Balwant Singh Subhash & Co., Jaipur vs Assessee

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 332/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09. M/s. Balwant Singh cuke ACIT, Circle-5, Subhash & Co., Vs. Jaipur. 407, DBC Tower, Near Pinkcity Petrol Pump, M.I. Road, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAHFB 0322 K vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Anil Sharma (C.A.) jktLo dh vksj ls@ Revenue by : Shri Kailash Mangal (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 14.05.2015. ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13.7.2015

vkns'k@ ORDER

PER SHRI T.R. MEENA, A.M.

This is an appeal filed by the assessee emanating from the order of ld. CIT

(A)-II, Jaipur dated 02.01.2012 for the A.Y. 2008-09. The effective grounds raised in

this appeal are as under :-

1. Under the facts and circumstances of the case the ld. CIT (A) is not justified in confirming the disallowance of Rs. 20,58,059/- out of the Diesel Fuel Exp. of Rs. 45,45,885/- claimed by the appellant.

2. Under the facts and circumstances of the case the ld. CIT (A) is not justified in confirming the disallowance of Rs. 6,80,951/- out of the Salary Exp. of Rs. 15,81,951/- claimed by the appellant.

2 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

3. Under the facts and circumstances of the case the ld. CIT (A) is not justified in confirming the disallowance of Rs. 5,52,080/- out of the Rasta and Dala charges of Rs. 6,12,858/- claimed by the appellant.

4. Under the facts and circumstances of the case the ld. CIT (A) is not justified in confirming the addition of Rs. 5,00,000/- towards capital introduced by the partners holding the same as income from undisclosed sources.

5. Under the facts and circumstances of the case the ld. CIT (A) is not justified in confirming the disallowance of Rs. 3,70,323/- out of the Misc. Exp. of Rs. 37,07,231/- (comprising machinery exp. of Rs. 29,20,172/-, Mess Exp. of Rs. 3,75,177/- and vehicle running exp. of Rs. 4,11,882/-) claimed by the appellant.

2. The assessee is in the business of mining and selling of Bajri. The assessee filed

its return of income on 15.10.2008 declaring total income of Rs. 25,57,410/-. The case

was scrutinized under section 143(3) of the IT Act. The AO observed that the assessee

purchased the contract of mining of Bajri from the river side of the Karnal District of

Haryana by paying a license fee of Rs. 7,17,83,340/- to the Department of Mines &

Geology, Govt. of Haryana and earned royalty by selling the Bajri in the open market

for the year under consideration. During the year the assessee earned sand royalty of

Rs. 8,91,70,379/- and declared Net Profit of Rs. 15,64,945/- after making adjustments

of expenses incurred on mining and selling the Bajri in the market. The AO verified the

Diesel and Fuel expenses which were claimed during the year under consideration at

Rs. 45,45,885/- which were found by the AO on higher side. Therefore, he gave

reasonable opportunity of being heard. It was submitted before the AO that the hike in

the expenditure in Diesel and Fuel was for the reason that in preceding year most of

the excavation was done at surface level of the river and land acquired from villagers 3 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

where the sand was available without excavation or lesser excavation, therefore, diesel

and oil expenses were lower and during the relevant previous year after exhausting of

sand available at surface level more excavation was done for obtaining sand. The AO

could not found this explanation tenable because the Excavator requires almost same

magnitude of force to excavate sand from surface level or from some deeper point. In

fact when sand on the top of the surface exhausted the deeper point comes to the

surface and thus the excavation is always done at surface level though it may below the

previous level. He tabulated the month-wise details of sand royalty and diesel & fuel

expenses for the year under consideration. The AO held that royalty in the month of

September, 2007 was highest at Rs. 1,00,48,455/- in the year under consideration and

the consumption of diesel and fuel in that month was at Rs. 3,01,872/- whereas royalty

income was Rs. 62,95,544/- in the month of April, 2007 which was the least in the year.

The consumption of diesel and fuel is almost highest in the month of April, 2007 at Rs.

3,98,112/- in the year. On the same lines, in the month of July when the sand

realization was at Rs. 67,17,284/- which is the second lowest in income whereas the

fuel consumption was second highest at Rs. 4,02,524/-. Even after the sale of the

machine Tata Hitachi in January, 2008 that consumes double amount of diesel than

others. The consumption of diesel in the months of February and March was higher

than January. This shows that the figures of consumption of diesel are arbitrary and

the consumption of fuel is not in proportion with the royalty income of sand. The AO

gave reasonable opportunity of being heard to the assessee and asked as to why the

hike in consumption of diesel should not be restricted to 25% i.e. 24,87,826/- of the 4 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

preceding year and when the rise in the income is only 11.85% over the preceding

year. The ld. A/R submitted before the AO that this increase was due to variation of

activities, variation of field and hike in prices in diesel and oil. But assessee's reply was

not supported with any evidence to suggest that deeper excavation was carried out

during the year. He also verified the vouchers/bills for diesel and found that the entire

expenditure was made in cash. Therefore, considering 25% hike over the previous

year, the expenses to the tune of Rs. 24,87,826/- was allowed and balance of Rs.

20,58,059/- was disallowed out of diesel and fuel expenses and added back to the

assessee's income.

3. Being aggrieved by the order of AO, assessee carried the matter before the ld.

CIT (A), who had confirmed the addition by observing in para 3.1 & 3.2 of his order as

under :-

" 3.1. I have duly considered the submissions of the appellant. The appellant is engaged in the business of mining and selling of Bajri (river sand). The AO noticed in the course of assessment proceedings that there was phenomenal increase in the diesel & fuel expenses. Further the increase in diesel & fuel expenses was disproportionate vis-à-vis the receipts from sale of Bajri. The increase in diesel & fuel expenses was 128% as compared to gross turnover which had increased by meager 11.85%. The assessee firm explained that in the year under reference, most of the excavation work was done at the deep end of the surface. On the other hand, in the earlier years, the sand was available without excavation or with lesser excavation. The AO however rejected the explanation of the assessee by holding that excavator machine would require same magnitude of force to excavate the sand from surface or from deeper point. Further the AO also noticed that diesel & fuel expenses 5 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

were not commensurate with the receipts on account of sand royalty. In the month of September, 2007, the assessee had declared highest royalty receipts of Rs. 1,00,48,455/- however the consumption of diesel was lowest i.e. Rs. 3,01,872/-. Whereas in the month of April. 2007, the receipts were of Rs. 62,95,544/- but the consumption of diesel was quite high i.e. Rs. 3,98,112/-. Similarly in the month of July, 2007, the receipts from sand royalty were of Rs. 67,17,284/- but the consumption of diesel was highest i.e. Rs. 4,02,524/-. The AO further noticed that in January, 2008, the assessee firm had sold its machine (Tata Hitachi) which consumed double amount of diesel than other machines however the consumption of diesel in the months of February, 2008 and March, 2008 was still higher than that in month of January, 2008. The AO held that consumption of diesel was not in consonance with the royalty receipts and further the entire expenditure was paid in cash. The AO allowed 25% increase over the consumption as declared in the preceding year and allowed diesel & fuel expenses of Rs. 24,87,826/- to the assessee firm. The AO therefore disallowed the diesel & fuel expenses of Rs. 20,58,059/- . On careful consideration of facts, I find that the appellant has given an explanation of general nature for phenomenal increase in diesel & fuel expenses vis-à-vis royalty receipts. The appellant has miserably failed to substantiate his general explanation with any corroborating evidences. If the sand was available on surface in the earlier year as alleged by the appellant then in that eventuality, the diesel & fuel expenses of Rs. 19,90,261/- claimed in AY 2007-08 were quite substantial. There is no evidence and no certificate from mining engineer to this effect was submitted by the appellant that sand was excavated at the deeper end of river bed. In reality, the Bajri is always excavated from the surface of the river banks and it is never found in the deeper end of the river bed. Therefore, the appellant has raised a feeble argument just for the sake of 6 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

argument. There is no evidence placed on record by the appellant to show that buyers had themselves excavated in the preceding year. 3.2. On going through the ledger account, it was noticed that appellant had purchased diesel of Rs. 45,45,885/- through 240 bills from the same petrol pump namely M/s. Kalyan Filling Station, Kohanad, District Karnal. On each occasion, the quantity of diesel was 600 litres and the bill amount was deliberately kept below Rs. 20,000/- so as to escape from the provisions of section 40A(3). The majority of bills were either of amount of Rs. 18,096/- or Rs. 18,228/-. The appellant was having 5 Tata Hitachi machines each of capacity 250 litres, one excavator machine of capacity 100 litres, one JCB machine of 100 litres and Generator of capacity 50 litres. Since the various machines could not have consumed same quantity of diesel, it was baffling to note that diesel of identical quantity was purchased on each occasion i.e. 600 litres. The appellant had also not maintained any records for consumption of diesel by each machine. The logic of purchasing diesel in advance as alleged by the appellant is not understood. Further the appellant had purchased diesel from one petrol pump and there was no exigency to pay in cash if the purchases of diesel from M/s. Kalyan Filling Station, Kohanad, District Karnal were so substantial and frequent. In order to verify the contention of the appellant, the undersigned issued notice u/s 133(6) to M/s. Kalyan Filling Station, Kohanad, District Karnal however till date there has been no compliance by the alleged supplier. This fact was also brought to the notice of the counsel of appellant on 30.12.2011. Under these circumstances, the possibility of inflation in diesel & fuel expenses cannot be ruled out. The appellant had shown consumption of diesel of Rs. 19,90,261/- in A.Y. 2007-08. The AO has already allowed weightage of 25% on account of increase in the prices of diesel. Thus I find no infirmity in the action of the AO. The counsel of appellant has also failed to lead any evidence in this regard. I therefore uphold the action of the AO. The 7 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

addition of Rs. 20,58,059/- made by the AO is confirmed. This ground of appeal is dismissed."

4. Now the assessee is before us. The ld. A/R for the assessee submitted that the

assessee had submitted complete bills/vouchers in respect of each and every entry of

expenditure appearing in the books of account and the AO had not found any defect

therein. He explained the reasons for increase in the fuel during the year compared to

the preceding year. The assessee had also submitted before the AO the details of Plant

and Machinery operated with diesel, average working hours and average diesel

consumption per hour etc. The ld. A/R also argued that these facts were also

submitted before ld. CIT (A) and working of diesel consumption had been made and

accordingly the consumption of diesel was found much lesser than calculation before ld.

CIT (A) vide letter dated 08.12.2011. The assessee had maintained regular books of

account along with relevant bills/vouchers and got the accounts audited under section

44 AB of the IT Act and claimed the relevant expenses as per books of account. The

diesel expenses claimed by the assessee were duly supported by the payment vouchers

and the AO had not pointed out any defects in the books of account or method of

accounting employed or in relevant bills/vouchers produced by the assessee. When

books of accounts were not rejected under section 145 of the Act and same had been

accepted as correct, the AO could not assume jurisdiction to disallow expenditure on

estimated basis which is duly appearing in the books of account supported by necessary

bills/vouchers. He further relied on the following decisions and requested to set aside

the order of the ld. CIT (A) :-

8

ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

Tolaram Daga vs. CIT 59 ITR 632 (Gauhati)

ACIT vs. Swastik Roadlines Pvt Ltd.

ITA No. 41/2012 (ITAT Agra Bench)

DCIT vs. Frontline Corporation Ltd.

ITA No. 1290/2005 (ITAT Ahmedabad Bench)

5. At the out set, the ld. D/R supported the order of ld. CIT (A) as nowhere

evidencing allotment of a particular site year-wise issued by the Mining Department,

was submitted, no details of particular site for excavation were submitted before the

AO. Further there is no technical certificate from the Mining Engineer that the cost of

excavation has gone up due to deeper mining. Therefore, he requested to confirm the

order of ld. CIT (A).

6. We have heard the rival submissions and perused the material on record. The

Mining Department allots a particular area of river bank for mining. Thereafter assessee

excavates the sand. It is fact that cost on excavation at upper level comes lesser than

deeper as much more time requires to excavate the same quantity of sand from deeper

level. The need of the diesel is required to be judged on the basis of sand excavated,

level of excavation, type of machinery used (new or old machinery) etc. The assessee

purchased fuel from M/s. Kalyan Filling Station, Kohanad, District Karnal in cash for

which ld. CIT (A) issued letter under section 133(6) of the IT Act, but no reply has been

sent by the Filling Station to the ld. CIT (A).This fact was also in the knowledge of the

assessee that verification of fuel was made by ld. CIT (A) by issuing letter under section

133(6) of the Act. The assessee's argument that no rejection of books of account is 9 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

made by the AO, therefore, disallowance could not be made. We have considered this

argument and found that A.O. as well as ld. CIT (A) had investigated the particular

issue and came to the conclusion that there a inflation in expenses which implied that

to that extent book results are not reliable. Case laws relied upon by the assessee are

not squarely applicable. Therefore, we confirm the addition made by the AO.

7. Ground nos. 2 & 3 are against confirming the disallowance of Salary of Rs.

6,80,951/- out of total salary of Rs. 15,81,951/- and disallowance of Rs. 5,52,080/- out

of Dala charges of Rs. 6,12,858/- claimed by the assessee. The AO observed that the

assessee had claimed salary expenses at Rs. 15,81,951/- which were doubled compared

to preceding year on total sand royalty collection at Rs. 7.97 crores in preceding year to

Rs. 8.91 crores in the year under consideration. The assessee submitted that man

power deployed for lifting of sand from deeper portion was increased, therefore, salary

expenses were increased. The AO considered this argument of the assessee but held

that assessee also claimed higher Dala charges. He further held that Diesel and Oil

expenses had increased substantially. After excavation, the excavator itself loads most

of the sand in the truck through its shovel for transportation. Man power may be

required to lift the remaining sand only from surface level. Man power simply loads the

sand in the truck from surface and the nature of job did not alter from the preceding

year as claimed by the assessee. The assessee had claimed Dala charges at Rs.

6,12,858/- which is a payment made to workers who load the sand in the tractor or

truck for transportation. He further found that no PF and ESI had been paid on behalf

of the employees which are the mandatory expenses were to be incurred as per law. 10

ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

Therefore, he inferred that expenses claimed by the assessee were inflated. He also

analyzed the detailed submission made by the assessee month-wise with reference to

sand royalty, salary and dala charges at page 4 of the assessment order. There was

disparity in sand royalty with reference to salary expenses claimed by the assessee in

various months. After considering the discrepancies found by him, he proposed to

restrict the salary expenses and dala charges to Rs. 8,87,000/- and Rs. 60,776/-

respectively and balance of Rs. 6,80,951/- out of salary and Rs. 5,52,082/- out of dala

charges were disallowed and added to the income as these expenses have been inflated

arbitrarily and disproportionate to the income from royalty of sand considering 25%

increase in expenses over the previous year as acceptable. The assessee had no new

argument to justify salary expenses and dala charges. He simply submitted the same

argument as made before regarding diesel and fuel expenses. Therefore, the AO made

addition of Rs. 6,80,951/- out of salary expenses and addition out of dala charges at Rs.

5,52,080/-.

8. Being aggrieved by the order of AO, assessee carried the matter before the ld.

CIT (A) who had confirmed the order by observing in para 4.1 & 4.2 of his order as

under :-

" 4.1. I have duly considered the submissions of the appellant. I have also perused the wage sheets maintained by the appellant firm. At the outset, it would be pertinent to mention that the nomenclature of salary as used by the appellant is misleading. The appellant had not deducted any PF/ESI in respect of these casual workers though it had employed about 31 to 33 persons. Except for three operators, the other persons 11 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

were casual labourers and the amount paid to them was in the nature of labour charges. Further the increase in the labour charges vis-à-vis royalty receipts was quite phenomenal i.e. 105%. The AO had rightly pointed out that the explanation submitted by the assessee firm that it had to employ more persons for excavation of Bajri from deeper end of river bed, was false since for the same job, it had claimed higher Dala charges. Further if the appellant had alleged that it had consumed higher amount of diesel for operating its machines, there was no justification for increase in labour charges. It also showed vulnerability of the explanation submitted by the appellant firm. After excavation, the excavator machine itself loaded Bajri through its shovel in the trucks for transportation. Therefore, there wasw no need for the labourer to load the sand in trucks manually. In addition to above, the appellant has also claimed Dala charges of Rs. 6,12,858/- which were in the nature of payments made to the labourers for loading the sand in trucks for transportation. The AO further noticed that the labour charges were not in consonance with the royalty receipts. In the month of September, 2007 when the royalty receipts were of Rs. 1,00,48,455/-, the labour charges were at Rs. 1,28,708/-. In the month of March, 2008, when the royalty receipts were of Rs. 64,40,902/-, the labour charges were at Rs. 1,34,100/-.

4.2. With this background, I also perused the wage sheets maintained by the appellant firm. It is quite evident that signatures of the labourers do not tally for different months. These wages sheets were prepared in one go and revenue stamps were affixed just to give shade of genuineness to these documents It is also surprising to note that all the 31 labourers were present for 25 days in the month of April, 2007 which was not possible and against the human conduct and probability. Similarly all the 32 labourers were present for 27 days in the month of May, 2007. Similar trend was noticed in the wage sheets for other months. In view of 12 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

above facts, I do not find any reason to interfere with the findings of the AO. The counsel of appellant has also miserably failed to lead any evidence in this regard. The AO has been very fair and reasonable in allowing salary expenses of Rs. 8,87,000/- to the appellant firm. Accordingly the addition of Rs. 6,80,951/- made by the AO is confirmed. This ground of appeal is allowed."

9. Now the assessee is before us. The ld. A/R of the assessee submitted that the

assessee during the relevant assessment year has claimed salary expenses of Rs.

15,81,951/- against that of Rs. 7,71,800/- in preceding year. The ld. A/R further

submitted that on the basis of same reasons as in the case of diesel expenses, the AO

restricted the allowable salary to Rs. 8,87,000/- and disallowed balance of Rs.

6,80,951/-.

9.1. The assessee produced the books of accounts and monthly salary sheets before

the AO containing details of the salary payment to each and every employee along with

the signature of the recipient. The AO has not pointed out any instance of salary

payment which is inflated. Copy of ledger account along with salary sheets submitted

vide letter dated 18.08.2010 as referred vide para 2(ii) of letter dated 10.12.2010. The

assessee vide letter dated 21.10.2010 as submitted before the AO, explained the

reasons of increase as compared to preceding year.

9.2. The assessee vide written submission dated 08.12.2011, before ld. CIT (A),

explained justification of increase over the preceding year, monthly variation and cash

payments etc. 13 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

9.3. The salary expenses claimed by the assessee are properly supported by the

books of accounts monthly payment sheets and the AO has not pointed out any defect

therein or any instance of bogus or inflated payment.

9.4. Therefore, in view of the above and other submissions made under Ground no.

1, the AO is not justified in making the relevant disallowance on estimated basis.

9.5. The ld. CIT (A) without properly appreciating the contention of the appellant has

rejected the explanation of the assessee and confirmed the disallowance of Rs.

6,80,951/- made by the A.O.

9.6. He further submitted that the assessee during the relevant assessment year has

claimed Rasta & Dala charges of Rs. 6,12,858/- against that of Rs. 52,849/- in

preceding year.

9.7. The AO on the basis of same reasons as in the case of diesel expenses and

salary restricted the allowable expenditure to Rs. 60,776/- and disallowed balance of

Rs. 5,52,082/-.

9.8. The assessee produced before the AO books of accounts along with relevant

payment vouchers. The copy of ledger account along with sample payment vouchers

were submitted vide letter dated 10.12.2010.

9.9. The assessee vide letter dated 21.10.2010 as submitted before the AO, explained

the reasons of increase as compared to preceding year.

14

ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

9.10. The assessee vide written submission dated 08.12.2011, before ld. CIT (A),

explained the nature of relevant expenditure and contended that same is independent

of preceding year and cannot be co-related with that of preceding year and monthly

sales.

9.11. All expenses debited to Rasta and Dala charges are property supported by the

payment vouchers and the AO has not pointed out any defect therein or any instance of

bogus or inflated payment.

9.12. Therefore, in view of the above and other submissions made under Ground No.

1, the AO is not justified in making the relevant disallowance on estimated basis.

9.13. The ld. CIT (A) without properly appreciating the contention of the appellant has

rejected the explanation of the assessee and confirmed the disallowance of Rs.

5,52,080/- made by the A.O.

9.14. Therefore, ld. A/R requested to delete the relevant addition of Rs. 6,80,951/- out

of salary expenses and Rs. 5,52,080/- out of dala charges confirmed by ld. CIT (A).

10. At the out set, the ld. D/R vehemently supported the order of ld. CIT (A) and

argued that ld. CIT (A) had dismissed the assessee's appeal by considering the specific

defects in the claim of the assessee particularly disproportionate expenses, no PF and

ESI has been claimed by the assessee, no justification for increase was given by the

assessee before the AO, the Dala charges which also had gone up which is more or less

required to be incurred in lifting of sand. Therefore, he requested to confirm the order

of ld. CIT (A).

15

ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

11. We have heard rival submissions and perused the material on record. The

assessee had miserably failed to explain the expenses claimed for business purposes

with evidence as burden lies on the assessee to prove that expenses claimed were

genuine. The argument made by the ld. A/R that there is no co-relation between the

revenue and the expenses is also not acceptable as increase in expenses automatically

co-relate with the increase of revenue. It may be possible that increase may be not

same proportionate as expenses claimed but generally they have leniar tendency. If

things are otherwise, then it has to be proved by the assessee with evidence, which has

not been done by the assessee. Therefore, we confirm the addition made by the AO

and sustained by the ld. CIT (A) under both the heads. Thus, ground nos. 2 & 3 are

dismissed.

12. Ground no. 4 is against confirming addition of Rs. 50,00,000/- towards capital

introduced by the partners. The AO observed that the partners of the firm had

introduced cash in capital account i.e. Shri Balwant Singh Rs. 30,00,000/-, Shri Ramesh

Kumar Rs. 20,00,000/- and Shri Shailendra Garg Rs. 55,06,000/-. The AO gave

opportunity of being heard on this issue. The AO issued summon to the partners under

section 131 of the IT Act to appear before her. In response to the summons issued,

none of the partners responded nor filed any written submission before the AO. The ld.

A/R of the assessee filed confirmations and affidavits from the partners but there was

no evidence in support of the sources of capital introduced. He simply argued that this

cash was received by the partners out of the agricultural income. After considering the

assessee's reply, the AO held that Rs. 30,00,000/- and Rs. 20,00,000/- introduced by 16 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

Shri Balwant Singh and Shri Ramesh Kumar respectively were found as unexplained

cash credit and same were added to the income of the assessee under section 68 after

relying on the decision of Hon'ble Jurisdictional High Court in the case of CITvs.

Kishorilal Santoshilal 216 ITR 9 (Raj.).

13. Being aggrieved by the order of A.O., the assessee carried the matter before ld.

CIT (A) who had examined this issue in detail and observed as under :-

" 6.1. I have duly considered the submissions of the appellant. During the year under reference, the 2 partners of the appellant firm namely Sh Balwant Singh and Sh Ramesh Kumar have introduced cash of Rs. 30,00,000/- and Rs. 20,00,000/- respectively. The appellant has challenged that a firm is not responsible for explaining the deposits in the accounts of the partners. The same can only be considered in the hands of the partners. At the outset, it is pertinent to mention that the provisions of section 68 are applicable to partnerships firms also. There is no distinction between the capital contributed by the partner and third party or unsecured loan received by the assessee. If the cash credit in the capital account of the assessee is not satisfactorily explained, the Assessing Officer is justified to treat it as income from undisclosed sources. In the absence of any documentary evidence substantiating the explanation of the assessee, the deeming fiction created by section 68 is squarely applicable. Merely because the amount is credited in the books of the firm, it cannot be said that it is not the undisclosed income of the assessee and it has to be assessed as income of the partners. This preposition is supported by the decision of Jurisdictional High Court in the case of CIT vs. Kishorilal Santoshilal (216 ITR 9). Therefore no fault could be found with the approach of the AO. The counsel of the appellant has raised a feeble argument that the partners had filed their affidavits and confirmations whereby they confirmed having introduced capital in cash.

17 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

Though one of the partners namely Sh Balwant Singh was assessed to tax and also had PAN but the same only showed that partner was identifiable. The other partner namely Sh Ramesh Kumar was not assessed to tax and did not have any PAN. The creditworthiness in the case of cash introduction could be suitably explained by the cash book or cash withdrawals from the bank statement. However, in the present case, neither the cash book nor the bank statement of the partners had been submitted during the appellate proceedings. Having PAN will not prove that the alleged partner had sufficient cash in hand on 03.12.2007 when the cash was introduced in the capital account of Sh Balwant Singh. Similarly in the case of Sh Ramesh Kumar, the entire capital of Rs. 20,00,000/- was introduced in cash on a single day i.e. 03.03.2008. It is difficult to accept that a person who was not assessed to tax, could have introduced cash of Rs. 20,00,000/- that too on a single day. Further the appellant had contended before the AO that partners had introduced capital out of their agricultural income. However, the AO had rightly rejected the above explanation in the absence of sale bills for agricultural produce, vouchers for agricultural expenses and cash book. It is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed on the assessee will be discharged. It is not the law that each and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact finding body. Viewed in that perspective, just because the appellant has submitted an explanation whatever be itsj worth and credibility, it does not mean that sources of capital introduced in cash stand proved. Further in case, if the credits have come through banking channels, then the appellant is not required to prove source of source. However it is not the case here. 6.2. Before me, the counsel of appellant has taken a contradictory stand that the 2 partners had sold their immovable properties and efforts were being made to obtain the agreements to sale. However the appellant had 18 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

claimed before the AO that the partners had introduced capital in cash out of their agricultural income. It also showed that the appellant was fabricating evidences just to explain the availability of cash on hand in the case of two partners. At the outset, the counsel of appellant has failed to submit copies of returns of income filed in the cases of partners. These documents are imperative to reveal the truth. Further it needs to be seen whether any agricultural income was declared before the income tax department or not. If yes, it should be substantiated by documentary evidences such as sale bills, vouchers and Girdhawari report. Further the appellant is guilty of shifting its stand from time to time therefore the explanation that the partners had sold their immovable properties has to be rejected. There is not an iota of evidence submitted by the appellant in this regard. Further the partners had also not declared any capital gain on this account in their returns of income. Respectfully following the above decision and facts of the present case, I hold that the appellant has failed to explain the sources of capital of Rs. 50,00,000/- introduced by the 2 partners and same is liable to be added u/s 68 of the I.T. Act. Accordingly the addition of Rs. 50,00,000/-made by the AO is confirmed under section 68 of I T Act. This ground of appeal is dismissed."

14. Now the assessee is before us. The ld. A/R of the assessee submitted that

summons issued by the AO under section 131 had been served on the partners,

namely, Shri Balwant Singh and Shri Ramesh Kumar who had not appeared before the

AO but later on they filed confirmation letter along with affidavits before the AO. The

business of the firm was closed and relevant partners were residing out of station when

Relevant assessment and appellate proceedings were going on, therefore local partner

of the assessee who was looking after the affairs of the firm could not collect the

further evidences from the relevant partners showing the immediate source of the 19 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

capital introduced by them in their capital account. The assessee also submitted that

additional evidence be admitted by the Bench for disposal of this ground which has

been objected by the ld. D/R that both the lower authorities had given sufficient time to

explain the capital introduced by the partners. The partners are jointly and severally

liable for the liability of the firm. Therefore, any lapse on the part of any of the partners

shall fix the responsibility jointly under the law. The ld. A/R drawn our attention on

pages 151 and 152 of paper book wherein a copy of agreement to sell dated

27.11.2007 was placed mentioning cash receipt of Rs. 35,00,000/- has been shown as

advance and claimed that this cash has been deposited with the firm by Shri Balwant

Singh. Another partner, namely, Shri Ramesh Kumar had also sold the property as per

Agreement to sell dated 01.03.2008 placed at paper book pages 153 & 154 and

received cash of Rs. 24,00,000/- out of this, Rs. 20,00,000/- was deposited by Shri

Ramesh Kumar as capital with the firm. Therefore, it has been claimed that identity of

the partners, capacity of fund and genuineness of the transaction has been proved by

the firm. Therefore, this addition may please be deleted.

15. At the outset the ld. D/R supported the order of the AO and submitted that if this

evidence is genuine and was with the partner, then it should have been adduced before

the AO as assessment in this case was completed on 22.12.2010. Further, the veracity

of these documents is also doubted because these are simply documents. It is an

agreement dated 27.11.07 for sale of half portion of the house no. 1344, Sector-6,

Huda, Urban Estate, Karnal, Haryana for Rs. 60,00,000/-. The assessee had received

Rs. 35,00,000/- as advance. There is no evidence for registration of this house before 20 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

the Sub Registrar. Further, there is no copy of return and any tax had been paid on the

capital gain and/or other deduction claimed by assessee under section 54B of the I.T.

Act. Similar facts are in case of Shri Ramesh Kumar, partner of the assessee firm. As

per agreement, the assessee had claimed to have sold 28 bigh of land @ Rs. 5,00,000/-

per bigha. The assessee had received amount of Rs. 24,00,000/- vide this agreement

dated 01.03.2008. It is an admitted fact that Shri Ramesh Kumar neither filed any

income tax return nor have PAN. Therefore, the order of ld. CIT (A) may please be

confirmed.

16. We have heard rival contentions and perused the material on record. The

genuineness of these documents cannot be verified at this stage. Both the partners

had not filed copy of income tax return and computation of capital gain, if any, offered

for taxation in their respective income. These evidences were not available at the time

of assessment as well as before ld. CIT (A). They simply change the stand before the

CIT (A). If these transactions were genuine, these should have come before the AO in

first reply. Assessee has not discharged its burden under section 68 of the IT Act in

case of capital introduced of Rs. 50,00,000/-. Therefore, the order of ld. CIT (A) is

upheld. No application of admission of additional evidences has been filed by the

assessee.

17. Ground no. 5 is against confirming the addition of Rs. 3,70,323/- out of

Miscellaneous expenses. The AO observed that the assessee has claimed machinery

expenses, mess expenses and vehicle running expenses of Rs. 29,20,172/-, Rs.

3,75,177/- and Rs. 4,11,882/- in Profit & Loss account. The assessee claimed these 21 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

expenses without any vouchers. Some of the claims are made on self made vouchers.

Therefore, the AO disallowed 10% out of the above expenses.

18. Being aggrieved by the order of AO, assessee carried the matter before ld. CIT

(A), who had confirmed the addition by observing that even before him the assessee

has not been able to produce any vouchers for claiming these expenses. The onus is

totally on the assessee to prove the genuineness of any expenditure claimed by it and

mere explanation is not sufficient. The same should be backed up by documentary

evidences. He relied on various decisions particularly of Hon'ble Gujarat High Court in

the case of CITR vs. Chandravilas Hoteo, 164 ITR 102 (Guj) and of Hon'ble Delhi High

Court in the case of Goodyear India Ltd. vs. CIT, 246 ITR 116 (Del.) and various other

cases and dismissed the assessee's appeal.

19. Now the assessee is in appeal before us. The ld. A/R of the assessee submitted

that assessee has maintained regular books of account along with relevant

bills/vouchers and got the accounts audited under section 44AB of the IT Act and

claimed relevant expenses as per books of account. These expenses are of routine

nature in respect of which bills or receipts are not issued by the recipients. However,

assessee has regularly maintained self made vouchers showing complete details in

respect of such expenses and duly recorded the same in books of accounts. Therefore,

he requested to delete the addition confirmed by ld. CIT (A).

20. At the outset, the ld. D/R supported the order of ld. CIT (A) and argued that

even at the stage of ld. CIT (A), no evidence has been submitted by the assessee, 22 ITA NO. 332/JP/2012 A.Y. 2008-09.

M/s. Balwant Singh Subhash & Co., Jaipur.

except general argument as made before the AO. Therefore, he submitted that this

addition may please be confirmed.

21. We have heard rival contentions and perused the material on record. It is fact

that assessee had not produced any evidence before the lower authorities as well as

before us. Even bifurcation of expenses has not been given before any authority. In

absence of any evidence or justification, these expenses cannot be allowed as wholly

and exclusively has not incurred for the purpose of business. The burden lies on the

assessee to prove that these expenses are genuine and incurred for business purposes.

Therefore, we do not find any reason to interfere with the order of ld. CIT (A).

Accordingly assessee's appeal is dismissed.

22. In the result, appeal of the assessee is dismissed.

Order pronounced in the open court on 13.07.2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 13 July , 2015 Das/

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- M/s. Balwant Singh Subhash & Co., Jaipur.

2. izR;FkhZ@ The Respondent- ACIT, Circle-5, Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 332/JP/2012) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar