JADE GRANITES INDUSTRIES,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1(1)(1),, AHMEDABAD

Date of hearing : 10-07-2024 Date of pronouncement : 10-07-2024 आदेश/ORDER This appeal in 2016-17 was filed by the assessee before the Income Tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad which has arisen from the appellate order dated 23-11-2023 In DIN & Order No. ITBA/NFAC/S/250/2023-24/1058173176(1)

Page No. 2 Jade Granites Industries v. ITO passed by ld. CIT(A), NFAC, Delhi u/s 250 of the Income-tax Act, 1961, which in turn has arisen from the assessment order dated 18-12-2018 passed by the learned Assessing Officer u/s. 143(3) of the Income-tax Act, 1961(Order No. ITBA/AST/S/143(3)/2018-19 /1014390936(1)).

“Addition on account of part of the capital introduced by the 3 partners of the appellant firm - Rs.46,20,000/- (i) The learned CIT(A) has grievously erred in passing an ex-parte order without proper consideration of the facts of the case. The impugned order may thus be set-aside to the file of the Id. CIT(A) for fresh decision on merits of the issues keeping in view the principles of natural justice and equity. (ii) The learned CIT(A) has grievously erred in law and on facts in passing the ex-parte order while confirming the addition of Rs.46,20,000/- made by the AO being part of the capital introduced by 3 partners of the appellant firm namely Harpalsinh Yadav [Rs.7,20,000/-], Ankit J. Patel [Rs.9,00,000/-) and Ritesh Chaudhary [Rs.30,00,000/-] as unexplained cash credit on the basis of observation/findings given in the appellate order. (ii) The learned CIT(A) has grievously erred in law and on facts in confirming the addition in ex-parte appellate order without appreciating the facts stated by the AO in the assessment order itself regarding the details furnished by the appellant firm in judicious manner which clearly shows that the appellant firm did file the source of source of the funds received by the partners and therefore the addition cannot be sustained in the hands of the appellant firm.

Page No. 3 Jade Granites Industries v. ITO

(iv) The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.46,20,000/-. However, in view of the facts, explanations and evidences filed during the course of assessment proceedings and available on ITBA Portal, the impugned addition of Rs.46,20,000/- made by AO and confirmed by the learned CIT(A) is wholly unjustified and bad in law and thus requires to be deleted.

(v) The learned CIT(A) has grievously erred in law and on facts in failing to consider the fact that the capital introduction by partners cannot be subjected to tax in hands of the appellant firm as per the settled legal principles once the partners IT returns and source of source of funds available with the partners are furnished.

(vi) The learned CIT(A) has grievously erred in law and on facts in not appreciating the fact that the AO failed to evaluate the material/evidences filed by the appellant firm in support of the capital introduction by the partners in fair and judicious manner and travelled beyond the scope of provisions of the Act as per the settled legal principles and also failed to invoke the deeming provisions of section 68 of the Act.

In view of the above, the impugned addition of Rs.46,20,000/- being the part of the capital introduced by 3 partners of the appellant firm as unexplained cash credit is required to be deleted.

The appellant craves leave to add, amend, alter, modify or delete any of the above grounds and to submit additional grounds at the time of hearing of the appeal.”

3.1 Capital introduced by Shri Harpalsinh Yadav; Page No. 5 Jade Granites Industries v. ITO

In the case of partner Shri Hapalsinh Munnalal Yadav, it is found that he had taken loan of Rs.7,20,000/- from Shri Sanjaykumar Umiyashanker Bhatt on 15.07.2015.

In this connection he has submitted copy of return of income with computation of total income and copy of bank statement of Shri Sanjaykumar Bhatt. On verification of bank statement of Shri Sanjaykumar it is found that he has deposited cash of Rs.2,00,000/- on 4.7.15, Rs.2,00,000/- on 6.7.15, Rs.2,00,000/- on 8/7/15 and Rs.50,000/- on 10.7.2015 and out of this total cash deposit amount of Rs. 7,50,000/- he had given loan of Rs.7,20,000/- to Shri Harpalsinh Yadav.

On perusal of computation of total income of Shri Sanjykumar it is found that he has having income from house property, and remuneration, interest and share profit from partnership firm. Therefore, there is no source of income where cash was generated and deposited in bank account and issued cheques out of these funds.

Shri Sanjaykumar not submitted his cash book also failed to explain source of cash deposit in bank account.

Shri Harpalsinh Yadav failed to submit written document or agreement for loan given by Shri Sanjaykumar.

On verification of bank statement it is found that Rs. 10,00,000/- loan amount was refund by Shri Harpalsinh and said amount was withdrawal by Shri Sanjaykumar in cash through cheque( cheque clearing word not mentioned in bank statement but mentioned as chq-paid) on 15.2.2016 and On 16.02.2016. Hence it is clear that loan received by Shir Harpalsinh Yadva is not genuine one and capital introduced by the partner also not genuine, hence the same is treated as unexplained cash credit in books of firm and required to be added in the hand of firm. Penalty proceedings u/s.271(1)(c) of the Act are also initiated separately.

[Addition Rs.7,20,000] Page No. 6 Jade Granites Industries v. ITO

3.2 Capital introduced by Shri Ankit J. Patel:

On perusal of details submitted for capital introduced by Shri Ankit J. Patel it is found that he had deposited cash of Rs.9,00,000/- in bank account and issued chequ in favour of firm. Therefore, this office was asked to the firm why capital introduced by partner Shri Ankit J. Patel should not be treated as unexplained as Ankit Patel deposited cash of Rs.9,00,000/- and issued cheque in favour of firm.

In response to show cause notice the firm stated that cash of Rs.9,00,000/- was deposited in bank account by Shri Ankit J. Patel out of his Agriculture income. The reply of the firm found not tenable for the following reasons:

Shri Ankit Patel failed to submit supporting documentary evidences for Agriculture income and expenditure. Shri Ankit J Patel failed to submit supporting documentary evidences regarding agriculture land owned by him. He has failed to submit copy of extract 7x12 and Gram Numna Patrak for holding agriculture land. Shri Ankit Patel failed to submit supporting regarding sale of agriculture produce and failed to explain from whom he has received cash for sale of agriculture produce. Shri Ankit Patel failed to submit supporting documentary evidences for transportation of agriculture products from farm to market. Shri Ankit Patel failed to submit supporting documentary evidences for loan taken for agriculture activity and interest paid on it.

In view of the above discussion it is clear that Shri Ankit J Patel failed to explain source of cash deposit in bank account and hence capital introduced by him is unexplained in the hand of firm, and therefore amount of Rs.9,00,000/- require to be added to total income of the assessee firm. Penalty proceedings u/s.271(1)(c) of the Act are also initiated separately.

[Addition Rs.9,00,000] 3.3 Capital introduced by Shri Ritesh Chaudhary: Page No. 7 Jade Granites Industries v. ITO

As per the details furnished, during the year the partner Shri Ritesh Chaudhary has introduced capital on various dates totaling to Rs.73,60,000/- for which the assessee has furnished details. On perusal of details submitted for capital introduced by Shri Ritesh Chaudhary, it is observed that he has introduced capital of Rs. 10,00,000/- on 02.12.2015 source of which has been claimed as loan amount of Rs 33,50,000/- received from ICICI Bank. However, on verification of ledger account of Ms. Karuna Chaudhary, it is found that 50% of the loan amount was transferred to her account on 20.11.2015, and hence the contention of the assesses/partner of the assessee is not correct to the effect that the source of fund was out of loan taken from ICICI Bank.

On perusal of the details furnished it is noticed that Shri Ritesh Chaudhary has introduced capital of Rs. 10,00,000/- on 19.01.2016. The source of fund is claimed to have received from M/s. Shivam Enterprise on 12.01.2016. In this regard the assessee has furnished only the PAN of Mis. Shivam Enterprise. The assessee has failed to establish the genuineness of the transaction & creditworthiness of the party with supporting evidences like Return of income, copy of bank statement, etc.

It is also noticed that Shri Ritesh Chaudhary has introduced capital of Rs.10,00,000/- on24.02.2016 source of which has been claimed to have received from M/s. Shikhar Enterprise on 15.02.2016. In this regard the assessee has furnished only the PAN of M/s. Shikhar Enterprise. The assessee has failed to establish the genuineness of the transaction & creditworthiness of the party with supporting evidences like Return of income, copy of bank statement, etc.

In view of the above facts of the case, out of capital of Rs.73,60,000/- introduced by Shri Ritesh Chaudhary, capital introduced on various dates as discussed above totaling to Rs.30,00,000/- has not been established with supporting documentary evidence in spite of repeated reminders. Therefore, a sum of Rs.30,00,000/- is treated as unexplained credits in the books of the assessee firm and accordingly added to the total Page No. 8 Jade Granites Industries v. ITO income of the year. Penalty proceedings u/s. 271(1)(c) of the Act are also initiated separately.

[Addition Rs.30,00,000]

In support of above discussion relied on following judicial decision:

In Tolaram Daga v. CIT (1966) 59 ITR 632 (Gau.) the High Court held that requiring the firm or the individual partner to go further and adduce proof of the sources from which the deposits in question appearing the accounts in the name of the third parties were derived by them, would be placing a burden, on the firm as well as the partners, which is not required or justified by law. The court further observed: "This case (Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC) has no application where the money In question stands in the name of a third party and not in the name of the assessee."

"In the current 1961 Act, because of section 68 the position has changed a little. Now, there is a cash credit in the name of a partner in the books of his firm, section 68 says that the firm has to explain the nature and source of such credit. If the firm can satisfactorily explain the nature and source of the credit, the firm is absolved from any further liability. The obligation will then be of the partner concerned to explain the source etc, and his case may fall in section 69. On the other hand, if the firm offers no explanation or the explanation offered by it is not satisfactory, section 68 deems the amount of such credit as the income of the firm of that accounting year. This was observed in the case of Harwarmal Onkarmal v. CIT (1976) 102 ITR 779 (Pat): VIT V. Kapur Bros. (1979) 118 (TR 741 (All) CIT v. Anupam Udyaog (1983) 142 (TR 133 (Pat)

In the case of CIT v. Kishorilal Santoshilal (1995) 216 ITR 9, 14 (Raj) it has been held that in view of the language used In section 68 and various decisions, the following points have to be noted where the case credit(s) is/are found in the books of the firm- Page No. 9 Jade Granites Industries v. ITO

"(1) there is no distinction between the cash credit entry existing in the books of the firm whether it is of a partner or of a third party: (ii) the burden to prove the identity, capacity and genuineness has to be on the firm: (iii) if the cash credit is not satisfactorily explained, the A.O. is justified to treat it as income from undisclosed source; (iv) the firm has to establish that the amount was actually given by the lender; (v) the genuineness and regularity in the maintenance The account has to be taken into consideration by the taxing authorities (vi) If the explanation is not supported by any documentary or other evidence, then the deeming fiction created by section 68 and be invoked. In that view of the matter, simply because the amount is credited in the books of the firm in the partner's capital account, it cannot be said that it is not undisclosed income of the firm and in all cases it has to be assessed as a undisclosed income of the partner alone."

In the case of CIT v. Shiv Shakti Timbers, (1998) 229 ITR 505 (MP), the High Court held that, where the books of account of the firm show a cash credit in the name of a partner and no satisfactory explanation is offered, the amount of the cash credit can be deemed to be the income of the assessee firm by invoking the provisions of section 68. In the case of CIT vs Mohankala, 161 1 Таxтan 169, 291 ITR 278, the Hon'ble Apex Court held that May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence" In the case of CIT vs Saravana Construction P Lid., 208 Taxman 188(Mag.) (Doj: 14.03.2012), (cross-appeal of both Assessee and Revenue) the Karnataka HC has held as under 10. The grievance is that the benefit can be given only for those cheques transaction which are found to be genuine. Merely because the transaction are through bank channels, the assessee would not be entitled to the benefit it is true that when a cheque is issued it has to be encashed through bank only. There is no presumption that merely because the Page No. 10 Jade Granites Industries v. ITO payment is made by cheque it is a genuine transaction, First it has to be found out whether the transaction in question is genuine and only thereafter, the assessee would be entitled to the benefit of disallowance. Probably, the Tribunal while issuing direction did not notice its reasoning in the earlier part of its very same order. That is how a direction in the aforesaid manner is issued, which is not correct. Therefore, in addition to what has been stated by the Tribunal the assessing authority shall first find out, whether the cash credit claimed represents a true and genuine transaction. If the answer is "Yes" then accept the credit otherwise not.” Hon'ble Gujarat High Court Judgment in the case of Blessing Construction vs ITO [2013] 32 taxmann.com 366) wherein it was held that Revenue could examine the source of source and addition was justified.

In 250 Taxman 273, PCIT vs Bikram Singh (Delhi HC), 25.08.2017: "The transaction in the present appeal are yet another example of the constant use of the deception of loan entries to bring unaccounted money into banking channels. This device of loan entries continues to plague the legitimate economy of our country, As seen from the fact narrated above, the transaction herein clearly do not inspire confidence as being genuine and are shrouded in mystery. as to why the so-called creditors would lend such huge unsecured, interest free loans-that too without any agreement In the absence of the same, the creditors fall the test of creditworthiness and the transaction fail the test of genuineness.

In the case of CIT Vs Bhadra Enterprises (Ker) 228 ITR 645 the Hon'ble Court held that Partnership deed executed on 1.3.77- Business of trading started on 1.4.77-Cash credits on 31.3.77 assessable in the hands of firm even though firm has not started doing business.

In the cases of CIT Vs Precision Finance P. Ltd. (Cal) 208 ITR 465 (ii) K.C.N. Chandrasekhar Vs ACIT (ITAT, Bang) 66 TTJ 355; and (1) CIT Vs United Commecial & Industrial Co. (P) Ld. (Cal) 187 ITR 596 it is held that Cash Credit can be assessed even if transaction is through cheques.

Page No. 11 Jade Granites Industries v. ITO

In the case of CIT Vs. Korlay Trading Co. Ltd. (Cal) 232 ITR 820 it is held that Mere filing of income tax file number is not enough to prove genuineness of cash credit.

In the cases of CIT Vs Shiv Shakthi Timbers (M.P) 229 ITR 505, Anand Ram Raitani Vs. CIT (Gau) 223 ITR 544, Shanta Devi Vs. CIT (P&H) 171 ITR 532, CIT Vs Kishorilal Sontishilal (Raj) 216 ITR 9, Hardwarmal Onkarmal Vs CIT (Pat) 102 ITR 779 and CIT Vs Deepak iron and Steel Rolling Mills (P&H) 336 ITR 307 it was held that Firm's books showing cash credit in names of partners-No satisfactory explanation - will be deemed to be income of firm.

Thus, the addition to the tune of Rs.46,20,000/- was made by the A.O. to the income of the assessee as unexplained capital introduced by the partners , as under:

Unexplained capital introduction by partners

1. Capital introduced by Shri Harpalsinh Yadav Rs. 7,20,000 2. Capital introduced by Shri Ankit J. Patel Rs. 9,00,000 3. Capital introduced by Shri Ritesh Chaudhary` Rs. 30,00,000 Total Income Rs. 46,20,000 Page No. 12 Jade Granites Industries v. ITO 4.Aggrieved, the assessee filed first appeal with ld. CIT(A) and challenged the addition made by the A.O. by raising as much as 5 Grounds of Appeal which are reproduced by the Ld. CIT(A) in its appellate order at Page Nos. 2 & 3 of the appellate order. The Ld. CIT(A) issued six notices to the assessee which were claimed by ld. CIT(A) to have been duly served on the assessee, and the assessee sought adjournment only on 13.07.2023, and otherwise there was no compliance by the assessee to the aforesaid notices issued by the ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee on the ground of non-prosecution of the appeal by the assessee as the assessee did not respond to the notices issued by the Ld. CIT(A). It was held by Ld. CIT(A) that no documents were produced by the assessee in support of Grounds of Appeal or to rebut the assessment order by the assessee. The Ld. CIT(A) observed that the assessee is not interested in prosecuting the present appeal and the appeal of the assessee stood dismissed by Ld. CIT(A) by dismissing all the grounds raised by the assessee , and the assessment order passed by the AO was confirmed by ld. CIT(A).

6. I have considered the rival contentions and perused the material on record. I have observed that the assessee is a Partnership Firm . The assessee filed its return of income declaring NIL income, which return of income was processed by Revenue u/s. 143(1) of the Act. The case of the assessee Page No. 14 Jade Granites Industries v. ITO was selected by Revenue for framing complete scrutiny assessment under CASS. Statutory notices u/s. 143(2) and 142(1) were issued by the A.O. to the assessee. The assessee filed submissions and details before the A.O. which as per AO were part replies, and ultimately additions to the tune of Rs. 46,20,000/- was made by the AO in the hands of the assessee on account of unexplained capital introduced by partners with the firm, as under : Unexplained capital introduction by partners

. I have observed that the assessee has filed statement of facts before the Ld. CIT(A) in which the assessee has stated that the assessee is engaged in the business of cutting and polishing of the Granite Blocks. It is claimed by the assessee in SOF that the assessee is maintaining complete books of accounts and its accounts were subjected to tax- audit u/s. 44AB of the Act. The assessee has also in Ground no. 3 & 4 filed before ld. CIT(A) claimed that the assessee has filed complete details of the source of source of funds available Page No.

15. Jade Granites Industries v. ITO in the hands of the partners and all the partners are regularly assessed to tax and filing their return of income and hence capital introduction by them cannot be subjected to tax in the hands of the firm. I have further observed that Ld. CIT(A) did not decided the grounds of appeal on merits , but dismissed the appeal of the assessee ex-parte in limine without deciding the grounds of issue on merits in accordance with law. I have also observed that ld. CIT(A) has issued as many as six notices to the assessee, and only on occasion, the assessee has sought adjournment. The Ld. CIT(A) has also stated that all the notices were duly served upon the assessee through e-mail. I have also observed that the Ld. CIT(A) dismissed the appeal of the assessee ex-parte in limine without deciding the grounds of appeal on merits raised by the assessee in memo of appeal filed with Ld. CIT(A). The assessee has raised Ground Nos. 3 & 4 before ld. CIT(A) wherein assessee has clearly stated that the assessee has filed source of source of funds available in the hands of the partners and the said partners are duly assessed to tax and filing their return of income , and hence the addition could not be made in the hands of the assessee. The assessee has also raised vide Ground No. 4 before ld. CIT(A) that the assessee has duly filed all the evidences in support of the capital introduction by the partners in the firm, but the Ld. A.O. has not evaluated such evidences properly. The assessee has also raised before ld. CIT(A) legal grounds that Page No.

16. Jade Granites Industries v. ITO the additions has been made without invoking the deeming provisions of Section 68 of the Act, apart from the ground of appeal raised by the assessee before ld. CIT(A) to challenge the additions made by the AO on merits , but the Ld. CIT(A) chose not to adjudicate the grounds of appeal raised by the assessee on merits in accordance with law and rather the appeal of the assessee was dismissed ex-parte in limine without deciding this issues arising in the appeal on merits and hence the order of the Ld. CIT(A) is not in consonance with provisions of Section 250(6) of the Act. The assessee has claimed in SOF/grounds of appeal filed before ld. CIT(A) that all the details were filed before the A.O. , and the Ld. CIT(A) ought to have called for the assessment records for verification of the contention of the assessee , before dismissing the appeal of the assessee ex-parte in limine without deciding the issues arising in the appeal on merits. It is further observed that the A.O. as well as Ld. CIT(A) has not called for any information directly from the partners of the firm who introduced the capital in the assessee firm, with respect to whom additions to the tune of Rs. 46,20,000/- were made , and hence no inquiry / verification was done by the Ld. CIT(A) nor the same was done by the AO. The assessee has also specifically raised grounds of appeal before ITAT that the ex-parte appellate order passed by ld. CIT(A) is in breach of principles of natural justice. The power of ld. CIT(A) are co-terminus with the power of Page No.

17. Jade Granites Industries v. ITO Assessing Officer which even includes power of enhancement(Section 251(1)(a)). The ld. CIT(A) is required to adjudicate the issues arising in the appeal on merit in accordance with law , as is provided u/s. 250(6). The ld. CIT(A) has to state point for determination, his reasons for decision and the decision thereof as provided u/s 250(6). The CIT(A) has power to make such inquiries as he thinks fit and may also direct AO to make such enquiries and report to ld CIT(A), as is provided u/s 250(4), and to adjudicate issues arising in the appeal before him on merits in accordance with law. The CIT(A) could have issued summons u/s. 131 to the assessee and/or could have called for information from third parties i.e. Partners who introduced capital in the assessee firm with respect to whom additions were made in the hands of the assessee and/or other parties who provided unsecured loans and/or money to such partners etc ., u/s. 133(6). The ld. CIT(A) could have called for assessment records to verify the contentions of the assessee raised in ground of appeal

/statement of facts filed before ld. CIT(A). There are other powers vested with ld. CIT(A) as is provided under the 1961 Act. The ld. CIT(A) has not rebutted the claim of the assessee, but dismissed the appeal of the assessee on ground of non compliance by the assessee with respect to the notices issued by ld. CIT(A) by holding that the assessee is not interested in prosecuting its appeal , and simply upheld the Page No.

18. Jade Granites Industries v. ITO additions as were made by the AO. The ld. CIT(A) is required and obligated to pass order in compliance with the provisions of section 250(6), as ld CIT(A) is required to pass reasoned and speaking order on merits in accordance with law, but the appellate order passed by ld. CIT(A) is a non speaking and non reasoned appellate order which is not in compliance with provisions of Section 250(6), and is liable to be set aside. The appellate order passed by ld. CIT(A) is subject to further appeal with ITAT u/s 253. The appellate order passed by ITAT is subject to further appeal before Hon’ble High Court u/s 260A. The judgment and order passed by Hon’ble High Court is also subject to challenge before Hon’ble Supreme Court. Thus, the appellate order passed by ld. CIT(A) is not a final order, as it is subject to challenge before higher appellate authority. Thus, Reasons which weighed in the minds of the adjudicating authority while adjudicating appeal on merits of the issue are cardinal as the higher appellate authority can then adjudicate appeal on the issues arising in appeal before them, based on decision and reasoning of ld. CIT(A) in deciding the issues. If the ld. CIT(A) simply dismiss the appeal merely because the assessee did not appear before ld. CIT(A) or did not comply with the notices, ex-parte in limine without adjudicating issues arising in the appeal on merits , such order is not sustainable in the eyes of law keeping in view provisions of Section 250(6) , and also higher appellate Page No. 19 Jade Granites Industries v. ITO authorities will be deprived to see what weighed in the mind of the ld. CIT(A) while adjudicating appeal as it will be an order passed without reasoning on the issues on merits . It is equally true that the assessee also did not complied with the notices issued by ld. CIT(A) and did not file the requisite details/documents to support his contentions. The assessee is also equally responsible for its woes. Under these facts and circumstances and fairness of both the parties, in the interest of justice, the appellate order passed by ld. CIT(A) is set aside and the matter can go back to the file of ld. CIT(A) for fresh adjudication of the appeal of the assessee on merit in accordance with law after giving opportunities to both the parties. The ld. CIT(A) shall pass the appellate order in compliance with the provision of section 250(6) of the Act on merit in accordance with law, in set aside proceedings ,after giving opportunity to both the parties in compliance with principles of natural justice. The assessee on his part is also directed to comply with the direction/notices of CIT(A) , and in case of failure of the assessee, the ld. CIT(A) shall be free to pass such appellate order as deemed fit ex-parte in accordance with law on merits and after complying with the provisions of section 250(6) of the Act. Thus, the matter is restored back to the file of ld. CIT(A) for fresh adjudication of the appeal of the assessee on merit in accordance with law. I clarify that I have not commented on the merits of the issues in the appeal.

Page No. 20 Jade Granites Industries v. ITO Thus, the appeal of the assessee is allowed for statistical purposes. I order accordingly.

Order pronounced in open court on 10.07.2024 at the conclusion of hearing in the presence of both the parties, and reduced to writing and signed at Ahmedabad on 15.07.2024.