DCIT vs. M/S SUDHIR KR. SINGH,

IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA BEFORE SHRI N.K. SAINI (AM) and SHRI AMIT SHUKLA (JM) ITA No.35 Pat/2015 Assessment_year: 2011-12 DCIT , Circle-3, Gaya. Vs . M/ s Sudhir Kr_ Singh, Imperial Associates, Kusum Kunj, Road No.3,Gaya PAN GIR No_ ABWFS4244F (Appellant) Respondent) Department by: Shri Kausik Kr. Das, Sr_ DR Assessee by: Shri Sanjay Kr. Sinha, Adv Date of hearing: 06/03/2018 Date of Pronouncement: - 07/03/2018 ORDER PER AMIT SHUKLA_JM: The aforesaid appeal has been filed by the revenue against order dated 30.03.2015, passed by Ld. CIT(Appeals)-1, Patna for the quantum of assessment passed u/s 143(3) of the Income Tax Act, for the assessment year-2011-12_ 2 In grounds of appeal, the revenue has challenged the relief allowed by the Ld. CIT(A) of Rs.1,60,19,120 / - out of total addition of Rs.1,75,69,120/-_ For the sake of ready reference the ground raised by the revenue are reproduced here under: 2 ITA No.-35/Pat/2015 In the facts and circumstance of the case the CIT(A) has erred in allowing relief of Rs.1,60,19,120/ - to the assessee out of total addition of Rs.1,75,69,120/ - made by the assessing officer on account of income from unexplained sources without appreciating the facts brought on record by the assessing officer during the assessment proceedings. (ii) While deleting the addition, the CIT (A) has failed to appreciate the fact that Rs.3,46,47,380/ - paid as royalty from the account of M/ s Imperial Associates as customer advance should have been reflected in the balance sheet of M/ s Imperial Associates as on 31.03.2011, which was not the case as evidenced from the perusal of Balance sheet of the said firm by the AO during the assessment proceedings: In the balance sheet of M/ s Imperial Associates as on 31.03.2011, Only Rs.1,70,65,803/ reflected, which confirmed that the advance given by the M/ s Imperial Associates was not correct: 3_ The facts in brief are that the assesse, which has been held to be assessed in the status of "AOP' is engaged in the business of mining of sand from the river belt. Since , the assesse has not challenge its status as AOP as it had initially claimed itself as partnership firm before the authorities below, therefore status of assessee is not an issue. The Ld. AO on perusal of the accounts noted that the assesse had shown customer advances of Rs.1,75,69,120/ from the various 3 ITA No.-35/Pat/2015 parties before the commencement of the business, which has been adjusted against the sale of sand after the allotment of mining rights and commencement of sale_ The sale of sand had actually commenced with effect from 01.01.2011. As noted by the AO that during the course of assessment proceedings the assessee was required to explain the source of the customer advance' of Rs.1,75,69,120/-, which was utilized for the purpose of making payment as royalty to the department of mines, however the assesse could not establish the identity of the customers who had advanced money to the assesse. Accordingly, he added the entire amount of Rs.1,75,69,120/- as income from undisclosed sources. 4 Before the Ld. CIT (A), the assesse submitted that it had produced entire details of the persons who have given advances, like their Names, Address, PAN along with their Bank Statement giving the source of advance to the assesse. Not only that, the same has been confirmed by the m lining officer to the AO in response to notice u/s 133(6)_ The ITA No-35/Pat/2015 assessee had also furnished sample copies of demand draft; which was used in the payment of royalty to the Govt. and also submitted total payments of royalty paid in the relevant financial year. The sources and receipts of the funds of the royalty payment has been summarized by the CIT (A) for the details submitted before him in the following manner: Sl. Name of persons Amount received till Royalty paid till No_ 31.12.2010 Rs.) 31.12.2011(Rs. 1 Sudhir Kumar Singh 3,00,000 /-(capital (Member of AOP) contribution) 2 Kedarnath Singh 2,00,000 / (Capital (Member of AOP) Contribution) 3 M / s Imperial 95,50,000 /-(Capital Associates (Member of Contribution) AOP) 4_ Harendra Kumar 29,95,500 / - Singh (Member of AOP) 5_ Rajindra Singh 31,50,000 / - (Customer Advance) 6 M/s Imperial 3,46,47,380 / - Association (Customer advance) Kamlesh Singh 10,00,000 / - (Customer advance) 8_ Sidharth Stone Works 7,57,120 / - 9 Kumar Sanju Singh 4,30,000 / 10_ Sanjeet Singh 7,70,000 11_ Kumar Gaurav 2,00,000 12. Mokhtar Khan 31,50,000 13. Sanjay Kumar Singh 1,50,000 5,73,00,000 / - 5,73,00,000/ - 5 ITA No.-35/Pat/2015 5_ The Ld_ CIT (A), after discussing the entire facts and material on record, held that the sand mining rights in the Gaya, were allowed to Shri Sudhir Kumar Singh, one of the member of the assessee AOP and as per the terms of allotment of m lining rights, assessee were to make royalty payment of Rs.5.73 crores upto on 31st December, 2010. In order to pay for the royalties, it has secured funds from various persons/ firms and most of the contribution was in the form of capital contribution, the details on which have already been incorporated above. The relevant observations and findings of the CIT (A) are as under: - "The appellant has shown advances from customer at Rs.4,54,40,000/ - in the balance sheet filed with the return of income. The total advances received during the current assessment year was Rs.4, 72, 50,000/ out of which RS.18,10,000/ - was transferred to the sales account during the three months sales of the current assessment year. During the course of appellate proceedings, the appellant was asked to produce the documentary evidences of sale of sand to the person under head customer advances amounting to Rs. 18.10.000/ The appellant produced the copy of challan indicating sale of sand which does not show any name of the person under the customer advance. Even at the time of assessment proceedings, the A.0. had asked for evidences pertaining to sale of sand to the customer and the same was not complied with. This fact clearly proves that the appellant ITA No.-35/Pat/2015 had received funds as unsecured loans and has wrongly treated the same as customer advance. The transfer of RS.18,10,000/ - out of customer advance to the sales account for the current assessment year is merely a book entry and not supported by any sale of sand worth RS. 18,10,000/ - to the same persons from whom the customer advance are claimed to have been received. Thus, the facts and circumstances of the case clearly proves that the appellant's treatment of customer advances of Rs.4,72,50,000/- is in fact unsecured loans from various parties. The so called transfer of Rs.18,10,000/ to the sales account is nothing but return of the advance money to the persons under unsecured loans category. Therefore, appellant's claim of double taxation issue if such customer advances are added as unexplained cash credits are not acceptable. (iii) In the assessment order, the A.O. has treated only part of customer advance to the tune of Rs.l,75,69,120/ - out of total amount of Rs.4,72,50,000/ _ aS not explained by the appellant during the assessment proceedings: Assessment records was called from the A.0 and on verification of the assessment record, it is seen that the A.O had worked out the disallowance of RS.L,75,69,120/ as under: Total payment made to the Deptt of Mines Vide the tetter dated 04.03.2014 which is met from the customer advance received Rs.6.06. 97 380/ - Less i) Contribution received from 19 customers Utilized In payment of royalty etc Rs 3.23.78.260/_ ii)RoYalty direcLly paid by Sri Sudhir Kumar Singh as discussed above. Rs.31,50,000/ - iii) ROYalty deposited by 4 parties as discussed above RS.75,00,000/ - iv) Adjustment from sale Rs. 1,00,000/ - Total customeradvance with the supporting evidence utilized for payment made to the Deptt. Of mines Rs.4,31,28,260/- unexplained amount or the customer advance utilized for total payment or royalty & security: Rs.4.31.28.260/ - ITA No.-35/Pat/2015 RS.L,75.69.120/_ The above method of working of unexplained amount of customer advances by the A.0 is faulty and incorrect due to following facts: (a) Capital contribution of RS.5 Lakhs by Sudhir Kumar Singh and Kedar Nath Singh: capital contribution of Rs.95,50,000/ - by M/ s Imperial Associates totaling to Rs.1,00,50,000/- has not been considered by the A.O. in the above working: (b) The appellant has submitted documentary evidences and copy of letter from District Mining Authority to supports its claim that the total royalty payment up to 31.03.2011 was only Rs.S,73,00,000/ It has been claimed that in the summary of payments given to the A.O: by the District Mining Officer; DD amount of Rs.33,47,380/ was considered twice leading to the reported figure of Rs.6,06.97,380/_ to the A.0 (Rs.5, 73,0 00,000 Rs.33,47,380/-). This is supported by the terms of clauses of payment of sand mining contract as well as another letter dated 16.03.2015 from District Mining Officer, Gaya: (c) The details of DDs chart indicating payment of royalty furnished before the A.0 and also submitted during the appellate proceedings indicate fund received from following sources: (a) Rs.3,46,47,380/ paid as royalty from the account of M/ s Imperial Associates taken under customer advances in the books of account: (b) RS.95,50,000/ received from M/ s Imperial Associates as capital contribution for assesse AOP. (c) RS.5 Lakhs capital contribution from Kedar Nath Singh and Sudhir Kumar Singh. (d) RS.29,95,500/ received as advance from Harendra Kumar Singh (PAN-BNAPS2 158B). (e) RS.IO Lakhs received as advance from Kamlesh Kumar Singh (PAN-BITPS1352K). (f) Rs.7,57,120/- received as advance from Sidharth Stone Work; Prop: Jitendra Kumar Singh (PANAQIPS7502H). ITA No.-35/Pat/2015 (g) Rs.31,50,000/ - received as advance from Mokhtar Khan (PAN-AKFPK9162J). (h) RS.31,50,000/ received as advance from Rajendra Singh Rs.4,30,000/ - from Kumar Sanju Singh: 6 Rs.7, 70,000/ from Sanjit Singh. (y) Rs.2,00,000/-from Kumar Gaurav. Rs. 1 50,000/ from Sanjay Kumar Singh. In respect of advances received from (a), (b) & (c) it is noticed that the persons are M/ s Imperial Associates, Kedar Nath Singh and Sudhir Kumar Singh who are Members of the assessee AOP. Therefore, there cannot be any doubt about identity, genuineness of transaction from these persons Further, as regards capability of advancement of loan to the assessee AOP, the necessary enquiry and remedial majors should be taken in the case of these individual members of AOP only: Further; as regards the advances received from the parties (d), (e), (f1, (g) & (h); it is noticed that the amount were paid as royalty from their bank account directly: PAN number of these persons ore also given and again the enquiry about the fund received in the hands of these parties can be taken up in their individual assessments: A.0. has also given similar findings in the office note to the assessment order with regard to persons at (e), (fJ, (g) & (h) but missed out the person at (d), As regards the parties at (i), (j) (k) & (I) it is noticed that PAN numbers are not given neither these parties were produced for verification at the time of assessment proceedings. The identities of these four parties, genuineness of loan transactions and their capability to advance loans totaling to Rs.15,50,000/- has not been proved by the appellant at time of assessment proceeding and no evidences pertaining to these four parties were filed before undersigned also. (iv) The appellant has contended that the addition of customers advances aS unexplained cash credit will lead to double taxation as the amounts under customer advances has been transferred to sales account partly in the current assessment year and rest in the following assessment years. In support of its claim the appellant has furnished judgment of ITAT; Indore in the case of Dewa Soya Limited (as narrated above) wherein several other judgments have been quoted which had similar issues as regards the treatment of customer advances as unexplained cash credits This contention of the appellant is not acceptable in view of the finding that the appellant could not prove that sale of sand was made to the parties under head 9 ITA No.-35/Pat/2015 customer advances either at the time of assessment proceedings or at the time of appellate proceedings. In the absence of proof of sales to the parties under customer advances. these advances are held as unsecured loans. In view of the above findings, I find that only advances in respect of four parties at (i) (j), (k) & (I) totaling to Rs.15,50,000/ as discussed above remained to be explained with regard to their identity, genuineness transaction and capability to advance loan: Therefore, unexplained cash credit to the extent of RS.1S,50,000/ only can be added u/ s 68 of the IT: Act in the case of the appellant. Hence, the appellant gets relief of Rs.l, 60, 19,120/ - (Rs.l,75,69,120/- Rs.15,50,000). It is observed from the details furnished during the assessment proceedings and also during the appellate proceedings, that the M/ s Imperial Associates had advanced Rs.3,46,4 7,380/ - to the assessee AOP by way of payment of royalties on behalf of the assessee AOP. Another sum of Rs.95,50,0001 - has also been paid by M/ s Imperial Associates as capital contribution. Sources of funds to the tune of Rs.4,41,97,3801- hould have been verified in the hands of M/ s Imperial Associates: At the time of assessment proceedings of the assessee, copies of affidavits of 19 persons giving total advances of less than Rs.20,000/- each in cash totalling to RS.3,23,78,2601 - was filed: Primafacie, affidavits indicate that these 19 persons should be thoroughly examined and this can be done in the case of M/ s Imperial Associates only: It is therefore, desirable that the assessment of A.Y. 2011-12 of M/ s Imperial Associates are reopened and suitable remedial measures under the Act regarding violation of section 69SS/269T as also genuineness of funds received in the case of M/ s Imperial Associates is thoroughly scrutinized. Similarly, funds received from other persons who are assessed to tax and having PAN numbers like Shri Harendra Kumar Singh, Shri Kamlesh Singh, Sidharth Stone Works, Shri Rajendra Singh and Mukhtar Khan are also to be verified by reopening there assessment proceedings. A.O. is directed to intimate to the concerned AO's of these persons for necessary action, if not intimated till date. 10 ITA No.-35/Pat/2015 6_ After hearing both the parties and on perusal of the relevant finding given in the impugned order, we find that the only reasoning given by the AO for treating the amount of Rs.1,75,69,120/- as income from undisclosed sources is that assesse could not establish the identity of the customers_ From the details and sources of receipts of fund, we find that major contribution has come from M/s Imperial Associates, which is member of the AOP itself: The Ld. CIT (A) has taken note of the entire evidences and documents filed before him and has given the aforesaid findings after reconciling the source of funds and payments of royalty to the State Govt. In order to examine the source of funds in the hands of M/s Imperial Associates and other persons, whose identity are well established, he has already directed the Ao to examine the funds in their hands and reopen their case and take other suitable measures under the Income-tax Act. We do not find any infirmity in such order of the CIT (A), which is based on correct appreciation of facts and evidences and has already given a direction to examine the source in the case of the ITA No.-35/Pat/2015 persons, who have given advance to the assesse. Thus, ground raised by the revenue is dismissed: 7 _ In the result; the appeal filed by the revenue is dismissed: Order is pronounced in the open court on 7th March, 2018 / - / - (N.K. Saini) Accountant Member (Amit Shukla) Judicial Member Date of order: 7th March, 2018 S.Sinha Copy of_the Order forwarded to : 1 2 3 4 _ 5 _ 6_ The Appellant: The Respondent:: The CIT(A)-Patna CIT Patna Income Tax Appellate Tribunal,Patna Guard file I// / BY ORDER PRIVATE SECRETARY