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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, ACCOUNTANT MEMBER:
These two appeals by the Revenue and one appeal by the assessee and
Cross Objection by the assessee in respect of the above assessment years are
directed against the orders of the CIT(A), Trivandrum.
First we shall take up the appeal filed by the assessee in I.T.A. No.
369/Coch/2016. The assessee has contested the sustenance of addition of Rs.
15 lakhs availed from Shri Subair Khan.
The facts of the case are that the assessee borrowed during the AY sum of
Rs.15 lakhs from Shri Subair Khan, NRI, brother of Mr. Nizar Ahmed. In the
absence of proper explanation by the assessee, the Assessing Officer made
addition u/s. 68 of the Act. Before the CIT(A), the assessee explained that Shir
Subir Khan died in the year 2009 and as such it was impossible to get the
confirmation letter from him for the credits. It was submitted that the said
amount was paid by Shri Subir Khan towards booking 1000 sq. ft. space in the
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
building called “Killi Towers” under construction at that time. In support of
this, the assessee filed a copy of deed of agreement dated 06.02.2007 before
the lower authorities. The CIT(A) after considering the same observed that the
assessee had taken two different stand and confirmed the addition. The
relevant finding of the CIT(A) is reproduced below:
“4.2 I considered the rival contentions bearing in mind the documents brought out by the appellant. After due consideration, I don’t find any inifirmity in the decision the Assessing Officer has taken to bring to tax the alleged loan availed from Mr. Subir Khan as unexplained credit under section 68 for the following reasons,
The appellant has taken two different stands i.e. the one during the course of reassessment proceedings stating that it was a loan availed and another one during the course of appeal hearing stating the same as paid towards allotment of 1000 sq. ft. space in the “Killi Towers” to be constructed.
The claim of advance taken towards allotment of 1000 sq. ft. in the building to be constructed is factually incorrect since the appellant firm was not engaged in the business of civil construction but was constructing its own building for its own business purpose.
The signature of Mr. Subir Khan appended in the deed of agreement dt. 06.02.2007 is different from that of the signature appended in the confirmation letter 10.02.2004 filed now.
The alleged loan amount was reportedly received in cash and no NRI like Mr. Subir Khan can advance any loan without through a banking channel and by a cheque.
No acceptable evidence was forthcoming from M/s. Ahmed Khan and Company where in Mr. Subir Khan was allegedly a partner, as the source was met out from his earnings from the firm as pleaded during the course of appeal proceedings.
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
Both the deed of agreement and confirmation letter are not verifiable as Mr. Subir Khan is no more and died in August, 2009 itself.
The decision of Hon’ble Delhi High Court in the case of CIT vs. Concorde Capital Management Company Limited (334 ITR 346) relied on by the appellant is totally misquoted since no addition was made based on third party statement but on the balance sheet signed by the managing partner.
4.3 In view of the above mentioned reasons, the addition made on account of unexplained credit is hereby confirmed and appeal on this ground is therefore dismissed.”
Against the decision of the CIT(A), the assessee has filed this appeal before
us. The Ld. DR relied on the orders of the lower authorities.
Before us, it was submitted that the amount of Rs.10 lakhs was repaid by
the assessee to Smt. Nabeesa Khan, wife of Shri Subir Khan, vide Cheque No.
005434 dated 28/09/2007 and Cheque No. 005435 dated 28/09/2007 for Rs. 5
lakhs. Both the cheques were drawn from current A/c. 67002316028 with State
Bank of Travancore, Nalanchira Branch. It was also submitted that the assessee
has filed a confirmation letter dated 27/04/2015 signed by his mother Smt.
Nabeesath Beevi and his brother Shri Nizar Ahemmed. As such, it was
submitted that there cannot be an addition.
The Ld. DR objected that these payment details were not filed before the
lower authorities and as such, it cannot be considered.
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
Admittedly, in our opinion, the details of repayment of loan was not filed
before the lower authorities and they had no occasion to examine the details.
Further, the assessee has taken two different stand , one before the CIT(A) and
another before the Assessing Officer. Hence it is appropriate to remit the issue
back to the file of the Assessing Officer to examine the same afresh in
accordance with law. Accordingly, we remit the issue to the file of the
Assessing Officer for his fresh consideration and decide the same after giving
opportunity of hearing to the assessee. Thus the appeal filed by the assessee
is partly allowed for statistical purposes.
I.T.A. Nos. 298 & 299/Coch/2016 : Revenue’s appeals
The only issue in these appeals is with regard to deletion of addition made
by the Assessing Officer on account of unexplained capital contribution by the
partners.
There was a search operation u/s. 132 of the I.T. Act on 11/10/2007 in
the premises of M/s. Parthas Infopark Pvt.Ltd., Trivandrum and connected
cases. Subsequently, there was a survey u/s. 133A of the Act on 12/12/2007 at
the office of the assessee’s auditor Shri S. Jeyachandran. In the course of
survey, the Department found the balance sheet relating to the assessee for the
assessment years ending 31.03.2006 and 31.03.2007. It was stated by the
assessee’s auditor that Shri Mohanan Nair had not handed over the books of
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
accounts like cash book, ledger, However, statement of bank accounts,
vouchers for expenses and some details of payments in statement form have
been handed over to him to prepare the books of accounts. The statement of
Shri M.S. Sreejesh working in the auditor’s office was also recorded. He stated
that the books of accounts were prepared on the base of notes given by the
assessee himself. Based on the balance sheets and income and expenditure
accounts, produced subsequently by the managing partner of the assessee-firm,
the assessments for the AYs 2005-06 to 2007-08 had been re-opened. With
reference to the capital account, there were additions made by the partners. For
the assessment year 2006-07, there was a difference between the balance
sheet filed subsequent to the survey and the balance sheet filed by the assessee
alongwith the return of income. As per the balance sheet filed by the
managing partner subsequent to the survey for the assessment year ending
31.03.2006, details of additions to the capital account in the partner’s accounts
are as follows:
Name of the partner Addition during the year S Mohanan Nair Rs.11,90,000/- Annammal Rs.11,90,000/- L Robinson Rs.11,90,000/- Das(S A M Thamseem) Rs.11,40,000/- Satheendran Rs.11,40,000/- Total Rs.58,50,000/-
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
Similarly as per the balance sheet for the assessment year ending
31.03.2007, the details of additions to the capital account in the partner’s
account are as follows:
Name of the partner Addition during the year S Mohanan Nair Rs.17,00,000/- Annammal Rs. 3,10,000/- L Robinson Rs. 6,60,000/- Das(S A M Thamseem) Rs. 3,16,000/- Total Rs.29,86,000/-
The above amount was brought to tax as unexplained credit u/s. 68 of the
Act for these A.Ys respectively. However, the CIT(A) deleted the same by
observing that the balance sheet and income and expenditure filed subsequent
to the survey cannot be relied upon and no addition could be made on account
of capital contribution brought in by the partners. The relevant portion of the
finding of the CIT(A) is as follows:
“4.4 I carefully examined this important issue based on the records available with. The issue for consideration is whether the balance sheet and income & expenditure account found in the appellant's auditor office can be relied on and addition of Rs.58,50,000/- on account of fresh capital infused into the capital account of some of the partners, could be made or not. Another issue for further consideration is whether the audited balance sheet and profit & loss account enclosed to the return filed in response to notice issued u/s 148 can be relied on and then based on which addition made on account of fresh capital infused in by the partners could be deleted or not. After due consideration, I am of the opinion that the balance sheet and income & expenditure account found in the appellant's auditor office cannot be relied on and no addition on account of fresh capital brought to the capital account of the partners can be made for the following reasons,:
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
The Hon'ble Delhi High Court decision relied on by the appellant do not empower the Assessing Officer to make the addition and complete the assessment based on the statement given by the third party (M.S.Sreejesh) and also the document (balance sheet and income & expenditure account) which was not found either in the place where search was carried out or at the appellant's place.
The balance sheet and income & expenditure account in the instant case of the appellant neither been found at the place where the search was carried out nor at the appellant's office.
These statement of accounts are incomplete/unaudited and having no details about substantial amount of loan availed from Mr. Subir Khan, Mr. S. Mohanan Nair and certain banks but were rightly shown in the balance sheets and profit & loss accounts filed in response to notice issued u/s 148 for all the assessment years i.e. AY 2005-06 to 2008-09.
The statement of Mr.M.S.Sreejesh who worked in the auditor's office cannot be relied on as the auditor himself vide letter dt.19.01.2015 has contended that he was not a competent person to prepare, statement of accounts and it was prepared without consulting Mr. S. Mohanan Nair, the managing partner of the appellant firm.
In the letter dt.27.09.2010, filed before passing the assessment order, the appellant has made out very clearly that there was a total capital of Rs. 1,40,000/- contributed by the partners and nothing more was brought in by them.
The Assessing Officer for the AY 2005-06 should not-have relied on two different balance sheet, one to make addition of Rs.47,500/- for the fresh capital brought in by the partners and another one for the addition of Rs.15,00,000/- towards unexplained credits u/s 68 against the loan given by Mr. Subir Khan. This first addition was made based on the balance sheet found at the auditor's office and the second one was based on the audited balance sheet filed along with the return which was filed in response to the notice issued u/s 148. 7. Similarly, assessment for the AYs 2005-06, 2006-07 and 2007-08 was completed based on the balance sheet and income & expenditure account found at the auditor's office and assessment for
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
the AY 2008-09 was completed based on the audited balance sheet and profit & loss account filed along with the return which was filed in response to notice issued u/s 148. Without rejecting the balance sheet of the first three years found at the auditor's office, the audited balance sheet filed along with the return which was filed in response to the notice issued u/s 148 for the fourth year cannot be relied upon and assessment be completed. The Assessing Officer has not done this while completing the assessment for all the four years. Hence, need be compensated at least now,
The return which was filed for the AY 2008-09 which in turn was filed along with the audited balance sheet and profit & loss account, has not only been accepted but also been processed u/s 143(1). This return cannot be accepted and processed without rejecting the balance sheet and profit & loss account pertains to AYs 2005-06 to 2007-08 found at the auditor's office and relied on by the Assessing Officer to complete the assessment. Having accepted the return filed for the AY 2008-09, the Assessing Officer has no other option but to accept the balance sheets and profit & loss accounts filed for previous three assessment years including the current assessment year i.e. AY 2006-07. As per the balance sheet filed for the AY 2006-07, none of the partners have introduced fresh capital to their capital account.
Without considering the work-in-progress as shown in the audited balance sheet filed along with the return filed in response to the notice issued u/s 148 for the AYs 2005-06 to 2007-08, the work in progress shown in the return filed for the AY 2008-09 cannot be considered at all for estimating 8% of business income. The Assessing Officer just by accepting the return filed for the AY 2008-09 indirectly agreed, to the fact that it is the audited balance sheets filed subsequent to issuing notice u/s 148 should have been considered for making the addition on account of unexplained credit. Having no fresh capital brought in and shown in the balance filed in subsequent to issuing notice u/s 148, the addition made of Rs.58,50,000/ has no basis whatsoever.
Work in progress shown in the balance sheet and Income & expenditure account found at the auditor's office is different from the work in progress shown in the audited balance sheet and profit & loss account filed subsequent to issuing notice u/s 148. Having accepted the return filed for the AY 2008-09, the Assessing Officer should not have considered the work in progress as on 31.03.2006 of Rs.40,24,280/- instead, should have considered Rs.21,35,506/- shown in the audited balance sheet.
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
All the liabilities except the alleged loan borrowed from Mr. Subir Khan, shown in the audited balance sheet for all the four years are duly supported by necessary documents. Particularly, bank loans both from Kerala State Cooperative Bank and State Bank of Travancore and also the amount advanced by Mr.S. Mohanan Nair are duly supported by confirmation letters and Income Tax returns filed for the respective assessment year.
The commission income of Rs,65,85,000/- shown in the income & expenditure account for the AY 2007-08 indicates that the balance sheet and income & expenditure account found at the auditor's office are meant only for showing to the bank as the firm is earning some income1 based on which loan can be granted. The said amount of commission has actually been offered by Mr. S. Mohanan Nair already in his individual capacity for the AY 2007-08 and filed return as well. Showing the same amount here in the appellant's income & expenditure account cannot be for any other purpose other than to avail loan from bank as contended by the appellant. This is because during the AY 2007-08 the appellant had not at all started any commercial activity so as to earn income. Hence, the balance sheet and income & expenditure account based on which the said addition was made, should not have been relied upon, instead rejected.
No opportunity was given to the appellant to rebut the statement of Mr. M.S.Sreejesh inspite of filing a letter dt.27.09.2010 explaining all the issues including the issue of capital not been brought in during the year under consideration.
4.5 In view of al the above, I am of the considered opinion that the Assessing Officer has not justified the addition of Rs.58,50,000/- made on account of capital brought in by some of the partners and accordingly the same is deleted.”
Similarly for the assessment year 2007-08, the CIT(A) deleted the addition.
Against this the Revenue is in appeal before us for both A.Ys. At the time
of hearing, the Ld. DR pointed out that these assessments were made u/s. 144
of the Act. There was no co-operation by the assessee before the Assessing
Officer. However, the CIT(A) deleted the addition without properly examining 10
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
the balance sheets. According to the ld. DR, balance sheet was duly signed by
the managing partner, Shri Mohanan Nair and it is a valid document to frame
the assessment on that basis. The Assessing Officer compared the balance
sheet filed by the assessee along with the return of income and filed at the time
of survey and found that there was difference in the capital account shown in
those balance sheets. Hence, the addition was made. He prayed that the
addition may be sustained.
The Ld. AR submitted that there cannot be any addition on account of
capital contribution by the partners and the partners are identified. Further it
was submitted that the balance sheet filed subsequent to the survey was
prepared for the purpose of availing financial assistance from Banks and it
cannot be relied upon.
The Ld. AR also submitted in the C.O. No. 14/Coch/2017 that the
enhancement of addition amounting to Rs.10.20 lakhs which is outstanding in
the name of Shri Subir Khan was made by CIT(A) without giving opportunity of
hearing to the assessee and it is to be deleted.
We have heard the rival submissions and perused the material on record.
In our opinion, the balance sheet filed subsequent to the survey needs to be
verified which has not been verified either by the Assessing Officer or by the
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
CIT(A). Hence, in the interest of justice, we remit the disputed issue to the file
of the Assessing Officer for fresh consideration and decide the issue in
accordance with law after giving reasonable opportunity of hearing to the
assessee. Since we have remitted the issue raised in the Revenue’s appeals to
the file of the Assessing Officer for re-examination, the issue raised in the Cross
Objection filed by the assessee is also remitted to the file of the Assessing
Officer for his fresh consideration and in accordance with law. Hence the Cross
Objection filed by the assessee is partly allowed for statistical purposes.
In the result, the appeals filed by the Revenue, the appeal filed by the
assessee and the Cross Objection filed by the assessee are partly allowed for
statistical purposes. Pronounced in the open court on 29th January, 2018.
sd/- sd/- ( GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi Dated: 29th January, 2018 GJ Copy to: 1. M/s. Killi Constructions, TC 39/930(1), Killi Tower, Chalai P.O. Trivandrum-11. 2. The Deputy Commissioner of Income-tax, Central Circle-2, Trivandrum. 3. The Assistant Commissioner of Income-tax, Central Circle, Trivandrum. 3. The Commissioner of Income-tax(Appeals),Trivandrum
I.T.A. No.369/C/2016 & 298&299/C/2017 & C.O.No.14/C/2017
The Commissioner of Income-tax, Central, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin