GAZAL CATERERS,NEW DELHI vs. ITO WARD - 22(2), NEW DELHI

We have heard the rival submissions on the additional ground.

The brief facts of the case are that the assessee is a partnership firm engaged in the business of catering. There are three partners during the year under consideration – Mr. Vinod Malik, Mr. Rahul Khurana and Mr. Ishan Khurana. The assessee firm filed return of income on 25.09.2009 declaring total income at Rs.10,32,130/-. The case was selected for scrutiny under CASS. The assessment u/s 143(3) was completed on 16.12.2011 at assessed income of Rs.62,80,295/- after making addition of Rs.52,48,165/-.

Aggrieved, the assessee filed appeal before the ld. CIT(A) who sustained the addition to Rs.16,22,085/-.

The ld DR, to meet this foundational objection raised in the additional ground that the AO did not issue the mandatory notice u/s 143(2) of the Act within the statutory allowable period, produced the assessment record. To examine the issue of notice, we perused the assessment record from where we find that an order sheet has been maintained detailing the issuance of notices u/s 143(2)/142(1). The same is reproduced as under:

From the examination of assessment record, it is seen that notices u/s 143(2) was issued twice before the prescribed time period, once on 20.08.2010 and second on 23.09.2010 to the assessee at the address given in the ITR. Both the time, the notices were returned unserved with remark of the postal Department on the envelope as ‘left’. Ultimately, the assessee appeared before the AO on 25.11.2010 in response to the notice u/s 143(2) issued on 4.11.2010. Thereafter the counsel of the assessee participated in the proceedings under section 143(3) till its culmination on 16.12.2010.

The facts culled out from the assessment record refute the claim of the assessee that Notice u/s 143(2) was issued after expiry of 6 months from the end of FY 2009-10. In fact, the notices u/s 143(2) was issued twice before the prescribed time period which could not be served on the assessee on account of postal Department findings that the assessee has ‘left’.

The assessee did not take up the issue of service of notice u/s 143(2) beyond the prescribed period before the AO nor he raked up this issue before the CIT(A). This is the first time it is raising this jurisdictional ground before us. Be that as it may, in the facts of the instant case, we find therefore, that the ld counsel of the assessee’s reliance on the decision of the Supreme Court in the case of Hotel Blue Moon is distinguishable.

In the instant case as demonstrated above, the notice u/s 143(2) was issued twice within the time period prescribed under the law while no notice u/s 143(2) was issued in the case of M/s Hotel Blue Moon.

The hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax (Central)v Grand Express Developers (P.)

In the instant case the notice/s 143(2) was issued, though unserved, within the time prescribed. The assessee was served the notice u/s 143(2) dated 5.11.2010 and in response to which the assessee participated in the assessment proceedings. In view of the factual matrix that emerges from the examination of assessment record and respectfully following the decision of the hon’ble Supreme Court in the case Laxman Das Khandelwal(supra), we are of the considered opinion that assessment proceedings is saved by the provision of section 292BB and consequently the same has to be held as validly conducted. The additional ground of the assessee is accordingly dismissed.

We now proceed to decide the grounds taken by the assessee on merits. Ground No. 1relates to the addition sustained by Ld. CIT(A) to the tune of Rs.60,000/- on account of introduction of capital by two partners i.e. (i) Mr. Rahul Khurana – Rs.10,000/- and (ii) Mr. Ishan Khurana – Rs.50,000/-.

The ld. counsel for the assessee vehemently submitted that during the impugned year, the partners have introduced capital in the assessee firm out of which Ld. CIT(A) has sustained the addition made by the Assessing Officer for the capital introduced by two partners as under:

In order to justify the above additions made by the partners, the assessee firm filed copy of confirmed copy of ledger account of both the partners containing amount received as capital from partners showing inter-alia name, address and PAN of the partner along with copy of returns and vehemently contended that these evidences establish the nature and source of credit and hence the firm is absolved from any further liability.

It was vehemently contended that the capital introduced by the partners cannot be taxed in the hands of the assessee-firm u/s 68 of the Act in absence of any material to indicate that these credits were profits of the firm. The ld. counsel for the assessee placed reliance on the following decisions:

The ld. counsel for the assessee submitted that the case of the assessee firm is directly covered by above judicial decisions and the addition deserves to be deleted.

Per contra, the ld. DR relied upon the orders of the Assessing Officer and the CIT(A).

We have heard the rival submissions and have perused the relevant material on record. As regards the amount of Rs. 10,000/- pertaining to Shri Rahul Khurana, the same was part of capital introduced of Rs. 2,50,000/- in the assessee firm during the year under consideration. Against this addition, the Shri Rahul Khurana had withdrawn cash of Rs. 2,40,000/- which was accepted by the ld. CIT(A).

However, the ld. CIT(A) sustained the addition to the extent of Rs. 10,000/- on account of unexplained credit. It is the say of the ld. counsel for the assessee that the assessee introduced Rs. 10,000/- accumulated from the past savings. Shri Rahul Khurana has filed reply dated 27.09.2013 against the notice u/s 133(6) of the Act and confirmed the capital introduced in the assessee firm.

As regards the amount of Rs. 50,000/- by Shri Ishan Khurana, it is submitted by the ld AR that Shri Ishan Khurana belongs to family having multiple business of multi-core. Further, during A.Y 2008-09, Shri Ishan Khurana earned salary income of Rs. 1,20,000/- from the assessee firm which is evident from Tax Audit Report of A.Y 2008-09 and he also confirmed the capital introduced in the assessee firm.

Having heard the rival submissions, we are of the considered opinion that the assessee has discharged it’s onus of establishing the source, nature and credit worthiness of the partners who introduced the capital in the assessee firm. We also find force in the assessee reliance on the decision of the Hon’ble Gujrat High Court case of M/s Darshan Enterprise (supra) where it held that once the Firm gives a satisfactory explanation and produces the person who has deposited the amount, the burden of the firm is discharged and credit entry cannot be treated as income u/s 68 of the firm. In that view of the matter, we have no hesitation in deleting the addition on the basis of facts and circumstances of the case. Ground No. 1 is allowed.

Ground No. 2relates to the aggregate addition of Rs.3,85,000/- u/s 68 of the Act being the closing balances of 4 parties viz. (i) Mr. Atul Bhatia – Rs. 70,000/-, (ii) Sh. S.K. Bhatia – Rs. 40,000/-, (iii) Smt.

Before us, the ld. counsel for the assessee vehemently stated that the loan of Rs.50,000/- from Shri Atul Bhatia only pertains to the year under consideration out of total unsecured loan amounting to Rs.3,85,000/- and the balance amount is pertaining to previous years as evident from the confirmed copy of ledger accounts. Therefore, the addition to the extent of Rs.3,35,000/- cannot be made in the impugned year and hence is not valid, unjustified and requires to be deleted. In this connection, the ld. counsel for the assessee placed reliance on the decision of ITAT, Mumbai Bench in the case of ITO vs. Shri Nasir Khan J. Mahadik in order dated 30.11.2011.

The ld. counsel for the assessee submitted that the assessee firm has taken loan of Rs. 50,000/- from Mr. Atul Bhatia during the impugned year through banking channels and balance Rs.20,000/- is pertaining to A.Y 2008-09 i.e. not to the relevant assessment year. To support his contention, the ld. counsel for the assessee furnished confirmed copy of ledger account of Shri Atul Bhatia containing amount received as loan showing inter-alia name, address and PAN of Shri Atul Bhatia. Copy of extract of bank statement of Mr. Atul Bhatia showing transaction of Rs. 50,000/- during impugned year, copy of Income Tax Return of Shri Atul Bhatia for AY 2012-13, copy of affidavit of Shri Atul Bhatia and copy of schedule to balance sheet as on 31.03.2008 of the assessee firm showing details of unsecured loans.

The ld. counsel for the assessee further submitted that the assessee firm has not taken any loan from Mr. S.K. Bhatia during the year under consideration. The loan of Rs.40,000/- pertains to A.Y 2008-09 i.e. not to the relevant assessment year. Confirmed copy of ledger account of Shri S.K. Bhatia containing opening balance of loan showing inter-alia name, address and PAN of Shri S.K. Bhatia along with copy of PAN card of Shri S.K. Bhatia were produced to support the submissions. Copy of affidavit of Mr. S.K. Bhatia, copy of schedule to balance sheet as on 31.03.2008 of the assessee firm showing details of unsecured loans were also furnished.

The ld. counsel for the assessee further submitted that the assessee firm has not been taken any loan from Smt Sunita Malik during the year under consideration and the loan of Rs.1,25,000/- pertains to A.Y. 2007-08 i.e. not to the relevant assessment year. Confirmed copy of ledger account of Smt Sunita Malik containing opening balance of loan showing inter-alia name, address and PAN of Shri Sunita Malik were produced. Copy of ITR and Computation of Income for A.Y 2009- 10, copy of affidavit, copy of schedule to balance sheet as on 31.03.2008 of the assessee firm showing details of unsecured loans were also filed.

The ld. counsel for the assessee submitted that the assessee firm has not received any loan from Mr. Yad Ram Kundu during the year under consideration. Further, Rs.1,50,000/- from Shri Yad Ram Kundu pertains to A.Y 2007-08 i.e. not to the relevant assessment year.

After considering the exhaustive details and evidences submitted by the ld. counsel for the assessee, we are of the opinion that the assessee has successfully demonstrated that out of total unsecured loan amount of Rs.3,85,000/- only an amount of Rs.50,000/- pertained to the year under consideration and the balance amount pertained to previous years. We are of considered opinion that the loans amount of Rs 3,35,000/- pertaining to the previous years cannot be added u/s 68 in the instant year. Further, the assessee firm has duly explained the nature and source of the balance Rs 50,000/- with confirmation ledgers from the parties and established their creditworthiness from their available ITRs and bank statement etc. We find that the assessee firm has discharged its onus to substantiate the identity, creditworthiness and genuineness of transactions and neither the AO nor the CIT(A) has expressed doubts on the explanation furnished by the assessee with regard to the transaction. In view of the matter, we are of the opinion that the addition without having any adverse material against the transactions is not justified. We have, therefore, no hesitation in deleting the addition made by the Assessing Officer and sustained by the ld. CIT(A).Accordingly, the addition is deleted. Ground No. 2 is allowed.

The third ground is against aggregate addition of Rs.11,77,085/- u/s 68 of the Act being the closing balances of 13 parties in the nature of creditors sustained by the CIT(A) as unexplained.

Before us, the ld. counsel for the assessee vehemently stated that the assessee firm has filed confirmation copy of ledger accounts from all 13 parties containing name and address along-with PAN and other ID Proofs and that the said confirmations have not been rejected or doubted anywhere by both the authorities below.

The ld AR stated that Notice u/s 133(6) of the Act was not served on the following creditors and therefore addition was confirmed by the Ld. CIT(A) –

With regard to above creditors, the ld AR submitted that the assessee firm has filed explanation along with copy of confirmed ledger accounts of all the parties in the paper book. Further, all the payables are current in nature and duly paid by the assessee firm in the subsequent years. To substantiate the facts, copy of confirmed ledger account showing closing balance of Rs.74,400/- as on 31.03.2009, Balance Sheet as on 31.03.2009showing the list of sundry creditors including closing balance of Rs.74,400/- in the name of Mr. Tanduriya (Bhura) were furnished in the Paper Book. Ledger account copy showing Nil balance payable, copy of annexure of the Balance Sheet as on 31.03.2011 which shows there is no balance payable in the name of Mr. Tanduriya (Bhura) were also placed on record.

It was stated by the ld AR that same situation is with regard to Shri Tanduriya (Ali)who furnished copy of confirmed ledger account showing closing balance of Rs.30,400/- as on 31.03.2009, copy of annexure of the Balance Sheet as on 31.03.2009 showing the list of sundry creditors including closing balance of Rs.30,400/- in the name of Shri Tanduriya (Ali).

Likewise, similar evidences were filed for all the other creditors.

The ld. counsel for the assessee explained that addition to the tune of Rs. 1,18,430/- does not pertain to the impugned year which is clear from the confirmed ledger account of late Sh. Sewa Ram Sita Ram by his legal heir wherein it is clearly shown that there is opening balance of Rs. 1,93,430/- out of which Rs. 75,000/- has been transferred through bank account. The son of Late Sh. Sewa Ram Sita Ram Wadhwa stated that he had no knowledge of business dealing with M/s Gazal Caterers. Payment has been made by the assessee firm even after death of Shri Sewa Ram Sita Ram that has not been objected by his son and the fact is also mentioned in the remand report reproduced in the order of ld. CIT(A) at page 25 of his order.

The ld. counsel for the assessee also submitted that the creditors from whom no response was submitted against the notices u/s 133(6) of the Act issued by Assessing Officer are Sivalam Associates – Rs. 7,076/- and Svam Power Plant – Rs. 15,720/-. It was stated that confirmed copy of ledger accounts have been filed by the assessee firm containing the transactions and PAN of these person which were duly accepted by the lower authorities. It is also submitted that the payment has been made through banking channels during the AY 2010- 11 which is evident from ledger accounts and that in any case the above accounts are running accounts and have been duly knocked off in subsequent years.

It is the say of the counsel that the assessee is in the business of catering and has to deal with small businessmen like Halwai, fruitwala, Dishwasher etc who may not receive the notice or respond to the notices u/s 133(6). The ld AR relied on the decision of hon’ble Delhi High Court in the case of R.K.Jain Infra Projects P Ltd (2023) 293 Taxman 465 (Delhi) for the proposition that a pragmatic view be taken where enquiry relates to migrant worker and enquiry u/s 133(6) after considerable time gap would not have led to fruitful result.

Per contra the ld DR relied on the CIT(A) order.

Having heard the rival submissions and perusing the relevant material on record, we find force in the contention of the ld. counsel for the assessee that when purchases/expenses have been duly accepted by ld. CIT(A) from the above parties, making addition in respect of the closing balances of their accounts will not be lawful. We also find that there is no adverse material on record with the Assessing Officer and ld. CIT(A) to make the addition except the ground of no response from the creditors. We also note that the confirmations and explanation filed by the assessee firm have been duly accepted by the lower authorities. We are of the opinion that this is a case where the nature of business is such that the assessee is required to take service/goods from small business person who do not maintain proper accounts or adhere to the requirements of lawand that the ratio of the hon’ble Delhi High Court in the case of R.K.Jain Infra Projects P Ltd (supra) applies in the instant case.

Even though the assessee deals with numerous small business person, it has furnished the explanations of each sundry creditors.

In the result, the appeal of the assessee in is partly allowed.