ITO 15(1)(4), MUMBAI v. SAMRUDHI DEVELOPERS, MUMBAI

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI. V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 557/MUM/2009. ASSESSMENT YEAR : 2005-06. THE INCOME-TAX OFFICER M/S SAMRUDHI DEVELOPERS 15(1)(4) MUMBAI. VS. C-101 GURUKRUPA OPP. PLAZA CINEMA N.C.KELKAR ROAD DADAR (W) MUMBAI 400 028. PAN AADFS 6042E. APPELLANT BY : SHRI HEMANT LAL. RESPONDENT BY : SHRI VIPUL JOSHI AND SHRI SAMIR DALAL. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE CIT(APPEALS)-XV MUMBAI DATED 18 TH NOV. 2008 FOR THE ASSESSMENT YEAR 2006- 07 ON THE FOLLOWING GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE ASSESSEE HAS PROVED BEYOND DOUBT THE CREDITWORTHINESS OF MANAGING PARTNER NAMELY S.D. M ARU TO INTRODUCE THE CAPITAL OF RS.2.51 CRORES AND THEREBY DELETING ENTI RE ADDITION OF RS.2 51 00 000/- MADE BY THE ASSESSING OFFICER AS UNEXPLAINED CASH CREDITS U/S 68 OF THE I.T. ACT 1961. 2 2. THE FACTS OF THIS CASE ARE BROUGHT OUT AT PARA 2 .2 AND 2.3 OF THE CIT(APPEALS) ORDER. THEY ARE EXTRACTED BELOW FOR R EADY REFERENCE : 2.2 THE APPELLANT IS A PARTNERSHIP FIRM CONSISTING OF FOUR PARTNERS VIZ. SHRI SHANTILAL D. MARU SHRI PARMESH C. RAMBHIA SHRI RA MNIK D. MARU & SHRI VASUDHA J. WAGH. THE APPELLANT IS ENGAGED IN THE BU SINESS OF DEVELOPING PROPERTIES. DURING THE YEAR THERE WAS WORK IN PROGR ESS OF THE PROJECT HENCE IT APPEARS FROM THE ASSESSMENT ORDER THAT PROJECT W AS NOT COMPLETE AND WORK WAS GOING ON. 2.3 LD. AO HAS MADE THIS ADDITION OF RS.2.51 CR AS UNEXPLAINED CASH CREDIT ON THE GROUND THAT ENTIRE CAPITAL OF RS.2.51 CR INTRODUCED BY ONE SHRI SHANTILAL D. MARU THE MANAGING PARTNER OF THE FIRM HAS NOT BEEN EXPLAINED BY THE ASSESSEE FIRM ABOUT THE CREDITWORTHINESS OF CONTRIBUTION OF CAPITAL THE ACKNOWLEDGEMENT OF FILING OF RETURN OF INCOME CAPI TAL ACCOUNT & BALANCE SHEET OF SHRI SHANTILAL MARU WAS CALLED FOR. THE AP PELLANT HAS FILED ONLY PROVISIONAL BALANCE SHEET WHICH IS NOT ACCORDING T O AO FULLY DEPENDABLE AS THE SAME IS NOT FILED WITH THE RETURN OF INCOME. FU RTHER AO HAS OBSERVED THAT SHRI SHANTILAL D. MARU WAS NOT HAVING SUFFICIE NT CAPITAL & INCOME TO CONTRIBUTE SUCH AMOUNT OF RS.2.51 CR TO THE ASSESSE E FIRM. AO HAS HOWEVER ADMITTED THAT SHRI SHANTILAL D. MARU HAS TAKEN HUGE UNSECURED LOAN FROM 34 PERSONS AS MENTIONED ON PAGE NO.2 & 3 OF HIS ORDER. ACCORDING TO THE AO THE MANAGING PARTNER WAS NOT HAVING CREDITWORTHINES S AND THE FINDING GIVEN IN THE ASSESSMENT ORDER IS SOLELY IN RESPECT OF THE CREDITWORTHINESS OF THE MANAGING PARTNER. IT APPEARS RELEVANT TO REPRODUCE THE FINDING OF THE AO WHICH IS AS UNDER : SO IT CAN BE SEEN THAT ON A VERY SMALL CAPITAL OF RS.66.71 LAKH SHRI S.D. MARU HAS CREATED A VERY BIG BALANCE SHEET IN W HICH THE TOTAL OF THE BALANCE SHEET IS RS.15.16 CR WHICH MEANS THAT S HRI S.D. MARU HAS TAKEN UNSECURED LOAN OF RS.14.50 CR WHICH IS WAY BE YOND HIS CAPACITY TO REPAY IF THE VARIOUS PESONS IN THE LIST AS DEPO SITORS ARE VERIFIED IT CAN BE SEEN THAT EXCEPT THE BANK LOAN OF RS.70 LAKH ALL OTHERS ARE UNSECURED LOAN OF RS.6.49 CR IS RECEIVED FROM HIS O WN CONCERN I.E. MARU ENTERPRISES. THEREFORE BY INTERNAL ROTATION O F FUNDS SHRI S.D. MARU HAS CREATED A VERY BIG BALANCE SHEET. HOWEVER THE BALANCE SHEET IS NOT COMMENSURATE WITH THE INCOME SHOWN BY SHRI S.D. MARU. CONSIDERING THE ABOVE FACTS IT CAN BE HELD THAT AS SESSEE HAS FAILED TO PROVE CREDITWORTHINESS OF SHRI S.D. MARU. IT IS NOT ICED THAT WHENEVER 3 FUNDS HAS BEEN TRANSFERRED TO THE FIRM EQUAL AMOUN T OR DIFFERENT AMOUNT WERE DEPOSITED IN THE BANK A/C AND THEREFOR E IT SEEMS TO BE A ROTATION OF FUNDS ONLY. IN THE CIRCUMSTANCES THE ENTIRE CAPITAL AMOUNT OF RS.2.51 CR INTRODUCED BY SHRI S.D. MARU IS ADDED IN THE HANDS OF THE ASSESSEE AS UNEXPLAINED CASH CREDIT U/S 68 OF THE I.T. ACT 196 1 AND PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATED SEPARATELY. 3. THE ASSESSEE PREFERRED AN APPEAL. THE FIRST APPE LLATE AUTHORITY CALLED FOR A REMAND REPORT FROM THE AO. ON RECEIPT OF THE REMAND REPORT THE FIRST APPELLATE AUTHORITY DELETED THE ADDITION. AGGRIEVED THE REVE NUE IS IN APPEAL. 4. WE HAVE HEARD MR. HEMANT LAL LEARNED DR AND SHR I VIPUL JOSHI ALONG WITH SHRI SAMIR DALAL LEARNED COUNSELS FOR THE ASSESSEE . 5. IN THE REMAND REPORT DATED 01-04-2008 THE AO HA S NOT BROUGHT OUT ANYTHING ON RECORD TO SHOW THAT SHRI SHANTILAL D. MARU WHO IS THE MANAGING PARTNER OF THE ASSESSEE FIRM HAS NOT RECEIVED LOANS FROM KNOWN SO URCES. IN FACT THE LOANS RECEIVED BY SHRI SHANTILAL D. MARU ARE FROM IDENTIF IED PERSONS WHOSE EXISTENCE IS NOT DOUBTED. THE GENUINENESS OF THE LOAN IS ALSO NO T DOUBTED. THE LOAN WAS TAKEN IN THE NAME OF M/S MARU ENTERPRISES AND IT IS FOUND THAT THIS PARTY IS DOING MONEY LENDING BUSINESS AND IS HAVING OPENING BALANCE OF R S.4 27 10 741/- AND HAS ADVANCED AN AMOUNT OF RS.3 72 12 641/- TO THE MANAG ING PARTNER. THE AO HAS ADMITTED IN THE REMAND REPORT THAT THERE IS MERIT I N THE CLAIM OF THE ASSESSEE. THE AO HAS ALSO ACCEPTED THAT THE LOAN TAKEN IN THE NAM E OF NIRMALA S. MARU AMOUNTING TO RS.58 40 000/- WAS OUT OF BORROWED FU NDS FROM COSMOS BANK. SIMILAR ARE THE FACTS OF THE OTHER LOANS TAKEN BY T HE MANAGING PARTNER. 6. BE IT AS IT MAY THE HONBLE BOMBAY HIGH COURT I N THE CASE OF NARAYANDAS KEDARNATH VS. CIT (1952) 22 ITR 18 (BOM.) HELD AS FOLLOWS : 4 IN THE INSTANT CASE MONEYS WERE BROUGHT IN THE B OOKS OF THE FIRM BY THE PARTNERS FROM THEIR NATIVE PLACE AND NO ADEQUATE EX PLANATION WAS FORTHCOMING FROM THE PARTNERS AS TO WHERE THESE MON EYS CAME FROM. THE A.O. MADE ADDITION ON ACCOUNT OF SUCH DEPOSITS AS U NEXPLAINED CASH CREDITS IN THE HANDS OF FIRM. ON THESE FACTS THE COURT HEL D THAT THE ASSESSEE FIRM HAD DISCHARGED THE BURDEN WHICH WAS UPON IT TO EXPL AIN THESE CREDIT ENTRIES AND IT HAD DISCHARGED THE BURDEN BY SATISFYING THE DEPARTMENT THAT THESE ENTRIES REPRESENTED GENUINE REMITTANCES WHICH HAD G ONE INTO THE COFFERS OF THE FIRM. IF THE DEPARTMENT WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE PARTNERS THEN IT WAS LEGITIMATE FOR THE DEPARTM ENT TO DRAWN AN INFERENCE THAT THESE AMOUNTS UNDISCLOSED PROFITS OF THE PARTN ERS AND TO ASSESS THEM IN THEIR OWN INDIVIDUAL ASSESSMENTS. IT IS NOT FOR THE FIRM WHICH WAS BEING ASSESSED TO SATISFY THE DEPARTMENT THAT THE MONEYS WHICH IT RECEIVED FROM THE PARTNERS OR THE STRANGERS WERE MONEYS WHICH THE PARTNERS OR THE STRANGER OBTAINED BY HONEST MEANS. APPLYING THIS PROPOSITION TO THE FACTS OF THIS CASE WE HAVE TO NECESSARILY UPHOLD THE ORDER OF THE CIT(APPEALS). THE FIRST APPELLATE AUTHORITY AT PARA 2.8 OF HIS ORDER HELD AS FOLLOWS : 2.8 I HAVE CONSIDERED THE VARIOUS SUBMISSIONS REM AND REPORTS FACTS ON RECORD EVIDENCES UNDER REFERENCE WRITTEN SUBMISSI ONS AND ALSO PERUSED THE ASSESSMENT ORDER SUBMISSIONS AND HEARD THE ARGUMEN TS OF THE LD. AR CAREFULLY. AFTER PERUSAL OF THE RECORDS AND THOUGHT FUL CONSIDERATION TO THE ARGUMENTS OF THE AR AND RIVAL STAND OF THE AO I CO ME TO THE CONCLUSION THAT THERE IS NO MERIT OR FOUNDATION IN THE STAND OF AO FOR MAKING SUCH HUGE ADDITION. AO HAS MADE THIS ADDITION OF RS.2.51 CR M ERELY ON THE BASIS OF SURMISES & CONJECTURE BECAUSE OF THE REASON THAT OU T OF TOTAL CAPITAL OF RS.2 51 16 787/- LD. AO HAS ADDED AN AMOUNT OF RS. 2.51 CR WITHOUT UNDERSTANDING THE OPENING CAPITAL OF RS.2 40 04 742 /- OF SHRI SHANTILAL D. MARU. APPARENTLY THIS AMOUNT OF RS.2 40 04 742/- DOES NOT RELATE TO THIS ASSESSMENT YEAR. NOT ONLY THAT AO HAS ONLY DOUBTED THE CREDITWORTHINESS OF THE THIRD PARTIES WHO HAVE GIVEN LOAN TO THE MANAGI NG PARTNER I.E. SHRI SHANTILAL D. MARU WHO HAS IN TURN DEPOSITED IN HIS ACCOUNT AND HAS INTRODUCED SAME AS HIS CONTRIBUTION OF CAPITAL TO T HE APPELLANT. THE CONTENTION OF THE AO THAT SOME OF THE CREDITORS OF SHRI SHANTILAL D. MARU HAVE NOT GOT CREDITWORTHINESS TO REPAY THEIR LOAN I S UNTENABLE APPREHENSION BECAUSE OF THE FACT THAT WHATEVER LOAN HAS BEEN TAK EN BY THEM HAVE BEEN DEPOSITED WHICH IN TURN RECEIVABLE TO REPAY TO T HE CREDITORS. IT IS FURTHER 5 FOUND BASELESS TO PRESUME THAT CREDITORS WERE NOT H AVING CREDITWORTHINESS OF SUFFICIENT SOURCE OF INCOME. ON THE CONTRARY IT IS A FACT ON RECORD THAT ALL THESE CREDITORS WERE HAVING THEIR SOURCE OF INCOME AND WERE FILING THEIR RETURN OF INCOME REGULARLY. NOT ONLY THAT APPELLANT HAS PROVED BEYOND DOUBT THE GENUINENESS OF TRANSACTIONS IDENTIFICATION OF THE CREDITOR IDENTIFICATION OF THE CREDITORS OF THE MANAGING PARTNER. ALL THE L OANS HAVE BEEN TAKEN THROUGH BANKING CHANNEL BY THE CREDITOR OF THE APPE LLANT AND NOT ONLY THAT THE CREDITORS OF THE MANAGING PARTNER HAVE ALSO OBT AINED LOANS OR HAVE DEPOSITED THEIR AMOUNTS IN THE BANK AND THEREFROM T HEY HAD ADVANCED THE LOANS THEREFORE BY NO STRETCH OF IMAGINATION IT C AN BE PRESUMED THAT ASSESSEE HAS NOT PROVED THE CREDITWORTHINESS OF THE CREDITOR AND THE DOUBT OF THE AO REGARDING CREDITWORTHINESS OF THE CREDITORS OF THE APPELLANTS CREDITOR IS AN ARBITRARY APPREHENSION. APPELLANT HAS PROVED BEYOND DOUBT THE BASIC REQUIREMENT OF LAW U/S. 68. MOREOVER IT IS NOW SET TLED LAW THAT IN EVEN OF UNEXPLAINED CAPITAL INTRODUCED BY PARTNER IS TO BE CONSIDERED IN THE HANDS OF PARTNER(S) ONLY AND NOT IN THE HANDS OF FIRM. HERE IN THIS CASE EVEN PARTNER HAS PROVED HIS SOURCE OF FUND WHICH IS ONE STEP AHE AD OF NORMAL REQUIREMENT OF LAW U/S.68 OF I.T. ACT 1961. HENCE ADVERTING T O THE FULL FACTS AND CIRCUMSTANCES OF THE CASE ARGUMENTS OF THE LD. AR & STAND OF THE AO IT IS CONCLUDED THAT ADDITION MADE U/S.68 TO THE TUNE OF RS.2.51 CR IS BASELESS AND THEREFORE AO IS DIRECTED TO DELETE THE SAME FROM T HE ASSESSMENT OF A.Y. 2005-06. 7. `WE SEE NO INFIRMITY IN THE ORDER OF THE CIT(APP EALS) AND HENCE UPHOLD THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY 2011. SD/- SD/- (V. DURGA RAO)) (J. SUDHAK AR REDDY) JUDICIAL MEMBER. A CCOUNTANT MEMBER MUMBAI DATED: 18 TH FEBRUARY 2011. WAKODE. 6 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR E-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRA R ITAT MUMBAI BENCHES MUMBAI.