE MONTHS OF APRI L AND MAY EVERY YEAR AND THEREFORE SUCH CREDIT SHOULD HAVE BEEN GIVEN F OR ASSESSMENT YEAR 2006-07 ALSO. HE AVERRED THAT EVEN THE AGRICULTU RAL INCOME OF THE FATHER AND BROTHER OF SHRI P. THIKKA REDDY SHOULD HA VE BEEN ADOPTED BY THE ASSESSING OFFICER OVER A PERIOD OF 10 YEARS @ RS.65 00 0 PER ACRE PER YEAR WHICH SHOULD HAVE BEEN SUFFICIENT TO EXPLAIN THE SOURCES OF INVESTMENT. IT WAS ALSO ARGUED THAT THE ESTIMATE OF P ERSONAL EXPENSES AT RS.2 LAKHS PER ANNUM WAS ON A HIGHER SIDE. THE AUTH ORISED REPRESENTATIVE SUBMITTED THAT FOR 10 YEARS THE YIELD @ RS.50 70 000 PER ANNUM FROM 78 ACRES WOULD HAVE BEEN RS.5 07 00 000 /-. HE SUBMITTED THAT THERE WAS NO MERIT IN THE OBSERVATION O F THE ASSESSING OFFICER REGARDING NON CONVERSION OF THE LOAN AMOUNT IN TO SHARE CAPITAL AS IT WAS ONLY OUT OF A CONTRACT BETWEEN THE PARTIES THAT THE SAME WAS NOT CONSIDERED FOR SUCH CONVERSION. ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 11 20. WITH REGARD TO CAPITAL CONTRIBUTED BY SHRI CH. RAVI IT WAS SUBMITTED THAT HAVING ACCEPTED THE FACT OF A GENUINE G IFT TO THE EXTENT OF RS.10 LAKHS FROM HIS FATHER-IN-LAW THE ASSESSING OFFICE R SHOULD NOT HAVE SUBSTITUTED THE ACTUAL FIGURES OF GIFT WITH ESTIMA TED ONES. HE AVERRED THAT ONCE A GIFT IS ACCEPTED THE AMOUNTS CANNOT BE SUBSTITUTED AND THEREFORE THE GIFTS OF RS.50 LAKHS IN TOTO ARE T O HAVE BEEN ACCEPTED SINCE THE SAME WERE CONFIRMED BY THE RESPECTIVE DONOR. I T WAS ALSO ARGUED THAT CREDIT SHOULD HAVE BEEN GIVEN TO HIM ALSO FOR THE YIELD OBTAINED IN THE MONTHS OF APRIL AND MAY OF THE PREVI OUS YEAR RELEVANT TO ASSESSMENT 2006-07. THE AUTHORISED REPRESENTATIVE ALSO CONTENDED THAT THE ESTIMATION OF RS.1 50 000 TOWARDS PERSONAL EXP ENSES IN HIS CASE WAS ALSO ON A HIGHER SIDE AS THE ASSESSING OFFICER DID NO T CONSIDER THE USE OF AGRICULTURAL CROPS FOR SELF CONSUMPTION. 21. FINALLY THE AUTHORISED REPRESENTATIVE OF THE A SSESSEE SUBMITTED THAT SINCE EXPLANATION REGARDING SOURCES HAD B EEN TENDERED BY THE PARTNERS WITH DOCUMENTARY EVIDENCE FACTS AND FIG URES AND SUCH EXPLANATIONS WERE ACCEPTED IN PART THE ASSESSMENT OF SUCH AMOUNTS IF AT ALL COULD HAVE BEEN CONSIDERED IN THE HANDS OF THE PARTNERS ALONE. HE AVERRED THAT THE INVESTMENT/LOANS PERTAINED TO THE PERIOD 1.4.2005 TO 31.6.2005. THE SAID PERSONS HAD NO BALANCES IN THEIR ACCOUNTS AS ON 31.3.2005. ACCORDINGLY HE ARGUED THAT THERE WAS NO QUESTION OF MAKING ANY ADDITION IN THE HANDS OF THE FIRM AS THE FIRM COULD NOT HAVE EARNED THE AMOUNT BROUGHT IN WITHIN A SPAN OF 3 MONT HS. IT WAS AVERRED THAT IN VIEW OF THE UNEQUIVOCAL ADMISSION OF CONTRIBUTION BY THE PARTNER NO ADDITION IN THE HANDS OF THE FIRM COULD H AVE BEEN MADE. HE AVERRED THAT THE INVESTMENTS SHOULD HAVE BEEN CONSIDERED AS BELONGING TO SHRI P.T. REDDY AND SHRI CH. RAVI AS THE FIRM IS A COMPENDIUM NAME FOR THE PARTNERS. THE AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE DECISIONS IN THE CASES OF DHOKAJAI CONSTRUCTION COMPANY V S. ITO (39 TTJ ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 12 59) (AHD.) AND ACIT VS. PATEL RAJESH KUMAR (66 TTH 46 0) IN THIS REGARD. HE CONTENDED THAT THE CREDIT IN THE NAME OF A PARTNER OF A FIRM WHO IS AN EXISTING INCOME TAX ASSESSEE SHOULD ORDINARILY N OT BE ADDED IN THE HANDS OF THE FIRM AFTER THE PARTNER HAS CONFIRM ED THE CORRECTNESS AND GENUINENESS OF THE CAPITAL CONTRIBUTION. RELIANCE I N THIS REGARD WAS PLACED ON THE DECISIONS IN THE CASES OF BALBHADRACHAND MUNN ALAL VS. CIT (33 ITR 781) (ALL) CIT VS. JAISWAL MOHAR FINANCE (141 ITR 706 ) (ALL) ADDL.CIT VS. HANUMAN AGARWAL (151 ITR 150) (PAT) INS TRUMENT (INDIA) INTERNATIONAL VS. ITO (63 TTJ 191) AND INDIA RICE MI LLS VS. CIT (218 ITR 508). 22. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THROUGH THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE IT IS CLE AR THAT IN THE ASSESSEES CASE THERE EXISTED CREDIT ENTRIES IN THE BOOKS OF ACCOUNT WHICH WERE CLAIMED AS CAPITAL INTRODUCTION AND LOANS GIVE N BY THE PARTNERS. UNDER THE PROVISIONS OF SECTION 68 IF SUCH BOO K ENTRIES ARE NOT SATISFACTORILY EXPLAINED THE SAME ARE TO BE TREATE D AS INCOME OF THE ASSESSEE. SHE RELIED ON THE JUDGEMENT OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS SHIVASHAKTI TIMBERS (229 IT R 505) AND SUBMITTED THAT THE VERY PURPOSE OF INTRODUCING THE PRO VISIONS OF SECTION 68 AND 69 IS TO CHECK BOGUS ENTRIES WHICH ARE RESORTED TO BY FIRMS IN ORDER TO RAISE THE CORPUS OF THE FIRM AS THE MONEY BEI NG INVESTED MAY NOT COME FROM A VALID SOURCE. THESE SECTIONS THEREFORE RA ISE A STATUTORY PRESUMPTION IN THE EVENT OF UNSATISFACTORY EXPLANATION OF SUCH ENTRIES SO AS TO CHECK INVESTMENTS OF BLACK MONEY OF THE FIRM ITSE LF IN THE NAME OF CERTAIN PERSONS. THE HONBLE HC NEGATED THE VIEW OF THE HONBLE TRIBUNAL THAT SECTION 69 SHOULD BE INVOKED IN THE CASE O F INTRODUCTION OF UNEXPLAINED CAPITAL IN A FIRM AND THEREFORE THE INCOM E SHOULD BE ASSESSED IN THE HANDS OF THE PARTNERS. THEY NOTED THAT I N THE SAID CASE ALSO THE NAMES OF PARTIES FROM WHOM CERTAIN AMOUNTS WER E RECEIVED BY ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 13 THE FIRM HAD BEEN MENTIONED AND EVEN AFTER CONSIDERIN G THE INVESTMENTS MADE BY THEM AFTER EXAMINING THEIR CAPACIT Y TO MAKE SUCH INVESTMENT IT WAS FOUND THAT A PORTION OF AMOUNT INV ESTED IN THE FIRM REMAINED UNEXPLAINED. THE HONBLE COURT ALSO REFERRE D TO THE DECISION OF THE HONBLE ALLAHABAD HC IN THE CASE OF NANAKCHANDRA LAXMANDAS VS. CIT (140 ITR 141) WHEREIN IT WAS HELD THAT IF THE EX PLANATION REGARDING THE NATURE AND SOURCE OF A CASH CREDIT IS NOT FOUND SATISFA CTORY OR REASONABLE THE ASSESSING OFFICER CAN TREAT THE SAME AS ASSESSE ES INCOME FROM UNDISCLOSED SOURCES AND IT IS NOT NECESSARY FOR H IM TO LOCATE THE EXACT SOURCE OF THE CREDITS. THE HONBLE COURT HAD FELT THAT THE GENUINENESS OF CREDITS CAN BE PROVED BY THE ASSESSEE BY ESTABLISHING THE IDENTITY OF THE CREDITOR AND HIS CREDI TWORTHINESS WITH SOME PLAUSIBLE EVIDENCE. SIMILARLY IN THE CASE OF CIT V S. ANUPAM UDYOG (142 ITR 133) HONBLE PATNA HC OBSERVED THAT IT IS FOR THE PARTNERS OF THE FIRM TO EXPLAIN TO THE SATISFACTION OF THE ITO WITH REGARD TO THE NATURE AND SOURCE OF THE CASH CREDIT ENTRIES IN T HE BOOKS OF THE FIRM OF THE PREVIOUS YEAR. HOWEVER IF SUCH ONUS IS NOT DISCHARGED THE ADDITION COULD NOT HAVE BEEN DELETED FROM THE ASSESSMENT OF THE FIRM ON THE BASIS OF SURMISES THAT SUCH EXPLANATION MIGHT BE TRU E AS THE PARTNERS HAD OWNED THE SUMS ADVANCED TOWARDS CAPITAL. T HE FACT THAT THE ASSESSING OFFICER NEED NOT LOCATE THE SOURCE OF THE CRE DITS WAS REAFFIRMED BY HONBLE MADHYA PRADESH HC IN THE CASE OF B ANSIDHAR AGARWAL PANNA VS. CIT (148 ITR 523). HONBLE RAJASTHA N HIGH COURT ALSO IN THE CASE OF CIT VS. KISHORILAL SANTOSHILAL (216 ITR 9) HAD OPINED THAT THERE IS NO DISTINCTION BETWEEN THE CASH CREDIT ENT RY EXISTING IN THE BOOKS OF THE FIRM WHETHER IT IS IN THE NAME OF A PAR TNER OR ANY THIRD PARTY. THEY OPINED THAT THE BURDEN TO PROVE THE ID ENTITY CAPACITY AND GENUINENESS THEREOF IS VERY MUCH UPON THE FIRM AND IF THE SAME IS NOT SATISFACTORILY EXPLAINED THE ASSESSING OFFICER IS JUSTIFIE D IN TREATING SUCH ENTRIES AS INCOME FROM UNDISCLOSED SOURCES. IT WAS HELD THA T THE FIRM ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 14 HAS TO ESTABLISH THAT THE AMOUNT WAS ACTUALLY GIVEN BY T HE LENDER AND IF THE EXPLANATION OFFERED IS NOT SUPPORTED BY ANY DOCUME NTARY OR OTHER EVIDENCE THE DEEMING FICTION OF SECTION 68 CAN BE INVO KED. 23. THE DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITT ED AS REGARDS THE RELIANCE OF THE AUTHORISED REPRESENTATIVE ON THE DECISION IN THE CASE OF INDIA RICE MILLS VS. CIT (SUPRA) IT IS SEEN T HAT IN THE SAID CASE THE ASSESSEE FIRM HAD STARTED ITS BUSINESS ONLY AFTER T HE CREDITS HAD BEEN MADE IN ITS BOOKS OF ACCOUNT. HONBLE ALLAHABAD HC THEREFORE DISTINGUISHED THE DECISION IN THE CASE OF CIT VS. KAPOOR B ROTHERS (118 ITR 741) WHEREIN THE CASH DEPOSITS HAD BEEN ENTERED IN THE BOOKS OF THE FIRM WHEN IT WAS ALREADY CARRYING ON ITS BUSINESS. I T WAS SUBMITTED THAT IN THE CASE OF MULTI CHANNELS VS. ACIT (76 ITD 36 7) HONBLE DELHI ITAT HAD CONSIDERED THE DECISION OF HONBLE DELHI HC IN THE CASE OF ACIT VS. PRECISION METAL WORKS (156 ITR 693) ALSO WHEREIN IT WAS HELD THAT INCOME COULD EITHER BE IN THE INCOME OF THE FIRM OR TH E INCOME OF THE INDIVIDUAL PARTNERS BUT NOT OF BOTH. IT WAS HELD T HAT ONCE HAVING ACCEPTED THE INCOME OF THE PARTNERS THEMSELVES IT COULD N OT BE ADDED TO THE INCOME OF THE FIRM. HOWEVER IN THE SAID CASE T HE INCOME HAD ALREADY BEEN OFFERED BY THE PARTNERS IN THEIR HANDS A ND THEREFORE SUCH VIEW WAS TAKEN BY HONBLE HC. IN THE CASE BEFORE THE IT AT HOWEVER ONLY AN ENQUIRY HAD BEEN MADE REGARDING THE CASH CRED ITS IN THE NAMES OF THE PARTNERS WHEN THE ASSESSMENT OF THE FIRM WAS IN PR OGRESS. NO ADDITION WAS MADE NOR ANY INCOME HAD BEEN OFFERED FOR TAXATION BY THE PARTNER. THEREFORE THE ADDITION U/S 68 IN THE HAN DS OF THE FIRM IS TO BE UPHELD AS THE CAPITAL ACCOUNTS OF THE PARTNERS IN THE BOO KS OF ACCOUNTS OF THE FIRM HAD BEEN CREDITED. 24. FURTHER SHE SUBMITTED THAT THERE REMAINS NO DOU BT WITH REGARD TO THE FACT THAT THERE EXISTED ENTRIES IN THE B OOKS OF ACCOUNT OF ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 15 THE FIRM CONTENTEDLY MADE ON ACCOUNT OF CAPITAL AND LOA NS INTRODUCED IN THE NAMES OF THE PARTNERS. IT IS NOT THE CASE OF THE ASSE SSEE THAT IT WAS THE FIRST YEAR OF ITS OPERATION. THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF LIQUOR IN THE PAST ALSO AND DURING THE RELEVANT YEAR THERE WAS RECONSTITUTION OF THE FIRM WHE REBY SHRI P. T. REDDY AND CH. RAVI JOINED THE PARTNERSHIP FIRM AFTER INTRODUCING THE AFORESAID CAPITALS CONTRIBUTIONS. EVEN THOUGH IT WAS CO NTENDED BY THE FIRM DURING ITS ASSESSMENT PROCEEDINGS THAT BOTH OF THESE PERSONS HAD INTRODUCED THEIR CAPITAL OUT OF CERTAIN SOURCES THE SAID EXPLANATION WAS FOUND TO BE UNSATISFACTORY. THE ASSESSEE FIRM ATTEMPTED TO EXPLAIN AWAY THE INTRODUCTION OF CAPITAL BY SHRI P.T. REDDY ON THE BASIS OF A MERE CERTIFICATE FROM THE TAHASILDAR TO THE EFFECT THA T THE ANNUAL YIELD PER ACRE COULD HAVE BEEN RS.65 000. NO DETAILS WITH RE GARD TO THE EXPENDITURE INCURRED FOR EARNING SUCH INCOME HOWEVER WAS FILED AT ANY STAGE. IT COULD ALSO NOT BE EXPLAINED AS TO ON WHAT A CREAGE OF LAND WHAT CROPS WERE GROWN OR THAT HOW MUCH LAND WAS SO CULTIV ATED FOR OBTAINING SUCH CROPS. OBVIOUSLY IT IS NOT THE CASE OF T HE ASSESSEE THAT THE PARTNERS CONCERNED HAVE DISCLOSED SUCH INCOME IN THEIR R ETURNS OF INCOME REGULARLY IN THE PAST ALSO. UNDER THE CIRCUMSTAN CES SHE SUBMITTED THAT IT CANNOT BE ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THE ARITHMETICAL CALCULATION OF PROBABLE INCOME OF RS.5.07 CRORES IN THE PAST 10 YEARS FROM THE 78 ACRES HELD BY SHRI P. T. REDDY HIS FATHER AND HIS BROTHER WAS SUFFICIENT TO EXPLAIN THE CAPITAL CO NTRIBUTION. IT IS ALSO SUBMITTED THAT MERE OWNERSHIP OF AGRICULTURAL LAND S CANNOT BE CONSIDERED AS CONCLUSIVE PROOF OF EARNING AGRICULTURAL INC OME AND THE ASSESSEE COULD NOT FURNISH ANY PLAUSIBLE EXPLANATION AS TO UNDER WHAT ARRANGEMENT ALL OF THE AGRICULTURAL INCOME CONTENTEDLY EARNED BY HIS DECEASED FATHER AND BROTHER WAS BEING RECEIVED BY HIM. THERE IS ALSO ANY MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE IN COME CLAIMED AS EARNED IN ASSESSMENT YEAR 2006-07 WAS RECEIVED BY SHRI P .T. REDDY IN ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 16 THE MONTHS OF APRIL MAY 2006 ITSELF AS NO EVIDENCE R EGARDING RECEIPT OF SUCH INCOME COULD EVER BE PRODUCED. ON THE OTHER HAND IT IS SEEN THAT THE ASSESSING OFFICER HAS REASONABLY ACCEPTED THE INCOME THA T COULD HAVE BEEN ACTUALLY INVESTED BY SHRI P.T. REDDY OUT OF THE AGRICULTURAL INCOME SHOWN IN THE RETURNS FOR THE ASSESSMENT YEAR 2003- 04 TO 2005- 06 AFTER MEETING THE ESTIMATED HOUSE HOLD EXPENDITURE OF RS.2 LAKHS PER ANNUM AND TAXES PAID. ACCORDINGLY THE ADDITION OF RS. 2 04 41 843 ON ACCOUNT OF UNEXPLAINED CASH CREDITS IN THE NAME OF SHRI P .T. REDDY IN THE BOOKS OF THE ASSESSEE IS TO BE UPHELD. 25. SHE SUBMITTED THAT FOR THE SAME REASON IT CANNOT BE ACCEPTED THAT THE CONTENTION OF THE ASSESSEE THAT SHRI P. T. REDDY HAD INTRODUCED THE LOAN OF RS.1 50 73 244/- OUT OF ANY AG RICULTURAL INCOME. THE ADDITION OF RS.1 50 73 244/- U/S 68 IS THEREFORE T O BE UPHELD. 26. AS REGARDS THE CONTRIBUTION MADE BY SHRI C.RAVI IT IS SUBMITTED THAT THE ASSESSEE HAD ATTEMPTED TO EXPLAIN THE CONTRIBUTION MADE BY HIM AS EMERGING FROM THE GIFTS RECEIVED BY HI M FROM HIS FATHER AND FATHER IN LAW. HOWEVER IT WAS FOUND THAT NEITHE R THE FATHER NOR THE FATHER IN LAW OF SHRI C. RAVI HAD SUFFICIENT CREDIT W ORTHINESS FOR MAKING SUCH GIFTS. THE DECLARATIONS REGARDING GIFT HOWEVER W ERE SELF SERVING EVIDENCES WHICH WERE NOT BACKED BY ANY OTHER EVIDENCE IN THE FORM OF REGULAR INCOME OF THESE PERSONS OF THEIR CREDIT WORTHINE SS AS REFLECTED FROM THE RETURNS OF INCOME FILED BY THEM. SHE SUBMITT ED THAT THERE IS NO MERIT IN THE CONTENTION THAT HAVING ACCEPTED THE FA CT OF GIFT THE AMOUNTS COULD NOT HAVE BEEN SUBSTITUTED BY THE ASSESSING OF FICER. IN FACT THE ASSESSING OFFICER ACCEPTED THE GIFT TO THE EXTENT OF RS.10 LAKHS FROM THE FATHER IN LAW OF SHRI C. RAVI AND RS.5 LAKH S FROM HIS FATHER ONLY AFTER CONSIDERING THE CUSTOM EXISTING IN THE STATE OF AN DHRA PRADESH AND SUCH LIBERAL ACCEPTANCE COULD NOT HAVE BEEN EXTENDED TO T HE ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 17 CONSIDERATION OF ENTIRE AMOUNT SHOWN AS GIFT RECEIVED BY THEM THOUGH THERE WAS NO EVIDENCE TO SUPPORT THE SAME. SIMILARLY THERE IS NO STRENGTH IN THE ARGUMENT THAT THE AGRICULTURAL INCOME OF THE ASSESSMENT YEAR 2006-07 HAD ALSO BEEN RECEIVED BY HIM IN THE MON THS OF APRIL MAY ITSELF. UNDER THE CIRCUMSTANCES HENCE THE ASSESSING OFFICER H AS BEEN VERY REASONABLE IN ACCEPTING THE TOTAL CONTRIBUTION OF RS.20 91 092/- BY SHRI C. RAVI ARE GENUINE. THE REMAINING ADDITION O F UNEXPLAINED CREDIT OF RS.52 82 152 IS THEREFORE TO BE UPHELD. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL ON RECORD. IT IS OBSERVED THAT THERE EXISTED ENTRIES IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM BY WAY OF CAPITAL INTRODUCED BY PART NERS AND LOAN TAKEN IN THE NAME OF THE PARTNER. IT IS NOT THE CASE OF THE ASSESSEE THAT IT WAS FIRST YEAR OF ITS BUSINESS OPERATION IN THE EARLI ER YEARS ALSO BUSINESS WAS CARRIED ON AND DURING THE RELEVANT YEAR TH ERE WAS RECONSTITUTION OF THE FIRM WHEREBY SHRI P. TIKKA RED DY AND CH. RAVI WERE ADMITTED INTO THE PARTNERSHIP AFTER INTRODUCING THE AFORESAID CAPITAL BY THE THEM. DURING THE ASSESSMENT YEAR THAT B OTH OF THESE PERSONS SAID TO BE INTRODUCED THEIR CAPITAL OUT OF THEIR CERTAIN SOURCES; THE SAID EXPLANATION WAS FOUND AS UNSATISFACTORY. THE ASSESSEE FIRM ATTEMPTED TO EXPLAIN THE INTRODUCTION OF CAPITAL BY S HRI P. THIKKA REDDY ON THE BASIS OF A MERE CERTIFICATE FROM THE TAHASILDAR TO THE EFFECT THAT THE ANNUAL YIELD PER ACRE COULD HAVE BEEN RS.65 000/- PER ACRE PER CROP. NO DETAILS WITH REGARD TO THE EXPENDITURE I NCURRED FOR EARNING SUCH INCOME HOWEVER WAS FILED AT ANY STAGE. THE ASSESSEE COULD NOT EXPLAIN AS TO ON WHAT ACREAGE OF LAND AND WHAT CROPS W ERE GROWN AND HOW MUCH LAND WERE CULTIVATED. UNDER THE CIRCUMSTANCES THE LOWER AUTHORITIES HAVE NOT ACCEPTED THE ASSESSEES EXPLANATION RE GARDING THE CALCULATION OF INCOME AT RS.5.07 CRORES IN THE PAST 10 Y EARS FROM THE 78 ACRES HELD BY SHRI P. TIKKA REDDY HIS FATHER AND HIS BROTHER. WE HAVE ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 18 TO AGREE WITH THE VIEW OF THE ASSESSING OFFICER SINCE THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE SOURCES OF INTRODUCTION OF THE CAPITAL AND UNSECURED LOAN. WE ALSO DO NOT AGREE WITH THE CONTENT ION OF THE ASSESSEE THAT THE INCOME CLAIMED AS EARNED IN THE ASSESSMENT YEAR 2006-07 WAS RECEIVED BY SHRI P. TIKKA REDDY IN THE M ONTHS OF APRIL MAY 2005 ITSELF AS NO EVIDENCE REGARDING RECEIPT OF SU CH INCOME COULD EVER BE PRODUCED. ON THE OTHER HAND THE ASSESSING OFFI CER HAS REASONABLY ACCEPTED THE INCOME THAT COULD HAVE BEEN ACTU ALLY INVESTED BY SHRI P. THIKKA REDDY OUT OF THE AGRICULTURAL INCOM E SHOWN IN THE RETURNS FOR THE ASSESSMENT 2003-04 TO 2005-06 AFTER MEET ING THE ESTIMATED HOUSE HOLD EXPENDITURE OF RS.2 LAKHS PER ANNU M AND TAXES PAID. 28. AS REGARDS CONTRIBUTION MADE BY SHRI C. RAVI I T IS OBSERVED THAT THE GIFTS RECEIVED BY SHRI RAVI FROM HIS FATHER A ND FATHER-IN-LAW ARE NOT SATISFACTORILY PROVED SINCE THE CREDITWORTHINESS OF SHRI RAVIS FATHER AND FATHER-IN-LAW WAS NOT EXPLAINED. THE DECLARAT IONS REGARDING GIFT HOWEVER WERE SELF SERVING EVIDENCE WHICH WERE NOT BACK ED BY ANY OTHER EVIDENCE IN THE FORM OF REGULAR INCOME OF THESE PERSONS OR THEIR CREDIT WORTHINESS AS REFLECTED FROM THE RETURNS OF INCOME FILED BY THE ASSESSEE. IN THIS CASE U/S 68 OF THE ACT THE ASSESSEE IS REQU IRED TO EXPLAIN THE IDENTITY CAPACITY AND GENUINENESS OF THE CR EDIT ENTRY EXISTING IN THE BOOKS OF ACCOUNT. THE PROVISIONS OF THIS SECTION APPLY TO PARTNERSHIP FIRMS ALSO. THERE IS NO DISTINCTION BETWEEN THE CAPITAL CONTRIBUTED BY THE PARTNER OR THIRD PARTY OR UNSECURED LOAN RECEIVED BY THE ASSESSEE. IF THE CASH CREDIT EVEN THOUGH IN THE CAPIT AL ACCOUNT OF THE PARTNER IS NOT SATISFACTORILY EXPLAINED THE ASSESSING OFFICER IS JUSTIFIED TO TREAT IT AS INCOME FROM UNDISCLOSED SOURCES. IF THE EXPLANATION IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDEN CE THEN THE DEEMING FICTION CREATED BY SEC.68 IS SQUARELY APPLICABLE. SIMPLY ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 19 BECAUSE THE AMOUNT IS CREDITED IN THE BOOKS OF THE PART NERSHIP FIRM IT CANNOT BE SAID THAT IT IS NOT THE UNDISCLOSED INCOME OF T HE ASSESSEE AND THAT IN ALL CASES IT HAS TO BE ASSESSED AS INCOME OF THE PAR TNERS. THE ABOVE POINT OF DESCRIPTION IS FORTIFIED BY THE RAJAST HAN HIGH COURT IN THE CASE OF CIT VS. KISHORILAL SANTOSHILAL (216 ITR 9) (RAJ ) WHICH WAS FOLLOWED BY THE TRIBUNAL IN THE CASE OF M/S DURGA WIN ES IN ITA NO.25/HYD/2001 DT.14-9-2007 FOR THE ASSESSMENT YEAR 1998 -99. IT IS THE ONUS OF THE FIRM TO PROVE THE CAPACITY OF THE PART NER TO INVEST THAT AMOUNT IN THE FIRM AS THEIR CAPITAL. IF THE ASSESSEE IS A BLE TO PROVE THE CREDIT WORTHINESS OF THOSE PARTNERS THEN THE ONUS CAST UPO N THE ASSESSEE WOULD BE DISCHARGED. THE JURISDICTIONAL HIGH COURT IN THE CASE OF R.B.MITTAL V. CIT 246 ITR 283 (AP) HELD THAT IN ORDER TO DISCHARGE THE ONUS CAST ON THE ASSESSEE U/S 68 THE ASSESSEE HAS TO ESTABLISH N OT ONLY THE IDENTITY OF THE CREDITORS AND THE CONFIRMATION OF THE CREDITOR BUT ALSO THE CAPACITY OF THE CREDITORS TO ADVANCE THE MONEY AS WEL L AS THE GENUINENESS OF THE TRANSACTION. IN THE INSTANT CASE THE CREDITS WERE IN THE NAME OF THE PARTNERS IN THEIR CAPITAL ACCOUNT OR SHO WN AS LOANS FROM RELATIVES. THUS THE ONUS IS ON THE ASSESSEE TO PROVE THE IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. WHEN THE PARTNERS CONFIRMED THE INVESTMENT BY WAY OF CONFIRMATION LETTER S THE BURDEN CAST ON THE ASSESSEE TO PROVE THE IDENTITY OF THE PARTNER S HAS BEEN DISCHARGED. THEN ONE OF THE CONDITIONS REQUIRED U/S 6 8 OF THE ACT IS SATISFIED TO THAT EXTENT BUT THE CREDITWORTHINESS OF THE PARTNERS AND THE GENUINENESS OF THE TRANSACTION ARE FURTHER REQUIRED TO BE PROVED BY THE ASSESSEE FIRM. THE ASSESSING OFFICER OBSERVED FROM THE CAPIT AL ACCOUNT OF THE PARTNERS THAT THERE ARE CASH INTRODUCTIONS IN TH ESE ACCOUNTS. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE FOR INTRODUCTIO N OF CASH IN PARTNERS ACCOUNT. THE ASSESSEE EXPLAINED THAT THEY ARE I NCOME TAX ASSESSEES; BUT THE FACT IS THAT RETURNED INCOME IS NOT S UFFICIENT TO MEET THE REQUIREMENT. FURTHER WITH REGARD TO SHRI C. R AVI IT WAS STATED THAT ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 20 HE WAS IN RECEIPT OF GIFT FROM HIS FATHER AND FATHER I N LAW. HOWEVER THE DONORS HAVE NO CREDIT WORTHINESS. BUT THERE WAS NO BANK ACCOUNT OR ANY DOCUMENTARY EVIDENCE FOR RECEIPT OF THESE AMOUNTS. THE ASSESSEE FAILED TO ADDUCE ANY SORT OF EVIDENCE TO SHOW THE HOLDI NG OF THIS AMOUNT IN ANY FORM FOR WHICH NO ACCOUNT COPY OF BANK ACCOUNT WAS PRODUCED. THE PARTIES WHO DONATED SUCH SUBSTANTIAL AMOUNT ARE NO T INCOME TAX/WEALTH TAX ASSESSEES. AS SUCH THE ASSESSING OFFICER MAD E AN ADDITION ON THIS COUNT. BEFORE US ALSO THE ASSESSEE FAIL ED TO FURNISH INFORMATION REGARDING THESE CREDITS ALONG WITH CERTAIN EVIDENCE TO EXPLAIN THE GENUINENESS OF THE TRANSACTION. BEING SO WE ARE OF THE OPINION THAT THESE PARTNERS ARE HAVING NO CAPACITY TO INVEST THE IMPUGNED AMOUNT AS CAPITAL AND AS SUCH THIS ADDITION IS J USTIFIED. 29. FURTHER EVEN IF THE PARTIES ARE HAVING AGRICUL TURAL INCOME THE ASSESSEE HAS TO PUT BEFORE THE ASSESSING OFFICER THE PRO PER MATERIAL WHICH WOULD ENABLE HIM TO COME TO A CONCLUSION THAT THE IMPUGNED INCOME IS INDEED AGRICULTURAL INCOME. IT IS NOT FOR THE ASSESSING OFFICER TO PROVE THAT THE SOURCE OF CREDIT IS AGRICULTURAL INCOME . THE ONUS OF PROOF CONSIDERED IN THE LEGISLATIONS OF VARIOUS STATUTES P ERTAINING TO AGRICULTURAL INCOME CANNOT STRAIGHT AWAY BE BORROWED FOR THE PURPOSE OF INCOME TAX ACT 1961. IF THE ASSESSEE CLAIMS THE SOURCES OF INVESTMENT IS AN AGRICULTURAL INCOME THE ONUS WOULD BE ON THE ASSESSEE TO PROVE THAT IT IS AGRICULTURAL INCOME. IN THE PRESEN T CASE THOUGH THE ASSESSEE CLAIMING THE SOURCES OF INVESTMENT IS AN AGRICULTURAL INCOME THE ASSESSEE FAILED TO LEAD SUBSTANTIAL EVIDENCE IN SUPPORT OF IT. JUST HOLDING OF LAND IS NOT ENOUGH TO HOLD THAT THE ASSESSEE HAS ACTUALLY EARNED THE IMPUGNED INCOME FROM AGRICULTURAL LAND. T HE CERTIFICATE FROM TASILDHAR IS NOT WELL SUFFICIENT TO SUBSTANTIATE T HE ASSESSEES CLAIM THAT IT IS AN AGRICULTURAL INCOME. THE ASSESSEE DID NOT DISCHARGED THE ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 21 BURDEN CAST UPON IT. AS SUCH BENEFIT OF AGRICULTURAL IN COME CANNOT BE GIVEN AS CLAIMED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON TH E FOLLOWING JUDGEMENTS: 1. BALBHADRA CHANDRA MUNNALAL VS. CIT (33 ITR 781) 2. CIT VS. JAISWAL MOTOR FINANCE (141 ITR 706) 3. ADDL. CIT VS. HANUMAN AGARWAL (151 ITR 150) 4. CIT VS. BURMA ELECTRO CORPORATION (257 ITR 344) 5. CIT VS. JARNAIL SINGH KARTA (316 ITR 160 (P&H) 6. CIT VS. KEWAL KRISHAN & PARTNERS (18 DTR 121 ) (RAJ) 7. M/S VIJAYA WINES HYDERABAD VS. ACIT (ITA NO.185/HYD/20 09 DATED 25/9/2009) ( HYDERABAD A BENCH) 8. INSTRUMED (INDIA ) INTERNATIONAL VS. ITO (ITAT (DELHI ) 63 TTJ 191 9. ADDL. CIT VS. UNIQUE BUILDERS (ITAT (KOL.) 2 SOT 58 9 (2004) 10. CIT VS. LANCO INDUSTRIES LTD. (242 ITR 357 ) (AP) 11. NARAYANDAS KEDARNATH VS. ACIT (22 ITR 18) 12. DHORAJIA CONSTRUCTIONS CO. LTD. VS. ITO (42 ITD 450) ( AHMD.) 30. WE HAVE CAREFULLY GONE THROUGH THE ABOVE JUDGE MENTS. WHAT IS OF SIGNIFICANCE TO BE NOTICED IN THOSE JUDGEMENT S IS THAT IN ALL THESE SITUATIONS THE QUESTION AS TO WHETHER THERE IS UN EXPLAINED CREDIT AND IF SO A FURTHER QUESTION AS TO WHETHER ADDITION COULD BE MADE OR NOT WHICH DEPENDS UPON FACTS AND CIRCUMSTANCES OF EACH CASE SUCH QUESTIONS ARE TO BE ANSWERED IN EACH CASE ON EXAMINATION OF FACTS AND CIRCUMSTANCES OF THE CASE AND ON APPRECIATION OF EVIDENCE FR OM THE RECORD HAVING REGARD TO THE NATURE OF THE TRANSACTION CONDUCT OF THE PARTIES THE EVENTS PRECEDING THE TRANSACTIONS AND ALL SUCH INCIDENTAL ASPECTS AND THEREFORE THERE CANNOT BE A GENERALIZATIO N OF TEST OR A ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 22 READY MADE FORMULA WHICH CAN BE APPLIED TO A GIVEN CASE TO ARRIVE AT AN ANSWER. IN MOST OF THE CASES RELIED UPON BY THE ASSESSEE COUNSEL THE ADDITION WAS DELETED BY COURT ON TECHNICALITIES VIZ. NO N GIVING OF OPPORTUNITIES OR ON THE BASIS OF SOME EVIDENCE FURNISHED BY THE ASSESSEE OR ON ACCOUNT OF CREDIT FOUND ON FIRST YEAR OF BUSI NESS OR EVIDENCE PRODUCED BY THE ASSESSEE NOT CONTROVERTED BY THE DEPARTMENT OR DEPARTMENT NOT REJECTED THE EXPLANATION OFFERED B Y THE ASSESSEE. BEING SO THE JUDGEMENTS RELIED UPON BY THE ASSESSEE CANNO T BE APPLIED TO THE ASSESSEES CASE. 31. FURTHER IN THE CASE OF JGAMOHAN RAM RAM CHANDR A & OTHER VS. CIT (274 ITR 405) (ALLAHABAD HC) WHEREIN THE ASSES SEE FIRM HAD SIX PARTNERS. FOR THE ASSESSMENT YEAR 1977-78 THE INCOME TAX OFFICER REQUIRED THE FIRM TO EXPLAIN THE NATURE AND SOURCE OF TWO CASH CREDITS STANDING IN THE NAMES OF TWO PARTNERS. RS.10 000 ON JU NE 8 1976 IN THE NAME OF U AND RS.7 500 ON JUNE 5 1976 IN THE N AME OF G. THE EXPLANATION OFFERED BY THE FIRM WAS THAT THESE TWO P ARTNERS HAD SURRENDERED THE AMOUNTS IN QUESTION IN THEIR INDIVIDUA L RETURNS AND THAT THEY HAD BEEN ASSESSED THEREON. THE ITO REJECTED THE EX PLANATION AND TREATED THE SUM OF RS.17 500 AS ITS INCOME BY INVOKING THE PROVISIONS OF SECTION 68 OF THE IT ACT 1961. IN THE INDIVIDUAL ASSESSMENT OF THE PARTNER G THE ITO ASSESSED THE SURRENDERED INCOME OF RS.7 500 WHICH WAS THE AMOUNT OF DEPOSIT STANDING IN HIS NAME IN THE F IRM BY WAY OF PROTECTIVE MEASURE. THE TRIBUNAL UPHELD THE ADDITION S. ON A REFERENCE: 32. THAT IF AN ENTRY OF CASH CREDIT IS FOUND IN THE BOOKS OF ACCOUNT OF THE FIRM IT IS FOR THE FIRM TO GIVE AN EXP LANATION AND IF THE SAME IS DISBELIEVED THEN IT IS TO BE ADDED AS AN INCOME U/S 68 OF THE IT ACT 1961 IN THE HANDS OF THE FIRM. SIMILARLY IF AN ASSESSEE WHO IS A ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 23 PARTNER IN THE FIRM HAS MADE INVESTMENT WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNT MAINTAINED BY HIM FOR ANY SOURCE OF INC OME AND THE EXPLANATION GIVEN BY THE PARTNER OR INDIVIDUAL REGA RDING THE SOURCE OF DEPOSITS IS DISBELIEVED THEN SUCH DEPOSITS WHICH ARE AN I NVESTMENT CAN BE BROUGHT TO TAX AS INCOME FROM UNDISCLOSED SOURCES U/S 69 OF THE ACT. THERE IS NO QUESTION OF ANY DOUBLE TAXATION. FULL EF FECT OF THE DEEMING PROVISIONS AND THE PRESUMPTIONS PROVIDED U/S 68 AND 69 O F THE ACT HAS TO BE GIVEN. THE FIRM AND THE PARTNERS BEING TREATE D AS SEPARATE ASSESSEES UNDER THE ACT ASSESSMENT OF THE INCOME IN THE HANDS OF THE DIFFERENT ASSESSEES UNDER DIFFERENT PROVISIONS OF THE ACT I S PERMISSIBLE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIB UNAL WAS JUSTIFIED IN UPHOLDING THE ADDITION OF RS.17 500 TO THE TOTAL INCOME OF THE ASSESSEE EVEN THOUGH THE SAID AMOUNT WAS ALSO ASSESSED IN THE HANDS OF THE TWO PARTNERS. 33. IN THE CASE OF INSPECTING ACIT VS. INDIAN ART EMPO RIUM (209 ITR 1 AT (3 RD MEMBER) IT WAS HELD THAT MERE DISCLOSURE OF INCOME I N A RETURN OF INCOME FILED BEFORE THE DEPARTMENT DOES NOT PROVE THE EXISTENCE OF SUCH AGRICULTURAL INCOME IN CASH. IF THE AGRIC ULTURAL LAND IS SO FERTILE HAS TO FETCH SUCH A HUGE ANNUAL INCOME THE SAM E SHOULD HAVE BEEN THE POSITION IN SUBSEQUENT YEARS ALSO. 34. IN THE CASE OF SMT. SHANTA DEVI VS. CIT (171 ITR 532) (P&H HC) IT WAS HELD THAT A PERUSAL OF SECTION 68 OF THE I NCOME TAX ACT 1961 SHOWS THAT IN RELATION TO THE EXPRESSION BOOKS THE EMPHASIS IS ON THE WORD ASSESSEE MEANS THEREBY THAT SUCH BOOKS HAVE TO BE BOOKS OF THE ASSESSEE HIMSELF AND NOT OF ANY OTHER ASSESSEE. A P ARTNERSHIP FIRM IS AN ASSESSABLE ENTITY DISTINCT FROM THE INDIVIDU AL PARTNER. THE BOOKS OF ACCOUNT OF A PARTNERSHIP CANNOT BE TREATED AS T HOSE OF THE INDIVIDUAL PARTNER. THEREFORE WHERE A PARTNER MAI NTAINED NO BOOKS OF ITA NO.204/HYD/2010 PARAS COLLINS HYDERABAD 24 ACCOUNT AND A CASH CREDIT ENTRY APPEARED IN THE BOOKS OF THE FIRM IN THE NAME OF THE PARTNER THE AMOUNT OF THE CASH CREDIT COUL D NOT BE ASSESSED AS INCOME FROM UNDISCLOSED SOURCES U/S 68 OF THE ACT IN THE HANDS OF THE PARTNER TREATING THE BOOKS OF ACCOUNT OF THE PARTNERSHIP AS THOSE OF THE INDIVIDUAL PARTNER. ACCORDINGLY WE CONFIR M THE ORDER OF THE CIT(A) ON THESE ISSUES AND ALL THE GROUNDS OF THE ASSESSEES APPEAL ARE DISMISSED. 35. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT 23.7.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE JULY 2010 COPY FORWARDED TO: 1. M/S PARAS COLLINS DISTILLERIES PLOT NO.25B 8-2-293/ 82/2 MLA COLONY BANJARA HILLS ROAD NO.12 HYDERABAD. 2. ITO WARD NO.6(3) HYDERABAD 3. CIT(A)-IV HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP