T.S. Mallikarjuna, Bangalore v. ITO, Bangalore

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.701/BANG/2009 ASSESSMENT YEAR : 2005-06 SHRI T.S. MALLIKARJUNA PROP. SRI RAKSHA INDUSTRIES NO.1043 7 TH MAIN HOSKERAHALLI LAYOUT BANASHANKARI III STAGE BANGALORE 560 005. : APPELLANT VS. THE INCOME TAX OFFICER WARD 4(4) BANGALORE. : RESPONDENT APPELLANT BY : SHRI P.C. CHADAGA RESPONDENT BY : SMT. V.S. SREELEKHA O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A)-II BANGALORE IN ITA NO: 360/ W-4(4)/ CIT(A )-II/07-08 DATED: 30.4.2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED FIVE GROUNDS OF APPEAL. THE FIRST GROUND BEING GENERAL IT DOESNT SURVIVE FOR ADJUDICATION. IN THE REMAINING GROUNDS THE ESSENCE OF THE ISSUE IS THAT ITA NO.701/BANG/09 PAGE 2 OF 8 THE AO ERRED IN HOLDING THAT THE CLAIM REGARDING L IABILITY OF RS.4 LAKHS OUT OF RS.7.24 LAKHS TOWARDS SUNDRY CRED ITORS WAS EXCESS; AND THAT THE ASSESSEE HAD FAILED TO PROVE THE GENUI NENESS OF THE CREDITORS TO THE EXTENT OF RS.4 LAKHS AND THE CIT(A ) ERRED IN CONFIRMING THE SAME. 3. BRIEFLY STATED THE ASSESSEE AN INDIVIDUAL WAS THE PROPRIETOR OF SRI RAKSHA INDUSTRIES WHICH WAS ENGAGED IN THE MANUFACT URE OF AGARBATHIS [INCENSE STICKS]. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF LIABILITY OF RS.7 24 772/- TOWARDS SUNDRY CREDITORS OUT OF WHICH RS.4.35 LAK HS REPRESENTED UNREGISTERED DEALERS [URD] PURCHASE PAYABLE. IN THE ABSENCE ANY COMPLIANCE TO THE QUERIES DETAILS OF THE CLAIM AN D INDIVIDUAL CONFIRMATION FROM THE PARTIES CONCERNED - AND THAT THE ASSESSEE AND HIS A R HAVE EXPRESSED THEIR INABILITY TO CLARIFY THE AO TAKIN G CUE FROM THE RULING OF THE HONBLE SUPREME COURT (KALE KHAN MOHD. HANIF V. CI T 50 ITR 1) AND THE HONBLE PUNJAB AND HARYANA HIGH COURT (CIT V. L ACHMAN DASS OSWAL 126 ITR 446) DISALLOWED THE ASSESSEES CLAIM AND BROUGHT TO TAX RS.4 LAKHS. 4. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUE BEFORE THE CIT(A) FOR REDRESSAL. AFTER GIVING DUE WEIGHT-AGE TO THE ASSE SSEES CONTENTIONS AND THE DETAILS OF PARTY-WISE PAYMENTS WITH CHEQUE NUMB ERS AND AMOUNTS CLAIMED TO HAVE BEEN MADE IN THE SUBSEQUENT YEAR R EMAND REPORT OF THE AO REJOINDER TO THE REMAND REPORT ETC. THE LD. CI T(A) HAS OBSERVED THUS 3.9. THE WHOLE GAMUT OF THE FACTS SHOWS THAT THE A PPELLANT COULD NOT PRODUCE EVEN THE PRIMARY EVIDENCE LIKE COMPLETE ADDRESSES OF THE CREDITORS. THE CONFIRMATION LETTERS FURNISHED WERE PROVED TO BE WRONG. THUS THE IDENTIFICATION OF CREDITORS AN D GENUINENESS OF THE CREDITORS REMAIN UNEXPLAINED. ITA NO.701/BANG/09 PAGE 3 OF 8 4.1. HE WENT ON FURTHER TO ADD THAT THE DECISION O F THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT V. SMT. ANNAM KU TTY JOSE REPORTED IN (2008) 174 TAXMAN 328 IS SQUARELY APPLICABLE TO THE INSTANT CASE AND THAT THE AO WAS JUSTIFIED IN ADDING THE UNEXPLAINED/UNPR OVED SUNDRY CREDITS AS INCOME OF THE ASSESSEE. 5. DISILLUSIONED WITH THE FINDING OF THE LD. CIT (A ) THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. THE LD. A R REITE RATED MORE OR LESS WHAT HAS BEEN CONTENDED BEFORE THE FIRST APPELLATE AUTHO RITY. IN FURTHERANCE IT WAS SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE SHOULD NOT BE PUT TO HARDSHIP WHEN THE CREDITORS MORE PARTICULARLY THE TRADE CREDITORS DO NOT COME FORWA RD TO CONFIRM THE CREDITS STANDING IN THEIR NAMES FOR REASONS BEST KNOWN TO T HEM. 5.1. IN THE COURSE OF HEARING THE LD. A R PRAYED U NDER RULE 29 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES THE GIST OF WHICH IS AS UNDER: (I) DURING THE ASSESSMENT PROCEEDINGS THE AR PRODUCED CONFIRMATIONS IN RESPECT OF A PART OF THE AMOUNT SH OWN UNDER THE HEAD SUNDRY CREDITORS. HOWEVER THE ASSESSEE COU LD NOT OBTAIN CONFIRMATION LETTERS IN RESPECT OF URD PURCHASES PA YABLE AMOUNTING TO RS.4 LAKHS THOUGH A LIST OF URD PURCHA SES PAYABLE WAS FURNISHED TO THE AO WITHOUT CONFIRMATION LETTER S; - DURING THE REMAND PROCEEDINGS CONFIRMATION LETTERS FROM THE CREDITORS WERE FUNISHED. HOWEVER THE NOTICES/LETT ERS SEEKING CONFIRMATION FROM THE PARTIES SENT BY THE AO WERE R ETURNED WITH REMARKS NO SUCH PERSON WAS AVAILABLE AT THE G IVEN ADDRESS. (II) BEFORE THE CIT(A) PARTY-WISE PAYMENTS WITH DETAILS OF CHEQUES AND AMOUNTS OF PAYMENTS MADE IN RESPECT OF THE OUTS TANDING BALANCE IN THE SUBSEQUENT YEAR ETC. ITA NO.701/BANG/09 PAGE 4 OF 8 - THE AO REJECTED THE GENUINENESS OF THE CLAIM POINTI NG OUT CERTAIN OMISSIONS AND COMMISSIONS; - THE ASSESSEE HAD OBTAINED CONFIRMATION LETTERS FROM 7 OUT OF 8 CREDITORS WHO HAVE FILED AFFIDAVITS CONFIRMING THE OUTSTANDING AS ON 31/3/05 HAVING BEEN PAID EITHER CASH OR CHEQU E; - THESE AFFIDAVITS ARE FILED BEFORE THIS BENCH TOGETH ER WITH THE BANK STATEMENT FOR THE SUBSEQUENT YEAR WITH A REQUE ST TO ADMIT THEM; - THE WHEREABOUTS OF THE ONE OF THE CREDITORS NAGAR AJ COULD BE ASCERTAINED HOWEVER THE ASSESSEES BANK ACCOUN T INDICATES THAT THE PAYMENT HAS BEEN MADE TO HIM IN THE SUBSEQ UENT YEAR; (III) THE MANUFACTURING OF AGARBATHI HAS BEEN RECOGNIZED AS A COTTAGE INDUSTRY AND THOSE WHO HAVE ENGAGED THEMSELVES IN S UPPLYING OF RAW MATERIALS TO MANUFACTURERS LIVE IN SLUMS/HUTMEN TS; - THOSE PERSONS HAVE BEEN DEPRIVED OF FORMAL EDUCATIO N THEY WERE RELUCTANT TO DEPOSE BEFORE THE AUTHORITIES CON FIRMING THE AMOUNTS DUE ETC. - IT IS NOT UNCOMMON IN THIS LINE OF BUSINESS THAT TH E MIDDLEMEN INDULGE IN SUPPLY OF RAW AGARBATHIS PREPARED BY OTH ER PEOPLE AND THUS PAYMENTS WERE TO BE MADE TO THOSE MIDDLE MEN; & (IV) TAKING INTO ACCOUNT THE PECULIAR CIRCUMSTANCES PREV AIL IN THIS LINE OF BUSINESS IT WAS PRAYED THAT THE AFFIDAVITS FURN ISHED NOW COULD BE ADMITTED AND RELIEF IS RENDERED. 5.2. ON HER PART THE LD. D R WAS VERY TENACIOUS IN HER RESOLVE THAT THE ASSESSEE HAD FAILED TO PROVE THE GENUINENESS AND CR EDIT WORTHINESS OF THE ALLEGED CREDITORS AND AS RIGHTLY HIGHLIGHTED BY TH E LD. CIT (A) THE ASSESSEE COULD NOT PRODUCE/FURNISH EVEN THE PRIMARY EVIDENCE SUCH AS COMPLETE ADDRESSES OF THE CREDITORS. CHIEFLY AS P OINTED OUT BY THE AO IN HIS REMAND REPORT - THE CONFIRMATION LETTERS PURPOR TED TO HAVE BEEN FURNISHED BY NAGARAJ RAMU KUMAR NATARAJ WHICH CO NTAINED THEIR ADDRESSES - THE LETTERS SENT TO THEM THROUGH RPAD HAVE BEEN PROMPTLY ITA NO.701/BANG/09 PAGE 5 OF 8 RETURNED BY THE POSTAL AUTHORITIES WITH REMARKS NO SUCH PERSON AVAILABLE AT THE GIVEN ADDRESS . THIS GOES TO PROVE THAT IT WAS SUBMITTED THE AS SESSEE HAD MISERABLY FAILED TO DISCHARGE THE ONUS OF PROVI NG THE GENUINENESS OF THE ALLEGED SUNDRY CREDITS. IT WAS THEREFORE PLE ADED THAT THE FINDING OF THE LD. CIT (A) REQUIRES NO INTERFERENCE AND THE SAME B E SUSTAINED. 6. WE HAVE CONSIDERED THE CONTENTIONS OF THE LD. A R COUPLED WITH THE CONFIRMATION LETTERS FROM SOME OF THE CREDITORS CO UNTER ARGUMENT ADVANCED BY THE LD. D R AND ALSO PERUSED THE RELEVANT RECORD S. 6.1. DURING THE COURSE OF HEARING THE LD. A R CAME UP WITH A PRAYER UNDER RULE 29 OF INCOME-TAX (APPELLATE TRIBUNAL) RU LES 1963 TO ADMIT THE AFFIDAVITS OF SOME OF THE CREDITORS AS A PIECE OF E VIDENCE TO STRENGTHEN HIS THEORY OF GENUINENESS OF SUNDRY CREDITS. 6.1.1. AFTER CONSIDERING THE RIVAL SUBMISSIONS O N THE ISSUE THE PRAYER OF THE LD A R UNDER RULE 29 HAS BEEN CONCEDED TO FOR C ONSIDERATION. 6.2. IT IS NOT UNCOMMON IN THIS LINE OF BUSINESS TH AT THE RAW AGARBATHIS AND THE CORRUGATED BOXES WOULD BE PROCURED FROM SMA LL TIME VENDORS AS THE MANUFACTURE OF RAW AGARBATHIS HAVE OF LATE BE COME A HOUSE-HOLD INDUSTRY AND THE WOMEN-FOLK OF THE DOWN TRODDEN SCA TTERED IN SLUMS HAVE TAKEN UP THE MANUFACTURE OF RAW AGARBATHIS AS A LIV ING. AS THE RAW AGARBATHIS ARE BEING PREPARED BY THE UNORGANIZED FO RCE WHO ARE NORMALLY CONTROLLED BY THE MIDDLEMEN WHO UNDERTAKE TO SUPPLY OF SUCH PRODUCTS ON BEHALF OF THE PEOPLE WHO WERE ACTUALLY PREPARE THE SAME. THUS THE PAYMENTS FOR SUCH PRODUCTS WOULD BE MADE TO THE MID DLEMEN WHO ACT AS ITA NO.701/BANG/09 PAGE 6 OF 8 A LIAISON BETWEEN THE RAW AGARBATHIS PRODUCERS AND THE BUYER IN THE INSTANT CASE THE ASSESSEE. KEEPING THIS BACK-GROU ND IN VIEW WE HAVE ANALYZED THE CONFIRMATION LETTERS AND THE AFFIDAVIT S FURNISHED BY THE ASSESSEE DURING THE COURSE OF HEARING. ON A PERUS AL OF SUCH AFFIDAVITS IT EMERGES THAT MOST OF THE PAYMENTS WERE MADE BY MEAN S OF CHEQUES SOME OF WHICH WERE IN THE NAMES OF THEIR RELATIVES AND ALSO TO SOME PERSONS TO WHOM ACCORDING TO THEM THEY OWE SOME M ONEY. AS COULD BE SEEN FROM THE BANK STATEMENT OF THE ASSESSEE THE C HEQUES ISSUED TO SUCH PERSONS HAVE BEEN ENCASHED IN THE SUBSEQUENT YEAR. THIS VERY FACT CANNOT BE BRUSHED ASIDE. THE PECULIAR CIRCUMSTANCE S WHICH ARE PREVALENT IN THESE LINE OF BUSINESSES THE ASSESSEE WAS FORCE D TO ISSUE CHEQUES IN THE NAME OF OTHERS AT A SPECIFIC REQUEST OF THE SUP PLIERS OF RAW AGARBATHIS (URD) PERHAPS FOR VERY SURVIVAL OF HIS BUSINESS. 6.2.1 ON A CLOSE SCRUTINY OF THE CONFIRMATION LETTERS EVEN THOUGH THEY APPEAR TO BE STEREOTYPE IN THEIR WORDINGS THEY CON TAIN THE RESIDENTIAL ADDRESSES OF THE URD BESIDES THEY WERE SMALL TIME DEALERS AND NOT BEING ASSESSED TO INCOME-TAX ETC. HOWEVER IN ONE OF THE CONFIRMATION LETTERS [SOURCE: P 38 OF PB AR) WE FIND THAT THE TRADER B.Y. NATARAJ HAS BEEN RESIDING IN AN APARTMENT SUSHIL APARTMENT IN A POSH LOCALITY OF BASAVANAGUDIS SURVEYOR STREET. THOUGH HE HAD ADMI TTED THAT THE ASSESSEE OWES RS.52400/- AND THAT HIS INCOME WAS BE LOW THE TAXABLE LIMIT BUT UNWITTINGLY MENTIONED IN THE SAID CONFIRMATION LETTER THAT HE WAS ASSESSED TO INCOME-TAX. CONSIDERING THESE FACTS O NE COULD DRAW AN INFERENCE THAT HIS ASSERTION CANNOT BE TERMED AS AB OVE THE BOARD. ITA NO.701/BANG/09 PAGE 7 OF 8 6.2.2. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE; PERUSAL OF CONFIRMATION LETTERS AND THE AFFI DAVITS FURNISHED AS DETAILED SUPRA WE ARE OF THE FIRM VIEW THAT THE LIABILITY T O THE EXTENT OF RS.3 47 600/- [4 00 000 52 400] APPEAR TO BE EXISTED AS ON 31.3 .2005 AND THE SAME IS ALLOWED. HOWEVER RS.52400/- ALLEGED TO HAVE BEEN OWNED TO B.Y.NATARAJ IS DISALLOWED AS THE AFFIRMATION OF THE SAID PERSON IN HIS CONFIRMATION LETTER AS WELL AS IN THE AFFIDAVIT IN OUR CONSIDERED VIEW IS LACKING CONVICTION. 6.2.3. IN A NUTSHELL THE ASSESSEE GETS RELIEF O F RS.3 47 600/- AND THE BALANCE OF RS.52400/- IS CONFIRMED. 6.3. BEFORE PARTING WITH WE WOULD LIKE TO POINT OUT THAT WE HAVE DULY PERUSED THE CASE LAW ON WHICH THE LD. CIT(A) HAD PL ACED RELIANCE TO JUSTIFY HIS FINDING. THE ISSUE BEFORE THE HONBLE HIGH COU RT OF KERALA - IN THE CASE OF CIT V. MRS. ANNAM KUTTY JOSE REFERRED SUPRA WAS IN BRIEF THAT THE ASSESSEE A DEALER IN OLD SPARE PARTS AND SCRAP S DID NOT FURNISH THE NAMES AND ADDRESSES OF CREDITORS OR CONFIRMATION LE TTERS. THE ADDITION MADE BY THE AO WAS DELETED BY THE CIT(A) ON THE SO LE GROUND THAT THE ASSESSEES ACCOUNTANT WAS NOT QUALIFIED AND THUS TH E ACCOUNTS WERE NOT WRITTEN PROPERLY WHICH WAS SUSTAINED BY THE TRIBUNA L. ON APPEAL THE HONBLE HIGH COURT AFTER DELIBERATING THE ISSUE AT LENGTH HELD THAT IF THE ASSESSEE DOES NOT PROVE THE TRANSACTIONS THE SUNDR Y CREDITS IS TO BE DISALLOWED WHICH MEANS IT HAS TO BE ADDED AS INCOME OF THE ASSESSEE. 6.3.1. WITH DUE REGARDS WE WOULD LIKE TO POINT OUT THAT T HE ISSUE ON HAND IS ON A DIFFERENT FOOTING SINCE THE ASSESSEE HAS F URNISHED THE NAMES AND ADDRESSES CONFIRMATION LETTERS/AFFIDAVITS OF THE S UNDRY CREDITORS. ITA NO.701/BANG/09 PAGE 8 OF 8 THEREFORE THE RULING OF THE HONBLE KERALA HIGH CO URT IN OUR VIEW IS DISTINGUISHABLE. 7. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF APRIL 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 16 TH APRIL 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.