ITO 3(2)(3), MUMBAI v. KINGSTON REAL ESTATE P. LTD, MUMBAI

ITA 680/MUM/2009 | 2005-2006
Pronouncement Date: 30-04-2010 | Result: Dismissed

Appeal Details

RSA Number 68019914 RSA 2009
Assessee PAN AACCK6484H
Bench Mumbai
Appeal Number ITA 680/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 27 day(s)
Appellant ITO 3(2)(3), MUMBAI
Respondent KINGSTON REAL ESTATE P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-04-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 2005-2006
Appeal Filed On 02-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI. BEFORE SHRI R.V. EASWAR SENIOR VICE-PRESIDENT AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER. I.T.A. NO. 6 80/MUM/2009. ASSESSMENT YEARS : 2005-06. THE INCOME TAX OFFICER M/S KINGTO N REAL ESTATE PVT. LTD. 3(2)(3) MUMBAI. VS. 111 ATUR APARTMENTS MINOO DESAI ROAD COLABA MUMBAI 400 005. PAN AACCK6484H APPELLANT RESPONDENT APPELLANT BY : SHRI MANVENDRA GOYAL RESPONDENT BY : SHRI B.V. JHAVERI. O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-XV MUMBAI DATED 18 TH NOV. 2008 FOR THE ASSESSMENT YEAR 2005-06. 2. FACTS IN BRIEF : THE ASSESSEE IS A COMPANY AND DERIVES INCOME FROM PROPERTY. IN THE ASSESSEES BALANCE SHEET UNSECURE D LOANS AMOUNTING TO RS.1 14 34 420/- WERE SHOWN FROM MS. NERGISH PES BH ARUCHA AND MR. PESI SHAVAKSHAW BHARUCHA. BOTH ARE HUSBAND AND WIFE AND ARE DIRECTORS OF THE ASSESSEE COMPANY. THE ONLY ISSUE THAT ARISES IN THIS APPEAL IS WHETHER THE FIRST APPELLATE AUTHORITY WAS RIGHT IN DELETING THE ADDITION 2 MADE U/S 68 OF THE INCOME TAX ACT ON THE RECEIPT OF UNSECURED LOANS FROM THESE TWO DIRECTORS. 3. BOTH MS. NERGISH PES BHARUCHA AND MR. PESI SHAV AKSHAW BHARUCHA OWNED AND LIVED IN A RESIDENTIAL FLAT FOR MORE THAN 25 YEARS IN A BUILDING KNOWN AS SANGITA. BOTH OF THEM HAD ACC OUNTS IN THE CENTRAL BANK OF INDIA COLABA MUMBAI. LATER THEY SHIFTED T O ANOTHER RESIDENCE I.E. RESIDENTIAL FLAT BELONGING TO MS. BHARUCHAS M OTHER AND HAVE DECIDED TO SELL THE VACANT FLAT IN SANGITA AND INVEST THE P ROCEEDING IN A COMMERCIAL PREMISES I.E. THE PROPERTY KNOWN AS SOL ITAIRE. FOR THIS PURPOSE THEY HAVE FORMED A COMPANY KNOWN AS KINGSTO N REAL ESTATE PVT. LTD. THIS PREMISES BELONGED TO ING VYSYA BANK LTD . WHICH AGREED TO SELL THE SAME TO THE ASSESSEE FOR AN AMOUNT OF RS.1 17 50 000/-. 4. MEANWHILE THE FAMILY THAT AGREED TO BUY THE RES IDENTIAL FLAT IN SANGITA BACKED OUT OF THE DEAL. THE DIRECTORS OF THE ASSESSEE COMPANY I.E. THE HUSBAND AND WIFE BORROWED MONEY FROM MS. A PARNA VERMA MS. ABHA GUPTA AS WELL AS LANDOR PROPERTIES PVT. LTD. AND KRISHNABHAKTI TRADING CO. PVT. LTD. M/S SHIVDEVTA TRADING CO. PV T. LTD. ALSO GAVE A LOAN OF RS.1 25 000/-. ONE MR. DILIP KANAL A FAMIL Y FRIEND ADVANCED AN AMOUNT OF RS.5 87 000/- FOR MEETING THE STAMP DUTY. THEREAFTER A BUYER WAS FOUND FOR THE RESIDENTIAL FLAT AT SANGITA BY NA ME MR. JIMMY GUZDAR AND LOANS WERE REPAID. THERE WERE CERTAIN OTHER TRA NSACTIONS OF RECEIPTS OF MONEY. THE AO EXAMINED MS. NERGESH PES BHARUCHA AND MR. PESI SHAVAKSHAW BHARUCHA AND CAME TO A CONCLUSION THAT B OTH THE PARTIES ARE PERSONS OF SMALL MEANS WHO HAVE NO CREDIT WORTHINE SS TO ADVANCE SUCH A HUGE AMOUNT. HE MADE THE ADDITION U/S 68 ON A FINDI NG THAT IT IS EXPLICITLY CLEAR THAT THE CREDIT WORTHINESS OF THE LOANS OF TH E DIRECTOR IS NOT PROVED BECAUSE THE DIRECTORS HAVE NO CAPACITY TO ADVANCE T HE LOANS TO THE 3 ASSESSEE COMPANY. AGGRIEVED THE ASSESSEE CARRIED T HE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY AFTER NOTING THE FACT S HELD THAT THE AO HAD NOT DOUBTED THE GENUINENESS OF THE LOANS GIVEN BY 8 PARTIES TO THE DIRECTORS WHO IN TURN HAVE GIVEN THE SAME TO THE CO MPANY. HE HELD THAT THE QUESTION OF CREDIT WORTHINESS ARISES IN A SITUA TION WHEN THE SOURCE OF DEPOSIT OF THE CREDITORS ARE NOT PROVED OR EXPLAINE D SATISFACTORILY. HE DELETED THE ADDITION. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIONS OF R S.1 14 34 420[/ MADE BY THE AO U/S 68 OF THE I.T. ACT 1961 WITHOUT CONSIDERING THAT THE CREDITORS HAS FAILED TO PROVE THEIR CREDIT WORTHINESS BEFORE THE AO. 4. THE LEARNED DR MR. MANVENDRA GOYAL RELIED ON TH E ORDER OF THE AO AND SUBMITTED THAT BOTH THE DIRECTORS OF THE ASSESSEE COMPANY HAVE ADMITTED IN THE STATEMENT RECORDED FROM THEM BY THE AO THAT THEY DO NOT HAVE MUCH SOURCES OF INCOME AND THAT THEY AR E PERSONS OF SMALL MEANS. HE SUBMITTED THAT THE ONUS WAS ON THE ASSESS EE TO ESTABLISH THE CREDIT WORTHINESS OF THE TWO DIRECTORS AND IN TURN TO ESTABLISH THE GENUINENESS OF THE LOANS TAKEN BY THE DIRECTORS FRO M VARIOUS PERSONS. MR. B.V. JHAVERI LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED A PAPER BOOK RUNNING INTO 79 PAGES AND S UBMITTED THAT THE ASSESSEE HAS FILED COPY OF RETURN OF INCOMES BANK ACCOUNTS COPY OF PAN CARDS AS WELL AS CONFIRMATION OF ACCOUNT FROM MS. A BHA GUPTA M/S LANDOR PROPERTIES PVT. LTD. M/S SHIVDEVTA TRADING CO. MS. APARNA VERMA ETC. TO PROVE THE GENUINENESS OF THE LOANS BO RROWED BY THE DIRECTORS OF THE ASSESSEE COMPANY. HE NARRATED THE CIRCUMSTANCES UNDER WHICH THE DIRECTORS WERE FORCED TO SEEK THE ASSISTA NCE OF FRIENDS AND RELATIVES IN ACQUIRING COMMERCIAL PROPERTY AS THE PERSON WHO WAS TO BUY 4 RESIDENTIAL PROPERTY HAD BACKED OUT. HE SUBMITTED T HAT THE ASSESSEE DISCHARGED THE ONUS THAT LAY ON IT. HE RELIED ON TH E ORDER OF THE CIT(APPEALS) AND PRAYED THAT THE SAME BE UPHELD. 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL O F THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED WE HOLD AS FOLLOWS. 6. MS. NERGESH P. BHARUCHA AND MR. PESI S. BHARUCH A HUSBAND AND WIFE WERE CO-OWNERS OF THE FLAT AT COL ABA WHERE THEY WERE RESIDING FOR MORE THAN 25 YEARS. WITH ADVANCING AGE THEY DECIDED TO SELL A FLAT AND BUY COMMERCIAL PROPERTY FROM THIS SALE P ROCEED SO AS TO ENABLE THEM TO EARN A REGULAR INCOME. FOR THIS PURPOSE THE Y FORMED A COMPANY KINGSTON REAL ESTATE PVT. LTD. WHEREIN BOTH OF TH EM ARE DIRECTORS AND SHARE HOLDERS. THEY FINALISED THE DEAL WITH ING VYS YA BANK FOR PURCHASE OF PROPERTY VIDE AGREEMENT DATED 21-08-2004. PAYMEN T HAD BECOME DUE TO ING VYSYA BANK LTD. BUT THE CORRESPONDING SALE OF RESIDENTIAL FLAT HAD NOT TAKEN PLACE. THUS THE DIRECTORS FUNDED THE PUR CHASE OF THE COMMERCIAL PROPERTY BY TAKING LOANS AND INTRODUCIN G THE SAME AS THEIR FUNDS IN THE COMPANY. THE FUNDS WERE RAISED IN THE FOLLOWING MANNER : RS. 13 00 000/- WORTH SHARES SOLD BY MRS. BHARUCH A. RS. 75 00 000/- DEPOSIT RECEIVED FROM ABHA GUPTA AGAINST THE LEASE OF THEIR FLAT. RS. 25 00 000/- LOAN FROM APARNA VERMA. RS. 5 00 000/- LOAN FROM LANDOR PROPERTIES PVT. LTD. RS. 1 25 000/- LOAN FROM KRISHNABHAKTI TRADING CO. RS. 1 25 000/- LOAN FROM SHIVDEVLA TRADING CO. PVT. LTD. RS. 3 00 000/- LOAN FROM WORLDWIDE STYLES. 5 SUBSEQUENTLY THE RESIDENTIAL FLAT WAS SOLD FOR RS.9 0 LAKHS AND THE LOANS WERE REPAID. IT IS TO BE NOTED THAT THE MAJOR AMOUN T OF RS.75 LAKHS HAD BEEN OBTAINED BY WAY OF DEPOSIT FROM ABHA GUPTA BY WAY OF DEPOSIT TOWARDS LEASE AND LICENCE AGREEMENT OF FLAT. THE AS SESSEE HAS FILED ELABORATE DETAILS INCLUDING PERMANENT ACCOUNT NO. COPY OF THE INCOME- TAX RETURNS BANK STATEMENTS OF THE DIRECTORS ETC. THE FIRST APPELLATE AUTHORITY HAS OBSERVED THAT THE LEASE AND LICENCE A GREEMENT WITH ABHA GUPTA WAS ALSO FILED. IT WAS NOT THE CASE OF THE AO THAT THE PERSONS AND ENTITIES WHICH HAVE GIVEN LOANS TO THE DIRECTORS DO NOT HAVE THE CAPACITY TO DO SO. ON THESE FACTS AND CIRCUMSTANCES WE AGRE E WITH THE FINDING OF THE CIT(APPEALS) AT PARA 2.4 AND 2.5 WHEREIN IT IS HELD AS FOLLOWS : 2.4 AS EVIDENT FROM THE ABOVE FACTS THAT DIRECTORS HAVE NOT ONLY OBTAINED THE PROPER LOANS BUT HAVE ALSO TRANSACTED THROUGH BANKING CHANNEL THEREFORE THERE IS NO PROPRIETY ON THE PA RT OF THE AO TO PRESUME THAT CREDITWORTHINESS OF THE DIRECTORS ARE NOT PROVED. THE QUESTION OF CREDITWORTHINESS ARISES IN A SITUATION WHEN THE SOURCE OF DEPOSIT OF THE CREDITORS ARE NOT PROVED OR EXPLA INED SATISFACTORILY. HERE AS EVIDENT FROM THE ABOVE THA T SOURCE OF DEPOSIT HAVE BEEN EXHIBITED BY THE DIRECTORS OF TH E COMPANY BEYOND ANY DOUBT. THEY HAVE ALSO EXPLAINED THE CIRC UMSTANCES IN WHICH LOAN WAS REQUIRED TO BE TAKEN FROM THE KNOWN PERSONS. IT IS WORTHWHILE TO MENTION THAT IN REGARD TO QUESTION OF CREDITWORTHINESS AND REPAYMENT OF LOAN A BEFITTING REPLY WAS GIVEN BY THE DIRECTORS THAT LOANS WERE TAKEN BY THEM IN ANTICIPATION OF SALE OF THEIR FLAT AND SUBSEQUENTLY FROM THE SALE PROCEEDS REPAYMENT WAS TO BE MADE TO THE CREDITORS. IT APPEA RS THAT AO HAS NOT GIVEN DUE APPRECIATION TO THIS FACT ON RECORD T HOUGH IT HAS BEEN MENTIONED IN THE BODY OF THE ORDER ITSE.F THEREFORE IT IS FOUND BEYOND DOUBT THAT ADDITION OF LOAN HAS BEEN MADE BY AO ON SURMISES ONLY. IT IS WELL SETTLED LAW THAT SOURCE O F THE SOURCE HAS NOT TO BE PROVED BY THE ASSESSEE. IN CASE OF ANY DO UBT OR OTHERWISE APPREHENSION IT HAS TO BE BROUGHT ON RECORD WITH C OGENT EVIDENCES AS TO HOW UNDISCLOSED MONEY OR INCOME OF THE ASSESS EE HAS BEEN TAKEN BACK IN THE FORM OF THIS CASH CREDIT. 6 2.5 IT IS ALSO A WELL SETTLED LAW THAT IF DIRECTOR S ARE HELD RESPONSIBLE FOR ANY UNEXPLAINED DEPOSITS COMPANY I S NOT LIABLE FOR THE SAME. IN THAT SITUATION ASSESSMENT IS TO BE MA DE IN THE CASE OF DIRECTORS AND NOT IN THE CASE OF COMPANY. HERE EVE N IN THE CASE OF DIRECTORS ALSO SOURCE OF DEPOSIT HAS BEEN PROVED H ENCE THERE IS NO POINT LEFT FOR ANY DOUBT REGARDING GENUINENESS OF T HE LOANS. AN ASSESSEE SHOULD NOT BE NPLACED UPONS THE RACK AND C ALLED UPON TO EXPLAIN NOT MERELY THE ORIGIN AND SOURCE OF A CAPIT AL CONTRIBUTION BUT THE ORIGIN OF ORIGIN AND SOURCE OF SOURCE AS WE LL. VIDE HASTIMAL (S) V. CIT (1963) 49 ITR 273 (MAD). IT IS IMPORTANT TO NOTE THAT HONBLE COURTS HAVE HELD IN VARIOUS CASES THAT SOUR CE OF THE SOURCE IS NOT REQUIRED TO BE PROVED BY THE ASSESSEE VIDE T OLARAM DAGA V. CIT (1966) 59 ITR 632(ASSAM). ALSO REFER TO THE CAS ES: CIT V. DAULAT RAM RAWATMULL (1973) 87 ITR 349 (SC); SAROGI CREDIT CORPN. V. CIT (1976) 103 ITR 344 (PAT); NEMICHAND K OTHARI V. CIT (2003) 264 ITR 254 (GAU). THEREFORE CONSIDERIN G THE FULL FACTS & CIRCUMSTANCES OF THE CASE THE ADDITION MAD E BY THE AO AN AMOUNT OF RS.1 14 34 420/- IS DELETED AND AO IS DIR ECTED TO REDUCE THE SAME FROM THE ASSESSMENT OF A.Y. 2005-06. 6. WE UPHOLD THE AFORESAID FINDINGS OF THE CIT(APP EALS) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE-PRESIDENT. ACCOUNTANT MEMBER. MUMBAI DATED : 30 TH APRIL 2010. WAKODE 7 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.