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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: ARUN KHODPIA & ARUN KHODPIA & ARUN KHODPIA
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/ S/SHRI CHANDRA MOHAN GARG, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.29/CTK/2021 Assessment Year : 2016-17 DCIT, Circle-1(1), 1(1), Vs. M/s. Sonthalia Rice Mill, Plot M/s. Sonthalia Rice Mill, Plot Cuttack No.1554B, No.1554B, Bidanasi, Bidanasi, CDA, CDA, Cuttack PAN/GIR No. No.AAJFM 7681 C (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : Shri M.K.Sheth M.K.Sheth, AR Revenue by : Shri S.C.Mohanty, Addl S.C.Mohanty, Addl CIT (DR) Date of Hearing : 5/4/ 20 / 2022 Date of Pronouncement : 17 / 05/2022 O R D E R Per C.M.Garg g, JM
This is an appeal filed by the revenue against the or against the order of the CIT(A), Cuttack dated 22.9.2020 CIT(A), Cuttack dated 22.9.2020 for the assessment year for the assessment year 2016-17.
The appeal filed by the revenue is barred by limitation of 111 days. The appeal filed by the revenue is barred by limitation of 111 days. The appeal filed by the revenue is barred by limitation of 111 days. The revenue has filed condonation petition that due to COVID The revenue has filed condonation petition that due to COVID The revenue has filed condonation petition that due to COVID-19, there was delay of 111 days, therefore, the delay in filing the appeal may be delay of 111 days, therefore, the delay in filing the appeal may be delay of 111 days, therefore, the delay in filing the appeal may be condoned. We are satisfied the reasons giv condoned. We are satisfied the reasons given in the petition. Therefore, en in the petition. Therefore, we condone the delay of 111 days and admit the appeal for adjudication. we condone the delay of 111 days and admit the appeal for adjudication. we condone the delay of 111 days and admit the appeal for adjudication.
Ground No.1 reads as follows: Ground No.1 reads as follows:
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“1. On the facts and in the circumstances of the case, the ld.CTT(A) was not justified in ignoring the facts that the assessee had failed to furnish quantitative details of paddy milled, rice produced, by-products for specific period asked by AO which necessitated AO to apply electricity consumption to estimate production and corresponding purchases.” 4. Ld Sr. D.R. vehemently submitted that the Assessing officer has made addition on account of electricity consumption after examining the production and corresponding purchase of raw materials which could not be doubted in any manner. Ld Sr DR also submitted that the AO has taken the average consumption of electricity for immediately preceding two assessment years and there was no power failure during the relevant period and the assessee could not substantiate any other reason to explain the higher consumption of electricity, therefore, the assessment order on this issue may kindly be upheld by dismissing the conclusions arrived at by the ld CIT(A). 5. Replying to above, ld counsel for the assessee drew our attention to relevant part of impugned order of the ld CIT(A) para 1 at pages 2 to 4 and also reiterated the written submission on Ground No.1 which reads as follows: “. As regards the Ground No.1 of the Department , the assessee submits that the calculation regarding the undisclosed income as calculated by the AO is based on purely surmises and suspicious. The assessee maintained books of accounts which are audited u/s.44AB of the I. T. Act and the learned AO has brought no material to show that they are not maintained as per the provisions of the Income Tax Act. and also the AO has not brought on record any material
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evidences which indicates that the assessee was indulged in unaccounted manufacturing and unaccounted purchase and sales. The method of arriving at average consumption of electricity is totally incorrect. The assessee furnished all the figures of consumption of electricity of the past three years i.e. the units consumed per quintal of paddy milled and quantity of rice produced. Moreover, during the survey operation the books of accounts were verified at the spot and were also impounded by the Income Tax Department. The assessee during the course of assessment proceedings has furnished past three years figures of electricity consumed per quintal of paddy milled. The AO to calculate the average consumption of electricity per quintal had taken only past two years average calculation and as such has come to the conclusion. In addition the AO has referred to project report of TERI , New Delhi through internet and had found that the estimate for 100 Kg. of Paddy approximately ( not sure) 7.2 units of electricity is consumed. The AO in his order had categorically specified that in absence of verifiable details it is presumed that the average units of electricity consumed for milling 100 Kg. of paddy during the Financial Year was 7.71 Units (i.e. average of past two years). The report relied by the AO is of Rice Mill of Balasore. Comparison between the two mills should be made taking into consideration the machinery used, employment applied, variety manufactured, and consumption of production (quantity). Before bringing on record the comparative position of any other mill regarding the consumption of electric power the AO must look into so many other factor like electric power supply, low voltage , high moisture content of the paddy etc.. Further the assessee submit that during the assessment proceedings nowhere it was indicated by the AO that the entries of the purchase and sales were not tallying with the purchase bill vouchers or sale bills. Neither it was taken into account that any sales has been made beyond the books of accounts. The observation of AO that suppressed quantity of milling by the assessee outside its books of accounts, milled and sold during the year was without bringing any instance on record to effect that particular has been milled and not recorded in the books of accounts. The circumstances relied on the by the AO on basis of electrical consumption and milling made has lack of consistency. Moreover, during the assessment proceedings the partner of the assessee firm Sri Santosh Kumar Agarwal fully explained the AO how the units consumed during the year. The assessee explained that
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during the year under consideration there were several breakdown of electricity through out of the year and such more electricity was consumed to restart the machinery again and again. In addition to this it was also explained that a construction (Expansion) on the part of factory was also in progress and as such electricity were also used and consumed for the construction machinery. It can be verified from the Balance Sheet of the Assessee duly reflected "Capital in Progress". The calculation of the consumption of the electricity as well as the paddy milled was duly furnished before the AO on 06.12.2018 reflecting the units utilised per quintal of paddy for the past three years alongwith the year under consideration. The assessee also furnished the full milling-account of paddy alongwith the details of the by-products. The AO observation and the calculation regarding the undisclosed amount was based on surmises and suspicion and fully estimated. The AO has not brought any evidences on record to justify his calculation. Moreover, the AO at the same time accepting the books of accounts of the assessee had estimated the assessee income without rejecting the books of accounts. The assessee rely on the decision of this jurisdictional bench ITAT, Cuttack in case of Prinik Steels Private Limited (ITA NO.245/CTK/2017) wherein it was held that it is a settled law that suspicion however strong may be cannot take the place of evidences against the assessee for making a sustainable addition. The only basis of variance of electricity consumption is not legally tenable for estimating the suppression of production. Such charges against the assessee by the revenue must be corborate with sufficient and tangible evidences . The assessee rely on : (i) Prinik Steels Private Limited(ITA NO.245/CTK/2017) (ii) ITO (Gauhati) vs. Satyanarayan Pareek(71 TTJ Gauhati 997 )(2001) Held , that estimating suppressed production , the only basis of variance of electricity consumption is not legally tenable. iii) ACIT, Jalna vs.Gajalaxmi Steel Pvt. Ltd.(ITA No.2519/Pun./ 2017 ) Held , Considering the judicial ratios, it is clear that no addition can be made merely on basis of electricity consumption formula. This
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view is also supported by the decisions of various Tribunals such as Janta Tiles Vs. ACIT (66 TTJ 695) (Jurisdictional Pune Bench); DCIT Kolapur Vs. J. D. Thote Dairies (Jurisdictional Pune Bench in ITA No 115/PN/2000 decision dated31/05/2011); Roop Niketan Vs. ACIT(90 TTJ 1097) (Mumbai Bench) and ITO Vs. Gurubachansingh Juneja (55 ITD 75). Respectfully following the above decisions and the facts & circumstances of the present case, I direct the AOto delete the addition of Rs. 4,38,86,292/- made by him. Considering the above and following of rule of consistency, we are of the opinion that the order of the CIT(A) is fair and reasonable on this issue and it does not call for any interference. Thus, the relevant grounds raised by the Revenue are dismissed." in the light of the above, the addition made on account of suppressed production on the basis of electricity consumption is liable to be deleted. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Accordingly, the only ground raised by the Revenue is dismissed. (iv) ACIT vs. Khambhatta Family Trust (62 TTJ (Ahd.) 685(1998) Held r that merely because the consumption of electricity was more and the production was less it would be no ground for rejection of the trading version. As the estimation of suppression in the milling by the AO is deleted , the consequential addition on account of estimated capital employed in the suppressed milling is also deleted.”
Ld counsel has placed reliance on the various decisions including the decision of ITAT Cuttack in the case of Prinik Steels Pvt Ltd (supra) and submitted that suspicion, however strong cannot take place of evidence against the assessee for making a sustainable addition. Ld counsel submitted that the ld CIT(A) after considering the facts and circumstances of the case and by relying various judgments rightly held that the higher consumption of electricity by itself is not a ground to infer suppression of production by the assessee..
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On careful consideration of the rival submissions, we are of the considered view that the CIT(A) after considering the factual matrix of the case observed that the AO has proceeded to make addition on the basis of suspicion and noticing the factum of higher consumption of electricity and lower production which could be a case of strong suspicion but it is also settled law that suspicion, however strong, cannot take the place of evidence against the assessee for making a sustainable addition. From the relevant part of the ld CIT(A) order, we observe that the ld CIT(A) has accepted the explanation of the assessee towards higher electricity consumption in the relevant assessment year which was frequent breakdown and longer load of electricity that has then to be used to restart the milling machinery, which consumes higher electricity. Ld CIT(A) also observed that the AO calculated the undisclosed amount of paddy milled by the assessee and enhanced his income accordingly without bringing any evidence on record to suggest a suppression of the stock of paddy by the assessee and the books of accounts have not been rejected by the AO u/s.145(3) of the Act, which implies an acceptance of the results therein by the AO. The AO merely relied on the figures of electricity consumption available in the internet without verifying the facts and circumstances of the case of the assessee and he rightly held that this is not a plausible approach of the AO. In view of foregoing discussions, we reach to a logical conclusion that the ld CIT (A) was right in deleting the addition made by the
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AO on the basis of on suspicion, conjectures and surmises without bringing any adverse material and positive evidence against the assessee on record to show that the assessee has claimed higher electricity consumption to avoid tax payment. Thus, we are unable to see any ambiguity, perversity and infirmity in the findings of the ld CIT(A) to interfere. Thus, we uphold the same. Ground No.1 of the revenue is rejected. 8. Ground No.2 reads as under:
“2. On the facts and in the circumstances of the case, the Ld.CIT(A) was not justified in ignoring the facts that the partners who have made capital contribution had failed to explain the source and nature of cash deposits immediately before transfer and they had not shown adequate in their ITRs for Capital contribution.”
Ld Sr DR drawing our attention towards assessment order para 2.3.4 submitted that the assessee has shown capital introduction in its account and credit entries in the name of Shri Santosh Kumar Agarwal, Shri Saurav Agarwal and Shri Ashwin Kumar Agarwal to the tune of Rs.47,00,000/-, Rs.15,30,000/- and Rs.89,60,000/-, respectively, the source of which was not satisfactorily explained, therefore, the AO was right in treating the unexplained cash credit u/s.68 of the Act in the hands of the assessee as the capital was unaccounted income of the assessee brought back in the regular book through the accounts of its partners and in making addition in the hands of the assessee firm.
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Ld counsel reiterated the written submissions placed at pages 6 to 9 of APB, which reads as follows:
“As regards the unexplained capital (Ground No. 2 of the Departmental Appeal), the assessee was asked to furnish the documentary evidences in support of the Capital Introduced by the Partners. The assessee during the course of assessment proceedings furnished the ledger copy of all the partners alongwith the bank accounts, copy of the I. Tax Returns to prove the identity and credit worthiness. The AO inquired into the source of credit entries in the bank accounts of the partners and being not satisfied added/ treated the same as unexplained cash credit. The Assessee during the course of assessment proceeding had fully discharged the onus casted upon it by the AO. Once the assessee had established the genuineness of transaction it is not the duty of the assessee to explain the sources of credit entries in the bank accounts of the partners. It is also to mention here that one of the partner Sri Ashwin Kumar Agarwal was also scrutinised by the AO for the Asst. year - 2016-17 and wherein the introduction of capital in the firm was duly accepted by the AO. As such it is to mention here that the correct course would have been to tax the partners as their unexplained investments if the credit entries in the bank account of the partners could not be explained or not accepted by the AO. If the AO on verifying the books of accounts has held that the assessee failed to explain with necessary documents and evidences the nature of receipts and deposits in the bank account of the partners, then, the AO would have scrutinise the I. Tax Returns of the Partners and would have made necessary additions to their income and not to assessed this amount in the hands of the assessee. In addition to above the assessee through its partners even though had explained the sources of such deposits but were not accepted by the AO and the AO without giving any proper reasoning added the amount under head unexplained cash credit u/s.68 of the I. T. Act. The AO did not bring any material to indicate that the partners had no capacity to introduce such capital. The assessee rely on the citations : DCIT v. M/s.Glass Tech India in ITA No.6241/Del./2017 Held, that
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" Then First Appeal Authority has also taken into consideration the fact that the entries wee not from strangers but from the partners by way of introduction of capital so the correct course would have been to bring the capital introduced to tax in the hands of the partners as their unexplained income" . The ITO Ward -5 (Nadia) v M/s. Shree Kastbhanjan Developers in ITA No.546/Ahd/2016 Held: that No addition of such capital can be made in the hands of the assessee, if the AO is not satisfied with the explanation offered by the partners, he may proceed against the partners and assess the same in their hands.” CIT vs Odedara Constructions, 362 ITR 388 (Guj) Held, dismissing the appeal, that the capital was introduced by the partners. The Assessing Officer did not bring any material to indicate that the partners had no capacity to introduce such capital. In other words, the Assessing Officer did not hold that the capital was, in fact, not introduced by the partners but it was only in disguise the cash credit of the firm. Significantly, the partners were also subjected to tax assessment. Their assessment order were placed on record, which showed that in the returns, they declared the income from agricultural operations. They had produced extracts of 7/12 and 8A of the lands in support of their claims. The sums in question could not be taxed in the firm's hands. Commissioner of Income Tax v. Jaiswal Motor Finance 141 ITR 706 (All.) 1983 Prayer That in view of the above settled judicial pronouncements, the impugned addition so made by the AO being not sustainable in the eye of law and the grounds taken by the revenue, being not backed by any concrete evidence, needs to be dismissed in the interest of justice.” 11. Precisely reiterating the above written submission, ld counsel submitted that as per the decision of Hon’ble Gujrat High Court in the case of Odedara Construction (supra) submitted that it is not the case of the AO
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that the capital was, in fact, not introduced by the partners but it was only in disguise the cash credit of the firm. He also pointed out that all the details pertaining to three partners including name, PAN, address were with the Assessing officer, which could have been verified by the AO calling the respective partners/capital contributors to the assessee firm, but when the assessee firm has submitted before the AO that the capital has been introduced by such three partners, then no addition can be made in the assessee firm. He also submitted that if the AO was not satisfied with the explanation of the assessee, he could have proceed against the partners and assess the same in their hands if they failed to substantiate the source of capital introduced in the firm. 12. On careful consideration of the rival submissions, perusal of relevant part of assessment order and CIT (A) order, we observe that the AO made addition in the hands of the assessee firm by observing that the assessee firm could not satisfactorily explain the source of capital introduced by its partners, therefore, the same was treated unexplained cash credit u/s.68 of the Act in the hands of the assessee firm. The AO also observed that the capital so introduced in the name of partners is nothing but unaccounted income of the assessee brought back through the accounts of the partners. With the observations, the AO made the addition in the hands of the assessee firm.
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From relevant part of the CIT(A) order, we observe that the ld CIT(A) dismissed the addition by observing that the assessee firm had duly discharged the onus cast upon it by the AO to establish the identity of the partners and their creditworthiness alongwith copies of I.T.returns of three partners, copies of bank accounts from where cheques were issued to the assessee firm, ledger accounts of the partners in the books of the assessee firm and the statement of income, balance sheet and cash flow statement of three partners had also been submitted of above three partners before the AO, the AO keeping aside or ignoring the relevant piece of evidence made addition in the hands of the assessee firm. The ld CIT(A) also observed that If the Assessing Officer harboured doubts about the credit entries in the bank accounts of the respective partners, then it was open to him to re-open the assessments of these partners and make addition in their hands after conducting inquiries. He also noted that the assessee firm has established the genuineness of the transaction, source of capital introduced shown in the books of account, which was contributed by all three partners, then there is not further responsibility of the assessee on each and every credit entry occurring in the bank accounts of its partners. In this regard, we are in agreement with the conclusions arrived at by the ld CIT(A) and in our considered opinion, if the AO was not satisfied with the creditworthiness of the partners, then he was eligible to take action against the partners under the relevant provisions of the Act but no addition can be
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made in the hands of the assessee firm in view of preposition rendered by Hon’ble Gujarat High in the case of Odedara Constructions (supra) and judgment of Hon’ble Allahabad High Court in the case of Jaiswal Motor Finance (supra). Respectfully following the same, we are compelled to hold that the conclusions arrived at by the CIT(A) does not carry any ambiguity, perversity and inferiority. Thus, we uphold the same. 6. In the result, appeal of the revenue is dismissed.
Order pronounced on 17 / 05/2022.
Sd/- sd/- (Arun Khodpia) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 17 / 05 /2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : DCIT, Circle-1(1), Cuttack 2. The Respondent. M/s. Sonthalia Rice Mill, Plot No.1554B, Bidanasi, CDA, Cuttack 3. The CIT(A)-, Cuttack 4. Pr.CIT-, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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