M/s. JEET WAX P. LTD., MUMBAI v. DCIT CENT. CIR. - 18 & 19, MUMBAI

1 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.2165/M/2006 ASSESSMENT YEAR 1999-2000 M/S.JEET WAX PVT. LTD. THE DCIT CENTRAL CIRCLE 1 8 & 19 MUMBAI C/O. ANGAT AUTOMOTIVE PVT.LTD. 6 TH FLOOR OLD CGO BLDG ANNEXE MUMBAI 20 55/2 W.T.PATIL MARG NEAR SHATABDI HOSPITAL OPP.CNG CHEMBUR MUMBAI 400 088. PAN : AAACJ9342B APPELLANT RESPONDENT ASSESSEE BY : SHRI JITENDRA SINGH REVENUE BY : SHRI S.K. SINGH O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 10.12.2003 OF CIT(A) FOR THE ASSESSMENT YEAR 1999-2 000. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING ADDITION OF RS.7.50 LACS UNDER SECTION 68 OF THE INCOME-TAX ACT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THERE WAS CASH DE POSIT OF RS.7.50 LACS IN THE BANK ACCOUNT OF THE ASSESSEE WITH ALLAHABAD BAN K ON 18.2.99 AND THE AMOUNT WAS TRANSFERRED TO M/S.PASCHIM PETROCHEM LTD . A SISTER CONCERN OF THE ASSESSEE ON THE SAME DAY WITHOUT ANY INTEREST. THE ASSESSEE EXPLAINED THAT 2 THE CASH HAD BEEN DEPOSITED OUT OF CASH GENERATED T HROUGH CASH SALES OF RS.9 37 554/- DURING THE YEAR. THE FACTS RELATING T O PURCHASE AND CORRESPONDING SALES WERE GIVEN BY THE ASSESSEE AS M ENTIONED BELOW : F.Y PURCHASE CASH SALES MONTH AMOUNT PARTY MONTH AMOUNT PARTY 1998- 99 JAN.99 739 480 M/S.SILVERCHEM INDS.(BOM) LTD. JAN 221 874 NOT SPECIFIED MAR.99 32 31 691 -DO- MARCH 715 680 NOT SPECIFIED 3. THE AO NOTED THAT IN THE BANK ACCOUNT ON THE DAT E OF DEPOSIT OF CASH OPENING BALANCE WAS ONLY RS.1 212/- AND THEREFORE C ASH HAD BEEN DEPOSITED ONLY FOR TRANSFER TO THE SISTER CONCERN WHICH WAS S QUARED UP DURING THE YEAR ON 31.3.99. THE ASSESSEE DID NOT HAVE ANY TRADING RELA TIONSHIP WITH THE SISTER CONCERN DURING THE YEAR. THE PURCHASE DURING THE YE AR OF RS.39 79 171/- WAS FROM ANOTHER SISTER CONCERN I.E M/S. SILVERCHEM IND USTRIES (BOM) LTD. AND THE PAYMENT REMAINED OUTSTANDING AS ON 31.3.2000. THE A SSESSEE HAD NOT CLAIMED ANY SUCH TRADING EITHER IN THE PRECEDING YEAR OR IN THE SUCCEEDING YEAR. THE PURCHASES AND SALES WERE CLAIMED ONLY IN THE MONTH OF JANUARY AND MARCH 1999. THERE WERE NO FIXED ASSETS IN THE BALANCE SHE ET OTHER THAN LAND WORTH RS.95 250/-. FURTHER CASH DEPOSIT OF RS.7.50 LACS O N 18.2.99 WAS EXPLAINED OUT OF CASH SALES BUT CASH SALES BEFORE THE SAID DATE W ERE ONLY TO THE TUNE OF RS.2 21 874/-. THE PARTIES TO WHOM SALES WERE MADE WERE ALSO NOT SPECIFIED. THE ASSESSEE HAD ALSO NOT SHOWN ANY GODOWN AND IT W AS NOT EXPLAINED WHERE THE GOODS WORTH RS.39 LACS WERE KEPT. THERE WAS NO EXPENDITURE CLAIMED IN RESPECT OF RENT ETC. THE AO THEREFORE DID NOT ACCE PT THE CLAIM OF TRADING AND THE SOURCE OF DEPOSITS FROM CASH SALES. ACCORDINGLY HE ADDED THE SUM OF RS.7.5 LACS AS INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE INCOME-TAX ACT. 3 4. IN APPEAL THE ASSESSEE REITERATED THE EARLIER SU BMISSION THAT THE ASSESSEE WAS ENGAGED IN TRADING ACTIVITY AND THE DE POSIT HAD BEEN MADE OUT OF CASH SALES. IT WAS ALSO SUBMITTED THAT BOOKS WERE A UDITED AND THE TRADING RESULTS HAD ALSO BEEN ACCEPTED BY THE AO AND THEREF ORE HE WAS NOT JUSTIFIED REJECTING THE CLAIM OF TRADING. IT WAS ALSO ARGUED THAT NO ADDITION COULD BE MADE UNDER SECTION 68 OF THE INCOME-TAX ACT ON THE BASIS OF DEPOSITS IN BANK ACCOUNT. THE ADDITION COULD ALSO NOT BEEN MADE UNDE R SECTION 69 AS THE BANK ACCOUNTS WERE DISCLOSED. CIT(A) WAS HOWEVER NOT SAT ISFIED WITH THE EXPLANATION OF THE ASSESSEE. IT WAS OBSERVED BY HIM THAT THE AS SESSEE HAD ADOPTED THE MODUS OPERANDI OF DEPOSITING CASH OUT OF PURPORTED CASH SALES IN OTHER GROUP CONCERNS ALSO SUCH AS M/S. PILOT LEASING PVT. LTD. AND M/S.MANJET LEASING PVT. LTD. IT WAS ALSO OBSERVED BY HIM THAT HE HAD ALREAD Y CONSIDERED IDENTICAL CLAIM OF DEPOSIT IN CASE OF M/S.PILOT LEASING PVT. LTD. A ND THE ADDITION MADE BY THE AO HAD BEEN CONFIRMED. CIT(A) ALSO OBSERVED THAT TH ERE HAD BEEN SEARCH IN CASE OF GROUP CONCERNS AS WELL AS PARTNERS/ DIRECTO RS IN JANUARY 1999 AND THE CASH HAD BEEN DEPOSITED IN THE BANK ACCOUNTS OF THE VARIOUS GROUP CONCERNS. THE RETURN OF INCOME WAS FILED LATE ON 29.3.2001 AN D NOT WITHIN THE DUE DATE IN 1999 THOUGH THE AUDIT WAS CLAIMED TO HAVE BEEN COMP LETED ON 4.9.1999. THE ASSESSEE ALSO FAILED TO PROVE THAT THE BOOKS OF ACC OUNT WERE MAINTAINED IN THE NORMAL COURSE. CIT(A) ALSO OBSERVED THAT SEARCH HAD BEEN CONDUCTED ON THE BASIS OF ALLEGATIONS THAT THE GROUP WAS ENGAGED IN GENERATING UNACCOUNTED CASH BY CHARGING PREMIUM ON SALE OF NAPHTHA. THE CA SH SO GENERATED WAS BEING DEPOSITED IN THE BANK ACCOUNTS OF THE GROUP C OMPANIES AND FROM THIS IT WAS BEING TRANSFERRED TO OTHER SISTER CONCERNS AS L OAN OR SHARE APPLICATION MONEY. THIS HAD BEEN DONE TO GIVE A COLOUR OF GENUI NENESS TO THE OTHERWISE NON GENUINE TRANSACTIONS. THE COMPANY HAD BEEN USED AS A CONDUIT TO CHANNELIZE ROTATE AND ACCOMMODATE THE GROUP CONCER N IN THE MATTERS OF FUNDS 4 FLOW. THERE WERE NO PURCHASES AND SALES IN THE PREC EDING YEAR OR IN THE SUCCEEDING YEAR. SALES AND PURCHASES WERE SHOWN ONL Y AROUND THE PERIOD WHEN CASH WAS TRANSFERRED TO THE OTHER CONCERNS. THE PUR CHASES WERE SHOWN AS ON CREDIT FROM GROUP CONCERN AND THE PARTIES TO WHOM S ALES WERE MADE WERE NOT IDENTIFIED. SINCE THE CASH CLAIMED TO BE GENERATED FROM SALES WERE TRANSFERRED TO OTHER GROUP CONCERNS IT WAS NOT EXPLAINED AS TO HOW THE PAYMENTS FOR PURCHASES WERE TO BE MADE. THE ASSESSEE HAD ALSO NO T SHOWN ANY EXPENSES ON ACCOUNT OF RENT FOR OFFICE OR GODOWN OR ANY OTHER E XPENSES FOR THE BUSINESS. THERE WERE NO FIXED ASSETS EXCEPT THE LAND WORTH RS .95 250/-. CIT(A) THEREFORE AGREED WITH THE AO THAT THE CLAIM OF TRADING BUSINE SS WAS NOT GENUINE AND ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO A GGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US THE LEARNED AR FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT BOOKS WERE AUDIT ED AND INCOME AS PER THE AUDITED ACCOUNT HAD BEEN ACCEPTED BY THE AO AND THE REFORE THE AO WAS NOT JUSTIFIED IN REJECTING THE BUSINESS ACTIVITIES. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD FILED DETAILS OF DATE-WISE CASH RECEIP TS FROM TRADING SALES AND THE COPY OF CASH BOOK WHICH HAD BEEN PLACED AT PAGES 21 /22 OF THE PAPER BOOK. IT WAS ALSO SUBMITTED THAT THE CASH SALES HAD BEEN CON SIDERED BY THE AO FOR COMPUTATION OF INCOME AND THEREFORE THE SAME COULD NOT BE TREATED AS NON GENUINE. THE ASSESSEE IT WAS POINTED OUT HAD ALSO GIVEN STOCK TALLY. IT WAS FURTHER ARGUED THAT NO ADDITION COULD BE MADE UNDER SECTION 68 OF THE INCOME- TAX ACT ON THE BASIS OF DEPOSITS IN THE BANK ACCOUN TS. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CAS E OF CIT VS BHAICHAND H. GANDHI (141 ITR 67) IN THAT CASE ADDITION HAD BEEN MADE ON THE BASIS OF CASH DEPOSITS IN THE PASS BOOK AND THE ADDITION UNDER SE CTION 68 WAS NOT UPHELD AS 5 THERE WAS NO ENTRY IN THE CASH BOOK OF THE ASSESSEE IN THAT YEAR. IT WAS ACCORDINGLY URGED THAT THE ADDITION SHOULD BE DELET ED. THE LEARNED DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF THE AUT HORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THOSE ORDERS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD MADE THE ENTRIES IN THE BOOKS ON ACCOU NT OF CASH SALES AND THEREFORE PROVISIONS OF SECTION 68 WERE APPLICABLE. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 7.50 LACS ON THE BASIS OF CASH DEPOSITED IN THE BANK ACCOUNTS OF THE ASSESSEE ON 1 8.2.99. THE ASSESSEE EXPLAINED THE SOURCE OF CASH AS CASH RECEIVED FROM SALE OF GOODS IN CASH. IT WAS CLAIMED THAT THE ASSESSEE WAS ENGAGED IN TRADIN G ACTIVITIES. HOWEVER DETAILS FILED IN THIS REGARD SHOW THAT PURCHASES AN D SALES WERE SHOWN ONLY IN THE MONTHS OF JANUARY 1999 AND MARCH 1999. NEITHER IN THE PRECEDING YEAR NOR IN THE SUBSEQUENT YEAR ANY TRADING ACTIVITIES H AVE BEEN SHOWN. THESE FINDINGS OF AUTHORITIES BELOW HAVE NOT BEEN CONTROV ERTED BEFORE US. THE PURCHASES WERE SHOWN ONLY FROM SISTER CONCERNS ON C REDIT AND PARTIES TO WHOM SALES WERE MADE WERE NOT IDENTIFIED. THE CASH DEPOS IT OF RS.7.5 LACS WAS EXPLAINED OUT OF CASH SALES BUT CASH SALES TILL THE DATE OF DEPOSITS WAS ONLY RS.2 21 874/-. THE ASSESSEE HAD NOT SHOWN ANY EXPEN DITURE OF PAYMENT OF RENT FOR SHOP OR GODOWN AND IT WAS NOT EXPLAINED AS TO HOW GOODS PURCHASED WORTH RS.39 LACS WAS STORED AS MOST OF IT REMAINED UNSOLD AT THE END OF THE YEAR. CIT(A) HAS GIVEN A FINDING THAT SIMILAR MODUS OPERANDI OF GENERATING CASH THROUGH CASH SALES HAD BEEN FOLLOWED BY IN OTHER G ROUP CONCERNS TO EXPLAIN PAYMENT TO GROUP CONCERNS AND IDENTICAL CASE HAD BE EN EXAMINED BY THE CIT(A) IN CASE OF M/S. PILOT LEASING PVT. LTD. IN W HICH CASE ALSO IDENTICAL CASH DEPOSITS WERE EXPLAINED OUT OF CASH SALES AND ADDIT ION MADE WAS CONFIRMED. 6 THE LEARNED AR FOR THE ASSESSEE ADMITTED THAT NO AP PEAL HAD BEEN FILED IN THAT CASE AGAINST THE APPEAL OF THE CIT(A). 6.1 CIT(A) HAS ALSO GIVEN A FINDING THAT THERE WER E SEARCH IN THE CASE OF THE GROUP COMPANIES AND DIRECTORS/ PARTNERS IN JANUARY 1999 AND AFTER THE SEARCH THERE HAD BEEN DEPOSITS AND CASH HAD BEEN GENERATED TO EXPLAIN THE VARIOUS INVESTMENTS ETC. THE RETURN FOR THIS YEAR WAS FILED ONLY TOWARDS THE END OF LIMITATION PERIOD UNDER SECTION 139(4) AND NOT WITH IN THE DUE DATE UNDER SECTION 139(1) THOUGH THE AUDITS ARE CLAIMED TO HAV E BEEN DONE MUCH EARLIER. CIT(A) HAS ALSO GIVEN A FINDING THAT THE ASSESSEE H AD FAILED TO PROVE THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED DURING THE NORMAL COURSE. THE TRADING TRANSACTIONS WERE SHOWN ONLY AROUND THE DATE OF CAS H DEPOSITS. THERE WAS NO SUCH TRANSACTION IN THE PRECEDING YEAR OR IN THE SU BSEQUENT PERIOD. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES MENTIONED A BOVE AND IN THE PRECEDING PARA WE AGREE WITH THE FINDINGS GIVEN BY THE CIT(A ) THAT THE TRADING TRANSACTIONS WERE NOT GENUINE AND THESE HAD BEEN DE CLARED ONLY TO EXPLAIN THE SOURCE OF CASH DEPOSITS. WE ACCORDINGLY UPHOLD THE FINDING THAT TRADING BUSINESS WAS NOT GENUINE. THE LEARNED AR HAS ALSO A RGUED THAT NO ADDITION COULD BE MADE UNDER SECTION 68 ON THE BASIS OF CASH DEPOSITS IN THE BANK ACCOUNT AS THE BANK ACCOUNTS IS NOT PART OF BOOKS O F ACCOUNT. HOWEVER WE FIND THAT THE LEARNED AR HIMSELF HAS POINTED OUT THAT CA SH GENERATED OUT OF CASH SALES WERE ENTERED IN THE CASH BOOK AND COPY OF THE CASH BOOK HAS ALSO BEEN FILED IN THE PAPER BOOK AND THEREFORE IT CANNOT BE SAID THAT NO ENTRY IN RELATION TO CASH TRANSACTIONS WERE SHOWN IN THE BOOKS. THERE FORE ADDITION UNDER SECTION 68 IS JUSTIFIED. IT HAS ALSO BEEN ARGUED THAT THE I NCOME OF RS.7302/- FROM TRADING TRANSACTIONS SHOWN BY THE ASSESSEE HAD BEEN ACCEPTED BY THE AO AND THEREFORE THE TRANSACTION COULD NOT BE HELD NON GEN UINE. WE ARE UNABLE TO 7 ACCEPT THE ARGUMENT. THE INCOME DECLARED BY THE ASS ESSEE IN THE RETURN HAS TO BE ASSESSEE IF NOT AS BUSINESS INCOME AS INCOME FR OM OTHER SOURCES AND MERELY BECAUSE INCOME VOLUNTARILY DECLARED HAS BEEN ASSESSED THE TRANSACTION CANNOT BE ACCEPTED AS GENUINE PARTICULARLY WHEN THE RE IS CLEAR FINDING WITH WHICH WE AGREE AS MENTIONED EARLIER THAT THE TRANSA CTIONS WERE NOT GENUINE. THE ARGUMENT RAISED BY THE ASSESSEE IS THEREFORE RE JECTED. 7. IN VIEW OF THE FOREGOING DISCUSSION WE CONFIRM T HE ORDER OF CIT(A) UPHOLDING THE ADDITION OF RS.7.50 LACS. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. 9. THE DECISION WAS PRONOUNCED IN THE OPEN COURT 09 .02.2011. SD/- SD/- ( D.K. AGARWAL ) (RAJEN DRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 09.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR I BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK