ITO, Bangalore v. Sri Chenzhi Wei, Bangalore

ITA 704/BANG/2009 | 2006-2007
Pronouncement Date: 08-01-2010 | Result: Dismissed

Appeal Details

RSA Number 70421114 RSA 2009
Bench Bangalore
Appeal Number ITA 704/BANG/2009
Duration Of Justice 5 month(s) 24 day(s)
Appellant ITO, Bangalore
Respondent Sri Chenzhi Wei, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 08-01-2010
Date Of Final Hearing 03-12-2009
Next Hearing Date 03-12-2009
Assessment Year 2006-2007
Appeal Filed On 15-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO. 704/BANG/2009 ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER WARD 10(1) BANGALORE. : APPELLANT VS. SRI CHENZI WEI NO.E 1/21 1 ST CROSS SYNDICATE BANK COLONY BANGALORE 560 076 : RESPONDENT APPELLANT BY : SMT. JACINTA ZIMIK VASHAI RESPONDENT BY : SHRI MANOJ D. PUKHALE O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V BANGALORE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO:78/W 10(1)/CIT(A)-V/08-09 DATED:11/5/2009 IN THE CASE OF CHENZHI WEI AN INDIVIDUAL. 2. THE REVENUE HAS RAISED THREE GROUNDS OF APPEAL. HOWEVER THE CRUX OF THE ISSUE IS THAT THE CIT(A) ERRED IN DELETING THE UNEXPLAINED SALES OF GRANITE BLOCKS AMOUNTING TO RS.7781699/-. ITA NO.704/BANG/09 PAGE 2 OF 8 3. THE FACTS OF THE ISSUE IN BRIEF ARE THAT THE A SSESSEE AN INDIVIDUAL AND A CITIZEN OF CHINA WAS RUNNING A PROPRIETARY BUSINESS R V EXPORTS [RVE] IN EXPORTING OF GRANITE BLOCKS. FOR THE AS SESSMENT YEAR IN DISPUTE THE ASSESSEE HAD FURNISHED A ROI ADMITTING A TOTAL INCOME OF RS.480240/- IN WHICH HE HAD SHOWN A TURNOVER OF RS.4.88 CRORES. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD INTRODUCED A CAPITAL OF R S.6711879/- WHICH WAS EXPLAINED THAT HE HAD BROUGHT HIS OWN CAPITAL IN FO REIGN EXCHANGE THROUGH BANKING CHANNELS AND PRODUCED COPY OF ACCOUNT WITH ABN AMRO BANK. ON A SCRUTINY IT WAS FOUND THAT SOME AMOUNTS WERE ALS O RECEIVED FROM FAR EAST MARBLES OF THAILAND [FEM]. ON A PERUSAL OF PE RSONAL BALANCE SHEET FURNISHED AS ON 31.3.2006 IT WAS SHOWN THAT RS.778 1699/- WAS RECEIVED FROM FEM AS A LOAN. THIS LOAN AS WELL AS HIS OWN C APITAL WAS SHOWN AS SOURCES FOR CAPITAL IN RVE. DURING THE YEAR A NU MBER OF CONSIGNMENTS AMOUNTING TO RS.1.87 CRORES WERE SHIPPED TO FEM WHO WERE THE MAJOR BUYERS OF GRANITE BLOCKS FROM RVE. REGULAR SALE PR OCEEDS WERE BEING CREDITED TO THE RVE ACCOUNT WITH HSBC BANK WHEREAS THE LOAN ALLEGED TO HAVE BEEN RECEIVED FROM FEM WAS CREDITED IN ABN AMR O BANK. IT WAS EXPLAINED THAT FEM WERE DEMANDING VARIOUS VARIETIES OF GRANITE BLOCKS AND IN RETURN IT HAD AGREED TO GIVE LOAN IN HIS PERSONA L CAPACITY. 4.1. BRUSHING ASIDE THE ASSESSEES CONTENTIONS THE AO HAD TREATED THE ALLEGED LOAN OF RS.7781699/- AS UNACCOUNTED SALES F OR THE REASONS THAT (I) THE ALLEGED LOAN OUGHT TO HAVE BEEN SHOWN IN THE BA LANCE SHEET OF RVE; ITA NO.704/BANG/09 PAGE 3 OF 8 (II) THE AMOUNTS HAVE BEEN RECEIVED ON DIFFERENT DATES A ND THE AMOUNTS SHOWN WERE ODD; (III) IN THE INWARD REMITTANCE CERTIFICATE THE PURPOSE O F REMITTANCE WAS NOT MENTIONED; (IV) NO INTEREST WAS PAID FOR THE LOAN ALLEGED TO HAVE B EEN PROCURED; - IF THE LOAN WERE TO BE GENUINE THE ASSESSEE COULD HAVE CLAIMED DEDUCTION U/S 36(1)(III) ON THE SAID AMOUNT; & (V) THE ASSESSEE HAD DEBITED ALL EXPENSES INCLUDING PUR CHASES IN THE TRADING ACCOUNT WHEREAS HE HAD ACCOUNTED A PART OF SALES IN THE TRADING ACCOUNT AND THE REMAINING AGAINST THE LOAN AMOUNT ONLY WITHIN AN ULTERIOR INTENTION TO REDUCE THE TAX LIAB ILITY. 5. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUE WITH T HE LD.CIT(A) FOR RELIEF. AFTER DUE CONSIDERATION OF THE ASSESSEES FORCEFUL CONTENTIONS THE CIT(A) HAD OBSERVED THUS 6.IT IS OBSERVED THAT THE AO DISALLOWED RS.77 81699/- THE LOAN TAKEN FROM M/S.FAR EAST MARBLES THAILAND AS UNEXPLAINED SALES. THE REASONS ARE THAT THE REGULAR SALE PROCE EDS ARE CREDITED TO THE ACCOUNTS OF RV EXPORTS IN HSBC BANK WHEREAS THE LOAN WAS IN ABN AMRO BANK. THE SECOND REASON STATED BY THE AO IS THAT THE AMOUNTS HAVE BEEN GIVEN ON DIFFERENT DATES AND ARE NOT IN ROUND FIGURES. SOME OF THE RECEIPTS WERE RECEIVED ON OR NEAR THE DATES OF RECEIPT OF SALE PROCEEDS. THE THIRD REASON FOR DIS ALLOWING THE LOAN IS THAT THE INWARD REMITTANCE CERTIFICATE DID NOT M ENTION THE PURPOSE OF REMITTANCE. IN THIS CONNECTION I AM OF THE CONSIDERED OPINION THAT THE VIEWS TAKEN BY THE AO TO CONCLUDE THAT THE ASSESSEE HAS USED A COLOURABLE DEVICE TO EVADE TAX BY SHOWIN G RECEIPT OF THE SALE PROCEEDS AS RECEIPT OF LOAN ARE ONLY ON GUESS WORK SURMISE AND CONJECTURE. THERE IS NO COGENT REASON OR MATER IAL TO SUPPORT THE CONCLUSION ARRIVED AT BY THE AO. IT IS A FACT THAT THE APPELLANT IS A CITIZEN OF CHINA DOING BUSINESS IN INDIA. HE HAS RECENTLY STARTED THIS GRANITE BLOCK EXPORT BUSINESS. HE HAS A GOOD CUSTOMER IN THAILAND WHO PURCHASED GRANITE BLOCKS WORTH OF RS.1 8739634/- DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT ALSO INTRODUCED HIS OWN CAPITAL OF RS.6711879/- WHICH WAS ACCEPTED BY THE AO. THE APPELLANT HAD BORROWED FREE INTEREST LOAN FROM FAR EAST MARBLES TO THE TUNE OF RS.7781699. THIS LOAN WAS IN HIS PERSO NAL CAPACITY AND THE SAME WAS UTILIZED IN THIS BUSINESS. THE FEM ALS O ADJUSTED THE ITA NO.704/BANG/09 PAGE 4 OF 8 LOAN TO THE TUNE OF RS.2350361 DURING THE FY 2007-0 8. THE LOAN WAS GIVEN FOR FOUR YEARS ON VARIOUS DATES BETWEEN 2 1.4.05 TO 16.3.06 THROUGH ABN AMRO SB A/C NO.103749 AMOUNTING TO $ 177614.80 WHICH IS EQUIVALENT TO RS.7781669/-. THE LOANS WERE RECEIVED THROUGH BANKING CHANNEL AND THE AO HAS NOT DOUBTED THE GENUINENESS. THE LOANS WERE ACCOUNTED FOR IN THE B OOKS OF THE APPELLANT. I AM OF THE OPINION THAT THE LOAN TAKEN WAS GENUINE. IN VIEW OF THIS THE DISALLOWANCE MADE BY THE AO IS NO T JUSTIFIED 6. DISILLUSIONED WITH THE FINDING OF THE LD.CIT(A) THE REVENUE HAS COME UP WITH THE PRESENT APPEAL. THE LD. D RS RE ITERATION WAS MORE OR LESS WHAT HAS BEEN REASONED IN THE IMPUGNED ORDE R OF THE AO. FURTHERANCE TO THE ABOVE STRONG RELIANCE WAS PLACE D ON THE RULING OF THE HONBLE APEX COURT IN THE CASE OF SUMATI DAYAL V. CIT REPORTED IN 214 ITR 801 AND BY THE HONBLE HIGH COURT OF ALLAHA BAD REPORTED IN (2008) 304 ITR 239 IN THE CASE OF BANARSI PRASAD V. CIT TO DRIVE HOME HER POINT. 6.1. ON HIS PART THE LD. A RS URGE REVOLVED AROUN D WHAT WAS CONTENDED BEFORE THE LOWER AUTHORITIES. IT WAS FU RTHER CONTENDED THAT THE LD. CIT(A) HAD ARRIVED AT A CONCLUSION AFTER DU LY ANALYZING THE ISSUE IN DEPTH WHICH REQUIRES NO INTERFERENCE AT TH IS STAGE. 6.2. DURING THE COURSE OF HEARING THE LD. A R HA D FURNISHED A PAPER BOOK CONTAINING 1 12 PAGES WHICH CONSISTS OF INTER ALIA COPIES OF (I) CORRESPONDENCE WITH THE AO; (II) CONF IRMATION LETTER FROM THE LOANER; (III) FINANCIAL STATEMENT ETC. 7. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS PERUSED THE RELEVANT RECORDS AND ALSO THE DOCUMENTARY EVIDE NCES ADVANCED BY EITHER PARTY. ITA NO.704/BANG/09 PAGE 5 OF 8 7.1. THE ASSESSEE HAD BROUGHT IN THE CAPITAL FROM O VERSEAS THROUGH BANKING CHANNELS AND INTRODUCED THE SAME IN THE BUS INESS WHICH HAS BEEN ACCEPTED BY THE AO. THE ASSESSEE BEING A FORE IGNER AND COULD NOT ABLE TO MOBILIZE THE REQUIRED WORKING CAPITAL T O FURTHERANCE HIS BUSINESS PERHAPS HE HAD APPROACHED THE MAIN PURC HASERS OF GRANITE BLOCKS - FAR EAST MARBLES OF THAILAND FOR FUNDS. FEM HAVE AGREED TO ACCOMMODATE THE ASSESSEE PROVIDED THE AS SESSEE HONOURS THEIR REQUIREMENTS OF GRANITE BLOCKS ON PRI ORITY BASIS. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION THE FEM HAVE REMITTED THE AMOUNTS ON VARIOUS DATES EQUIVAL ENT TO RS.7781699/- [$ 177614.83] TO THE ASSESSEES S.B.A/ C IN ABN AMRO BANK. THIS HAS BEEN DULY CONFIRMED BY FEM IN THEIR LETTER DATED 19.12.2008 [ PAGE 3 OF PB]. FURTHER FEM IN ITS C OMMUNICATION DATED 15.4.2007 REQUESTED THE ASSESSEE TO ADJUST THEIR DU ES TO THE EXTENT OF RS.2350361/- AGAINST THE LOAN GIVEN TO THE ASSESSEE . THE ABOVE FACTS HAVE BEEN DULY COMMUNICATED TO THE AO VIDE ASSESSEE S LETTER DATED 22.12.2008 ALONG WITH THE BANK REMITTANCE CERTIFICA TE S.B. ACCOUNT STATEMENT CONFIRMATION LETTER LEDGER EXTRACT COPY OF FEM DURING THE YEAR 2007-08 COPY OF ROI FOR THE AY 2008-09 COP Y OF STOCK STATEMENT. IN SPITE OF ALL THE RELEVANT PARTICULAR S CONFIRMATION LETTERS ETC. WERE AT THE POSSESSION OF THE AO THE AO WENT AHEAD WITH A THEORY THAT THE ASSESSEE HAD USED A COLOURABLE DEVI SE TO EVADE TAX BY SHOWING RECEIPT OF SALE PROCEEDS AS RECEIPT OF LOAN . 7.2. ON A CURSORY VERIFICATION OF THE EVIDENCES PRO DUCED BY THE ASSESSEE WE ARE IN TOTAL DISAGREEMENT WITH THE CON CLUSION OF THE AO. ITA NO.704/BANG/09 PAGE 6 OF 8 7.3. IN AN OVERALL CONSIDERATION OF THE FACTS AND C IRCUMSTANCES OF THE ISSUE WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN TREATING THE ENTIRE LOAN AMOUNT OF RS.7781699/- AS UNACCOUNTED SALES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEE FOR THE FOLLOWING REASONS: (I) THE ENTIRE AMOUNT OF RS.7781699/- [$ 177614.83] WER E ROUTED THROUGH BANKING CHANNEL AND WAS CREDITED TO THE ASS ESSEES S.B.A/C IN ABN AMRO BANK; - FEM IN THEIR LETTER DATED 19.12.2008 HAVE CONFIRMED THE LENDING OF THE SAID LOAN TO THE ASSESSEE; - THE NAME AND POSTAL ADDRESS OF THE LOANER AND ITS I DENTITY HAS BEEN ESTABLISHED. (II) THE AMOUNTS RECEIVED IN THE PERSONAL CAPACITY WAS UTILIZED FOR THE BUSINESS RVE - A PROPRIETARY CONCERN SOL ELY OWNED BY THE ASSESSEE; (III) ACCORDING TO THE MUTUAL CONVENIENCE OF THE PARTIES AVAILABILITY OF FUNDS THE AMOUNTS WOULD HAVE BEEN PUMPED IN TO THE ACCOUNT OF THE ASSESSEE ON DIFFERENT DATES W HICH CANNOT BE THE SOLE REASON TO CAST ASPIRATION ON THE BONA -FIDE OF THE TRANSACTION ITSELF; (IV) FEM MUST HAVE LENT THE LOAN IN RETURN OF THE SUPPLY OF GRANITE BLOCKS ON A PRIORITY BASIS WHICH COULD HAVE PROMPTE D FEM NOT TO CHARGE ANY INTEREST ON THE SAID LOAN; - IT IS THE PREROGATIVE OF THE LOANER TO CHARGE INTER EST OR OTHERWISE ON THE AMOUNTS LENT THIS ALONE CANNOT BE A VALID REASON TO IMPLY THAT TO EVADE TAX BY SHOWING RECEIPT OF SALE PROCEEDS AS RECEIPT OF LOAN. 7.4. WITH RESPECTS WE HAVE PERUSED THE RULING OF TH E HIGHEST JUDICIARY OF THE LAND IN THE CASE OF SUMATI DAYAL V. CIT CITE D SUPRA WHEREIN THE HONBLE COURT IN ITS WISDOM HAD RULED THAT IF EXPLANATION OF THE ASSESSEE IS NOT FOUND SATISFACTORY BY THE ASSESSING OFFICER ACTING REASONABLY THERE IS A PRIMA FACIE EVIDENCE AGAINST THE ASSESSEE AND IF ITA NO.704/BANG/09 PAGE 7 OF 8 ASSESSEE FAILS TO REBUT THE SAME SUCH UN-REBUTTED EVIDENCE CAN BE USED AGAINST HIM.. 7.4.1. WITH DUE REGARDS WE WOULD LIKE TO POINT O UT THAT THE ASSESSEE HAD FURNISHED CONFIRMATION LETTER FROM THE CREDITO R THE NAME AND COMPLETE POSTAL ADDRESS AND THE IDENTITY OF THE CRE DITOR (ESTABLISHED). THUS THE ASSESSEE HAS DISCHARGED HIS ONUS. HOWEVE R THE AO HAD NEITHER DISCHARGED HIS ONUS NOR ESTABLISHED ANY PRI MA FACIE EVIDENCE AGAINST THE ASSESSEE AND THUS THE REVENUE CANNOT SEEK REFUGE IN THE SAID RULING. 7.4.2. YET AN ANOTHER RULING THE HONBLE HIGH CO URT OF ALLAHABAD REFERRED SUPRA HAD OBSERVED THAT FIRST PART OF S.68 ONLY REQUIRES THE ASSESSEE TO DISCLOSE THE SOURCE FROM WHICH THE MONE Y HAS BEEN RECEIVED BY HIM WHILE THE SECOND PART OF THE SECTION CONSIS TS OF OFFERING AN EXPLANATION WHICH IS SATISFACTORY IN THE OPINION OF THE ITO-WHAT EXPLANATION WOULD BE CONSIDERED SATISFACTORY AND HOW MUCH DETAILS SHOULD BE FURNISHED TO MAKE THE EXPLANATION SATISF ACTORY WOULD NORMALLY DEPEND UPON THE FACTS OF THE CASE-..THE REQUIREMENT TO PROVE THE CAPACITY OF THE CREDITOR CANNOT BE SAID TO HAVE BEEN ESTABLISHED ON THE FACTS OF THE CASE IN THE ABSENCE OF DETAILS REGARDING THE SOURCE IN THE PRESENT CASE ITA NO.704/BANG/09 PAGE 8 OF 8 (I) THE ASSESSEE HAS DISCLOSED THE SOURCE FROM WHICH TH E MONEY HAS BEEN RECEIVED BY HIM M/S.FAR EAST MARBLES & G RANITE CO. LIMITED THAILAND (II) OFFERING AN EXPLANATION SATISFACTORILY - FAR EAST MARBLE & GRANITE CO. LIMITED THAILAND H AS BEEN THE LEADING IMPORTER OF GRANITE BLOCKS FROM THE ASS ESSEE AND DURING THE YEAR IN QUESTION THE SAID FIRM HAD PUR CHASED GRANITE BLOCKS FROM THE ASSESSEE FOR WHOPPING RS. 1.87 CRORES WHICH GOES TO PROVE BEYOND THE DOUBT THE CAP ACITY OF THE CREDITOR TO LEND MONEY TO THE ASSESSEE. THUS THE ASSESSEE HAD DISCLOSED (A) THE SOURCE FROM WHERE THE ASSESSEE HAD OBTAINED TH E LOAN; & (B) THE CAPACITY OF THE CREDITOR TO LEND THE LOAN AND I TS SOURCE. THUS WE ARE OF THE FIRM VIEW THAT THE FINDING OF T HE HONBLE COURT REFERRED SUPRA IS DISTINGUISHABLE AND DOESNT FIT T O THE CASE ON HAND. 8. IN THE RESULT THE REVENUES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF JANUARY 2010. SD/- SD/- ( K.P.T. THANGAL ) (A. MOHAN ALANKAMONY ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE DATED THE 8TH JANUARY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.