The ACIT, Circle-3,, Surat v. Shri Prakashchand S.Sandh, Surat

ITA 3108/AHD/2009 | 2006-2007
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 310820514 RSA 2009
Bench Ahmedabad
Appeal Number ITA 3108/AHD/2009
Duration Of Justice 1 year(s) 8 month(s) 8 day(s)
Appellant The ACIT, Circle-3,, Surat
Respondent Shri Prakashchand S.Sandh, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-07-2011
Date Of Final Hearing 21-07-2011
Next Hearing Date 21-07-2011
Assessment Year 2006-2007
Appeal Filed On 20-11-2009
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI M. K. SHRAWAT JM AND A. K. GARODIA AM ASSTT. CIT CIR-3 SURAT. VS. SHRI PRAKASHCHAND S. SANDH C-704 KAKADIA COMPLEX GHOD DOD ROAD SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. K. MEENA SR.DR RESPONDENT BY:- SHRI R. B. SHAH AR O R D E R PER M. K. SHRAWAT JUDICIAL MEMBER. THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-II SURAT DATED 26.8.2009 AND THE GROUNDS ARE HEREBY DECIDED AS FOLLOWS :- GROUND NO. (1) ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN DIRECTING TO ACCEPT THE CLAIM OF THE ASSESSEE OF RS.39 45 995/- AS CAPITAL GAIN AS AGAINST THE SAME TREATED BY THE AO AS UNEXPLAINED CREDIT UNDER THE P ROVISIONS OF SECTION 68 OF THE I.T. ACT. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S 143(3) DATED 17 TH DECEMBER 2008 ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IN THE BUSINESS OF TRADING OF ART SILK CLOTH AND ALSO ITA NO.3108/AHD/2009 ASST. YEAR 2006-07 ITA NO.3108 /AHD/2009 ASST. YEAR 2006-07 2 TRANSACTED SCRIPS VIZ. EMERALD COMMERCIAL. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAINS OF RS.39 45 995/-. TO ASCERTAIN THE GENUINENESS OF THE CAPITAL GAINS THE AO HAS ISSUED NOTICES TO THE PARTY FROM WHOM THE SHARES WERE PURCHASED. T HE AO HAS ALSO ISSUED NOTICE TO THE PARTY TO WHOM THE SHARES WERE SOLD. SIMULTANEOUSLY THE AO HAS ISSUED A NOTICE TO CALCUTTA STOCK EXCHAN GE. AS PER AO THE BROKER WHO HAS PURCHASED THE SHARES HAS INFORMED TH AT THE SAID PURCHASES WERE MADE OFF MARKET THEREFORE HE HAS EXPRESSED HIS INABILITY TO FURNISH THE NAMES AND ADDRESSES OF THE PARTIES ON W HOSE BEHALF THE SHARES WERE PURCHASED. THEREAFTER THE ASSESSEE WAS ASKED T O FURNISH THE BANK STATEMENTS AND COPY OF THE DEMAT ACCOUNT. ON SCRUTI NY OF THE DEMAT ACCOUNT THE AO HAS FOUND THAT THE AMOUNT WAS CREDITED AFTER A GAP OF THREE MONTHS. IT WAS ALSO NOTED BY THE AO THAT THE INFORMATION F ROM CALCUTTA STOCK EXCHANGE HAD NEITHER CONFIRMED NOR S ENT ANY REPLY. THEREAFTER IT WAS HELD THAT THE LONG TERM CAPITAL G AIN WAS NOT GENUINE AND THE ASSESSEE HAS INTRODUCED UNACCOUNTED MONEY INTO THE BOOKS. WITH THE RESULT THE ENTIRE AMOUNT OF RS.41 50 165/- WAS TAXE D U/S 68 OF I.T. ACT. THE MATTER WAS CHALLENGED BEFORE CIT(A). 3. ON HEARING THE SUBMISSIONS OF THE ASSESSEE LD. C IT(A) HAS GIVEN THE VERDICT IN ASSESSEES FAVOUR AS FOLLOWS :- 6.5 I AM THUS OF THE VIEW THAT THE AO WAS NOT REAL LY JUSTIFIED IN REJECTING THE CLAIM OF LTCG AND TREATING THE GROSS SALE PROCEEDS OF ITA NO.3108 /AHD/2009 ASST. YEAR 2006-07 3 RS.41 50 165/- AS UNEXPLAINED CASH CREDIT UNDER SEC TION 68 OF THE IT ACT. THE SOURCE OF THE CREDIT WAS VERIFIABLE SINCE M/S SANJU KABRA HAD CONFIRMED THE SALE BY MEANS OF THE CONTRACT NOTE. THE SAID SUM WAS RECEIVED BY ACCOUNT-PAYEE CHEQUES AND CREDITED TO T HE ASSESSEES BANK ACCOUNT WHICH MEANT THAT THE GENUINENESS OF THE TRA NSACTION WAS ESTABLISHED. THE CREDITWORTHINESS OF M/S SANJU KABR A WAS NOT RELEVANT HERE. THEREFORE THE PROVISIONS OF SECTION 68 OF TH E ACT SIMPLY COULD NOT BE APPLIED TO THE FACTS OF THE ASSESSEES CASE. THE AO IS DIRECTED TO DELETE THE ADDITION OF THE SUM OF RS.41 50 165/-AND ACCEPT THE CLAIM OF LONG TERM CAPITAL GAIN OF RS.39 45 995/-. REVENUE HAS CHALLENGED THE RELIEF GRANTED BY THE FI RST APPELLATE AUTHORITY. 4. FROM THE SIDE OF THE REVENUE LD. DR MR.SHRI S. K . MEENA AND FROM THE SIDE OF THE ASSESSEE MR. R. B. SHAH HAVE A PPEARED AND RESPECTIVELY SUPPORTED THE IMPUGNED ORDERS OF THE A UTHORITIES BELOW. 5. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES AS ALSO ON CAREFUL PERUSAL OF THE COMPILATION FILED BEFORE US PRIMA F ACIE WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE. AT THE OUTSET AN ORDER OF THE RESPECTIVE CO-ORDINAT E BENCH D OF THE ITAT AHMEDABAD HAS BEEN PLACED BEFORE US WHEREIN I N ASSESSEES OWN CASE FOR ASST. YEAR 2005-06 VIDE AN ORDER DATED 24. 2.2009 BEARING ITA NO.3270/AHD/2008 THE ISSUE OF LONG TERM CAPITAL GAIN WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN THAT YEAR AS WELL THE ASSESSEE HAD SOLD SHARES OF FEW COMPANIES AND CLAIMED THAT THE SAID SALE TRA NSACTION HAD FALLEN WITHIN THE LONG TERM CAPITAL GAIN. IN RESPECT OF TH OSE TRANSACTIONS THE ASSESSEE HAS FURNISHED DE MAT ACCOUNT. BY PLACING T HIS DECISION OF THE ITA NO.3108 /AHD/2009 ASST. YEAR 2006-07 4 TRIBUNAL THE LD. AR HAS ARGUED BEFORE US THAT THE YEAR UNDER CONSIDERATION WAS NOT THE FIRST YEAR IN WHICH THE A SSESSEE HAS TRANSACTED IN SHARES. HE HAS PLEADED THAT IT WAS WRONG ON THE PART OF THE AO TO RAISE DOUBTS ABOUT THE GENUINENESS OF THE SHARE TRANSACTI ONS. FROM THE SIDE OF THE ASSESSEE A COMPILATION HAS BEEN FILED WHICH HAS CONTAINED A CONTRACT NOTE ON PURCHASE OF SHARES ISSUED BY A REGISTERED B ROKER M/S SURESH KUMAR SOMANI. THE ASSESSEE HAS ALSO PLACED THE DETAILS OF PAYMENT S TOWARDS PURCHASES OF SHARES. THIS COMPILATION ALSO CONTAINS THE COPY OF THE DE MAT ACCOUNT TO DEMONSTRATE THE PURCHASES OF SHAR ES. BALANCE SHEET OF THE ASSESSEE DRAWN AS ON 31.3.2005 HAS ALS O REFLECTED INVESTMENT IN SHARES. AS PER THE LIST OF THE INVESTMENT IN SH ARES THE SHARES OF EMERALD COMMERCIAL HAVE DULY BEEN REFLECTED AS AN I NVESTMENT IN THE SAID BALANCE-SHEET. THIS COMPILATION HAS ALSO CONT AINED THE CONTRACT NOTE IN RESPECT OF SALE OF SHARES ISSUED BY THE BROKER. THE LD. AR HAS ALSO DRAWN OUR ATTENTION ON AN ORDER OF THE AO FOR ASST. YEAR 2005-06 GIVING EFFECT TO THE AFOREMENTIONED ORDER OF THE TRIBUNAL THROUGH WHICH THE ADDITION MADE IN THAT YEAR U/S 68 WAS DELETED. CONS IDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND SEVERAL EVI DENCES PLACED ON RECORD WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO FALLACY IN THE FINDING OF THE FIRST APPELLATE AUTHORITY HENCE HERE BY CONFIRMED. THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 6. THE SECOND GROUND RAISED BY THE REVENUE READS AS UNDER: ITA NO.3108 /AHD/2009 ASST. YEAR 2006-07 5 (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE AO OF RS.1 36 961/- 7 . THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 65 94 510/-. THE AO OBSERVED THAT INTEREST @ 15% WAS PAID WHEREAS I NTEREST @ 12% WAS RECEIVED. A QUERY WAS RAISED AS TO WHY EXCESS INTER EST @ 3% WAS PAID. THE SAID ALLEGED EXCESS INTEREST WAS CALCULATED BY THE AO AT RS.1 36 961/- WHICH WAS DISALLOWED. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHO HAS HELD AS UNDER :- 10. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . TO BEGIN WITH IT IS NOT THE JOB OF THE AO TO DECIDE THE RATE AT WHICH I NTEREST SHOULD BE PAID BY A BUSINESS PERSON ON BORROWINGS. IT IS A FACT TH AT THE RATE OF INTEREST ON LOANS TAKEN FROM NON-GOVERNMENTAL ORGANIZATIONS IS USUALLY NEGOTIABLE. THE RATE OF INTEREST IS DECIDED ON THE BASIS OF VAR IOUS FACTORS SUCH AS THE URGENCY OF REQUIREMENT OF THE LOAN THE AVAILABILIT Y OF FUNDS THE PERIOD OF LOAN ETC. ETC. THEREFORE THERE CANNOT BE A BLANKET RATE OF INTEREST AT WHICH A BUSINESS-PERSON MAY BE EXPECTED TO EITHER T AKE OR GIVE LOAN. AS RIGHTLY POINTED OUT BY THE ASSESSEE BEFORE THE AO EVEN BANKS AND FINANCIAL INSTITUTIONS CHARGE DIFFERENT RATES OF IN TEREST ON LOANS GIVEN UNDER DIFFERENT SCHEMES. IT HAS BEEN POINTED OUT BY THE AR THAT A LOWER RATE OF INTEREST WAS RECEIVED FROM THE RELATIVES WH ICH IS NOT UNUSUAL. LOWER RATE OF INTEREST I.E. TO 12% WAS ALSO PAID T O SOME RELATIVES. MOST IMPORTANTLY IT WAS POINTED OUT BY THE ASSESSEE TO THE AO THAT HE HAD INTEREST-FREE CAPITAL OF RS.1.36 CRORES WHICH WAS M UCH IN EXCESS OF THE LOANS GIVEN. THIS CLAIM WAS NOT CONTROVERTED BY TH E AO. GIVEN SUCH FACTS OF THE CASE I HAVE NO OTHER OPTION BUT TO DIRECT T HE AO TO DELETE THE ADDITION OF THE SUM OF RS.1 36 961/-. 8. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY HELD THAT THERE IS NO P ROVISION IN THE ACT EMPOWERING THE TAX AUTHORITIES TO INCLUDE AN INCOME ON NOTIONAL BASIS. ITA NO.3108 /AHD/2009 ASST. YEAR 2006-07 6 THE A.O. HAD FAULTED IN PRESUMING THAT THE DIFFEREN CE IN THE INTEREST RATE MIGHT HAVE BEEN RECEIVED BY THE ASSESSEE. THE A.O. HAD NO BASIS FOR THE SAID ASSUMPTION. IN ADDITION TO THE CASE LAWS OF TORRENT FINANCIER 73TTJ 64 AS CITED BY LD. CIT(A) AN ANOTHER DECISI ON ON THIS ISSUE HAS BEEN PRONOUNCED BY HON. GAUHATI HIGH COURT IN THE CASE OF B & A PLANTATION INDUSTRIES 242 ITR 22. RESPECTFULLY PLACING RELIANCE ON THESE DECISIONS WE HEREBY AFFIRM THE VIEW TAKEN BY LD. CIT(A). THIS GROUND TAKEN BY THE REVENUE IS DISMISSED . 9 . GROUND NO.3 OF REVENUES APPEAL READS AS UNDER :- (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE MA DE BY THE AO OF RS.98 676/- OUT OF VARIOUS EXPENSES TO RS.57 292/-. 10. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS DEBITED CERTAIN EXPENSES VIZ. CAR REPAIR STAFF WELFARE TELEPHONE EXPENSES CONVEYANCE ETC. TOTALING TO RS.9 86 756/-. AS PER THE AO SOME OF THE EXPENDITURE WERE INCURRED IN CASH THEREFORE HE HAS DISALLOWED 10% OF THE TOTAL AMOUNT I.E. RS.98 676/-. WHEN THE MATTER WAS CARRIE D BEFORE THE FIRST APPELLATE AUTHORITY THE DISALLOWANCE WAS RESTRICTED BY OBSERVING AS FOLLOWS:- 14. AS REGARDS CONVEYANCE STAFF-WELFARE AND TRAVE LING EXPENSES I AM OF THE CONSIDERED VIEW THAT THESE EXPENSES ARE ALWA YS VERY PETTY IN NATURE AND COMPRISE OF SMALL ITEMS INCURRED ON THE DAY-TO- DAY RUNNING OF ANY BUSINESS. THE PERSONS TO WHOM SUCH PAYMENTS ARE MAD E DO NOT USUALLY HAVE ANY HANK ACCOUNT WHICH MEANS THAT MOST OF SUC H EXPENSES HAVE TO BE INCURRED IN CASH. NOR DO THEY PROVIDE ANY BILL O R VOUCHER NOR EVEN A ITA NO.3108 /AHD/2009 ASST. YEAR 2006-07 7 CASH RECEIPT WHICH MEANS THAT THE BUSINESS PERSON H AS TO PREPARE HIS OWN VOUCHERS AFTER CONSOLIDATION OF SUCH EXPENSES ON W EEKLY OR MONTHLY BASIS. THEREFORE NO DISALLOWANCE COULD BE MADE OR SHOULD BE MADE OUT OF SUCH EXPENSES SIMPLY ON THE GROUND OF NON-VERIFI ABILITY. IN ANY CASE THERE CANNOT BE ANY PERSONAL ELEMENT IN SUCH EXPENS ES. THE AO ON HIS PART HAS NOT BEEN ABLE TO SHOW OR PROVE THAT ANY IT EM OF EXPENDITURE INCLUDED UNDER THE SAID HEADS WAS EITHER NOT GENUIN E OR NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE THE DISALLOWANCE OF RS.41 384/- OUT OF SUCH EXPENSES WI LL STAND DELETED. 14.1 AS REGARDS TELEPHONE/TELEX & CAR REPAIRING/PET ROL EXPENSES AND DEPRECIATION ON VEHICLES I AM OF THE VIEW THAT HOW EVER MUCH IT IS CLAIMED THAT ASSETS SUCH AS TELEPHONE(S) AND MOBILE(S) ARE PROCURED/PURCHASED AND UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS YET THE PERSONAL USE OF SUCH ASSETS BY TH E PROPRIETOR/PARTNERS AND EVEN THEIR FAMILY MEMBERS CANNOT BE ENTIRELY RU LED OUT ESPECIALLY WHEN NO RECORD OF THEIR USAGE IS MAINTAINED. THE DI SALLOWANCE OF RS.57 292/- OUT OF SUCH EXPENSES IS THEREFORE SUSTA INED. THE AO IS DIRECTED TO TAKE ACTION ACCORDINGLY. 11. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES WE HEREBY CONFIRM THE PART RELIEF GRANTED BY LD. CIT(A) AND NO INTERF ERENCE IS REQUIRED. HENCE THIS GROUND OF REVENUE IS ALSO DISMISSED . 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN OPEN COURT ON 29 TH JULY 2011 SD/- SD/- (A. K. GARODIA) (M. K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : 29/07/2011 MAHATA/-