Hari Ram Chhagan Lal & Party, Jaipur vs Assessee

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. 261/JP/2013 fu/kZkj.k o"kZ@Assessment Year : 1999-2000

Shri Hari Ram Chhagan Lal & cuke The ACIT Party Vs. Circle- 5 A-38, Friends Colony, Krishna Jaipur Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADJPP 6188 L vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.M. Mehta jktLo dh vksj ls@ Revenue by :Shri Purshottam Kashyap, JCIT

lquokbZ dh rkjh[k@ Date of Hearing : 13/07/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24/07/2015

vkns'k@ ORDER PER R.P. TOLANI, JM

This is an appeal filed by the assessee against the order of the ld.

CIT(A) -II, Jaipur dated 30-01-2013 for the assessment year 1999-2000

wherein following grounds are raised.

''(1) That the ld. CIT(A) has erred in law and on facts in confirming the additions u/s 68 of I.T. Act made by the ld. AO in set aside proceeding who even did not comply correctly the directions of the Hon'ble Tribunal for issuing summons to the erstwhile members individual at the addresses appearing in their respective acknowledgements of 2 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

return of income submitted alongwith their confirmations who had introduced fresh capital.

(2) The ld. CIT(A) was not justified in becoming handwriting expert in differentiating the signature of one Shri Asha Ram (with total investment of Rs. 20,000/- during year) out of total 75, whose confirmation was the same submitted in earlier rounds of assessment and appellate proceedings but was never questioned earlier.

(3) On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in sustaining the addition of Rs. 24,26,000/- u/s 68 of I.T. Act in the hands of the assessee AOP for the fresh capital introduced by total 75 AOP members by avoiding their confirmations, acknowledgment of return and their balance sheets wherein the total investment was appearing ad accepted by the Department whereas the liquor contract business of assessee AOP was permanently closed long AO on 31-03-1999 and therefore, their personal presence could not be implemented after about 13 years.

2.1 Brief facts of the case are - the assessee AOP deals in liquor

contracts issued by Rajasthan state excise department. Original return

declaring income of Rs. 13,24,790/- was filed on 10-12-1999 along with

audited accounts. The assessment was completed u/s 143(3) at income of

Rs. 4,00,43,510/- on 28-03-2002, rejecting the books of accounts of the

assessee. Trading additions were made estimating the net profit rate at 5%

on sale of liquor. Besides addition of Rs. 3,51,59,295/- was made in

respect of capital contribution of AOP members.

3 ITA No. 261/JP/2013

M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

2.2 Aggrieved against this 1st order, assessee filed first appeal, by a

detailed order ld. CIT(A) vide order dated 7-01-2003 awarded following

part relief:-

(i) trading addition of Rs. 24,93,053/- was restricted to Rs. 10 lacs.

(ii) addition of Rs. 3,51,59,295/- was deleted.

2.3 Aggrieved, both the parties appealed before ITAT which vide its

order date4d 25-01-2007 restored the matter of capital contribution of 162

members back to the file of the AO u/s 68 of the Act with following

directions.

''........... to examine the correctness of claim of the assessee in this regard relating to those 162 members of the AOP, their identity, their creditworthiness and genuineness of the transaction after affording adequate opportunity of being herd to the assessee including opportunity to them, if it is so desired to cross examine those witnesses.

2.4 Consequent to ITAT order, fresh assessment order was passed by

DCIT Circle-5 on 20-12-2007 accepting some of deposits and reduced the

addition to Rs. 1,71,85,095/- and upheld the addition at Rs. 1,79,74,200/-

u/s 68 of the Act.

2.5 The assessee in turn preferred first appeal against this reframed

assessment order. During the course thereof, ld. CIT(A) called for the

remand report where 20 AOP members appeared who confirmed the 4 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

capital contribution of Rs. 1,55,58,200/-. In view of the remand report

and the materials available on record ld. CIT(A) vide his order dated 16-

06-2009 had reduce this amount of Rs. 1,55,58,200/- and upheld the

remaining deposits of u/s 68 of the Act totaling to Rs. 24,26,000/-

2.6 Aggrieved, the assessee once again approached ITAT who vide its

order dated 31-10-2010 found that the AO had not properly complied

with its directions as issued by this Bench of ITAT and therefore, set

aside the matter back to the file of the AO again by following

observations:

''5. Considering the above submissions, we find that on earlier occasion the Tribunal had set aside the matter to the file of the AO to examine the correctness of the claim of the assessee on the issue and to decide the matter afresh after affording adequate opportunity of being heard to the assessee. The relevant para 12 of the order dated 25.1.2007 (supra) of the Tribunal is being reproduced hereunder for a ready reference :-

" 12. On perusal of the orders of the lower authorities, it is evident that before the AO the assessee could not produce the members of the AOP for removal of doubts of the AO. The assessee even did not bother to avail this opportunity during the period of remand report proceedings before the AO. Even the claim of the assessee appears to be contradictory as in para 21 of the first appellate order, the ld. CIT (A) has observed that in a letter filed on 26.3.2002 the assessee had stated that all the members of the assessee AOP have given their PAN/GIR on the confirmations and in case of non-assessee, the capital was out of withdrawals from other AOPs and firms in which they were members/partners. In para 23, however, it has been mentioned that during the appellate proceedings, the ld. A/R had submitted that the assessee had filed the confirmations indicating PAN/GIR numbers in 5 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

respect of all the 162 cash creditors with source of money with those members who introduced fresh capital in the year under appeal. On careful reading of these submissions of the assessee mentioned in paras 21 and 23 of the first appellate order, it appears that all the 162 cash creditors were not income-tax assessees. Thus when some of the AOP members were not income-tax assessees, it was not possible for the AO to examine their source of income from their record not available with the department. It has also not been mentioned in para 25 of the first appellate order as to how many members of the AOP in assessment year 1998-99 were common with the members of the AOP during the year and above all it was the duty of the assessee to furnish their complete particulars in compliance of the requirement of the AO instead of advancing this plea that AO should have himself located their addresses available from the record. In such a situation, the assessee was always at liberty to request for inspection of the records of the AOP members lying with the department and furnish their latest addresses, if any to the AO with request to summon them in case they were not under the control of the assessee. Considering the totality of facts and circumstances of the case, we are of the view that to meet the interests of justice, it would be proper to remand the matter to the file of the AO to examine the correctness of claim of the assessee in this regard relating to those 162 members of the AOP, their identity, their creditworthiness and genuineness of the transaction after affording adequate opportunity of being heard to the assessee including opportunity to them, if it is so desired to cross examine those witnesses. The first appellate order is thus set aside. The ground no. 2 is allowed for statistical purposes."

Under the above circumstances unless the assessee come with specific submission as to who out of the remaining 75 members of the AOP are income-tax assessees with their particulars, it is not possible for the AO to verify such claim of the assessee to at least establish the identity of those members. It is also not emerging from the orders of the lower authorities that when the assessee was not able to produce the remaining 75 members of the AOP, a request was made by the assessee to the AO to issue summons to them to secure their presence. Under these circumstances it cannot be said that the assessee was able to establish identity of those 75 members. We, however, find that the lower authorities have not examined the claim of the assessee as specifically directed by the Tribunal to verify that the members of the AOP during the year were out of 162 members of the AO during the assessment year 1998-99 6 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

accepted by the department. Since the direction of the Tribunal to verify the claim of the assessee that during the year members of the AOP were out of 162 members of the AOP accepted in the A.Y. 1998-99 remained to be complied with, we set aside the matter to the file of the AO to comply with the same on the basis of record available with the department and if so felt, the AO is also at liberty to take assistance of the assessee in this regard and decide the issue afresh after affording opportunity of being heard to the assessee. The ground is thus allowed for statistical purposes. ''

2.7 In view of the above developments, ld. AO proceeded for

verification of capital contribution of Rs. 24,26,000/- by members and

observed that :-

(i) The plea of the assessee that as the matter is more than 12 years old and it is not practically possible to produce any of the 75 members who hail from different places out of Rajasthan and have shifted to other places in connection with new job/ business, is unacceptable.

(ii) In the absence of postal addresses of the AOP members, no verification was possible.

(iii) Consequent to order sheet dated 30-11-2011, the assessee was asked to produce 75 persons for verification and necessary documents in support in support of their identity on next date of hearing on 8-12-2011. On this date of hearing, the assessee submitted copies of return of income and affidavits of aforesaid cash creditors but not a single person was produced out of 75 persons for verification. Consequently, the verification as to identity, creditworthiness and genuineness of the transactions in 7 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

respect of 75 persons remained unverified and addition was repeated.

2.8 Aggrieved, the assessee again preferred first appeal. The ld.

CIT(A) referred to paper book filed by the assessee containing

photocopies of the accounts, copies of acknowledgement of returns and

desired to know before whom these paper books were filed. The

assessee was again directed to produce the creditors and present addresses

of these persons. Vide letter dated 28-01-2013 assessee submitted

detailed explanation which briefly contends as under:-

(i) The AOP was formed. The Contract for sale of liquor from 01-04-1997 to 31-03-1999 was issued by the State Govt. Excise Deptt to the assessee AOP. Same members totaling to 162 continued as members in both the years which was evident by the statement of capital accounts enclosed with the return.

(ii) The auditors had given details about capital contribution of all the members in its audited balance sheet.

(iii) During the course of original scrutiny assessment, confirmations and other supporting evidence in respect of all the members were filed with the AO besides they were again submitted in subsequent proceedings. These documents were again furnished before AO at the time of remand proceedings undertaken by ld. CIT(A). These documents 8 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

were examined by the AO and considered in remand report that is how partial relief was awarded. Therefore, there was no justification in impugned CIT(A)'d assumption that these papers may not have been filed before the lower authorities.

Since 162 members remained same for the same excise contract including 75 persons in both assessment years. It was repeatedly mentioned that same 162 members including 75 members in question were also the members in AY 1998-99. Therefore, their identity, genuineness and credit worthiness stands established since assessment year 1998-

99. By submissions dated 6-12-2012 , following was submitted before ld. CIT(A).

''All the 75 members had introduced their capital in A.Y. 1998-99 also which was accepted by the ld. AO as genuinely explained on the basis of submission of identical set of documentary evidence which were also produced in A.Y. 1999-2000.''

2.9 Reliance was placed in the case of Real Square Builders &

Colonizers (P) Ltd. vs. Addl. CIT, Jaipur (2010) XLII TW 193 (JP)

wherein the Jaipur Tribunal has held the deposit cannot be treated as

unexplained simply for the reason that creditor has not appeared before

the AO when their creditworthiness and genuineness is otherwise

explained and they are assessed to income tax.

9 ITA No. 261/JP/2013

M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

2.10 Apropos the physical production of erstwhile members after a gap

of 10 years, the assessee submitted as under before ld. CIT(A):-

''8. To produce the creditors written off had contributed Rs. 24,26,000/-: - You will please find that appellant's business was not a regular or continuing business. Only upto 31-03-1999, the license of the appellant AO to deal in alcoholic liquor for human consumption was in force. When the business was closed on 01-04- 1999, majority of the members shifted to other places for new business/work/job to earn their livelihood and thereafter their whereabouts were not known (their confirmations and other documents were collected nearing closure of business). Out of total 100 members whose total fresh capital contribution of Rs.

3,51,59,295/- in the period relevant to A.Y. 1999-2000 was treated by the ld AO as unexplained, undersigned could contact and produced total 25 members before the ld. AO in set aside proceedings and their total capital of Rs. 3,27,33,295/- was accepted as genuinely explained.

Considering the fact of the case that the business was closed about 14 years ago, though their confirmations, their respective acknowledgements, capital cum income & Expenditure accounts and balance sheet were already submitted, it will not be possible to produce these 75 members who fresh capital contribution was Rs. 24,26,000/- during the year.

2.11 Apropos present addresses of 75 persons , the assessee filed its set

of submissions dated 28-01-2013 contending as under:

''(9) Present address of persons whose capital contribution was Rs. 24,26,000/-:- The addresses of all the 75 erstwhile members are given the returns of income, copies of which were already submitted in the paper book. If any of the AOP members have changed their addresses thereafter, it is not in the notice of undersigned or the 25 members who had attended before the ld. AO in set aside proceedings.'' 10 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

2.12 Assessee's submission however did not find favor with ld. CIT(A),

who held that there is no logic or justification on the part of the assessee

for not physically producing remaining members and their addresses were

not furnished. Except income-tax returns acknowledgement, copies of

a/cs for A.Y. 1999-2000, no other evidence was filed. The signatures on

returns of the members did not tally with the signatures on the

confirmations. There is no merit in plea that the Department should have

issued summons u/s 131. Income Tax Appellate Tribunal vide its order

dated 31-03-2010 accorded another opportunity to the assessee to prove

the deposits but the assessee failed to discharge its burden. Without

original documents/ confirmations and without the addresses of the

persons, it was not possible to verify these deposits. Thus appeal of the

assessee was dismissed by the ld. CIT(A).

2.13 Aggrieved, the assessee is before us. Ld. Counsel for the assessee

contends that it is the third round of the proceedings that it has to

establish what stands proved by the record. The ITAT vide its order dated

31-03-2010 has expressed its concern that ld. AO did not comply with

directions and verify the names of members from record of AY 1998-99.

The capital contribution of 162 members were accepted by the AO u/s 11 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

143(3) in AY 1998-99. As per ITAT directions AO was to be ascertain

whether the same 162 members continued by cross-checking the

members list of assessment year 1998-99. This simple verification by ld.

AO would have clinched the issue. It is demonstrated by the record that

assessee filed addresses of remaining members in question and also filed

copies of their I T Returns, confirmations and new addresses. Thus the

primary burden cast on the assessee in terms of sec 168 was duly

discharged by it. Since it was not possible to physically produce them

after a gap of 10 years, no adverse inference can be drawn out of

difficulty as the department also did not do it. Section 68 casts primary

onus on the assessee to establish the identity, genuineness and

creditworthiness of the creditors, which stands discharged. The ITAT

direction stands complied in favor of the assessee as it has demonstrated

that same members continued in both years. In A.Y. 1998-99 capital

contribution by all members has been accepted by the ld. AO u/s 143(3)

of the Act. Therefore, their identity, genuineness of their being members

AOP and creditworthiness remains under question for AY 1999-2000.

Thus record amply demonstrates that the entire set of documents was

before the ld. AO/CIT(A), the doubt sought to be created in this behalf is

baseless. In order to make addition u/s 68 o the Act, ld. AO is under 12 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

obligation to effectively rebut the discharge of primary onus by the

assessee. Nothing exists on record as effective rebuttal of assessee's

discharge of onus except raising some doubts and unfounded observations

here and there. Despite availability of record the binding direction of

ITAT has been overlooked to any how confirm the addition . There is no

justification for holding their credits as unexplained u/s 68 of the Act.

Vide reply dated 28-01-2013, the assessee demonstrated by way of chart

reproduced by the ld. CIT(A) at pages 11 and 12 of her order tabulated

therein that all these details were filed. The fact that Department could

not obtain returns of all these members except for assessment year

19990-2000, cannot be held against the assessee as it is the departmental

record which is beyond the control of the assessee. Following judgemnts

are relied in written submissions :-

(i) CIT vs. Rameshwardas Suresh Pal 208 CTR 459 (P&H).

(ii) CIT vs. G.K. Contractors (2009) XLI TW 111 (Raj.)

(iii) Aravali Trading Co. vs. ITO (2008) 220 CTR 622 (Raj.)

(iv) CIT vs. Orbital Communications (P) Ltd. (2010) 327 ITR 560 (Del.)

(v) CIT vs. G.P. International Ltd. (2010) 325 ITR 25 (P&H) 13 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

(vi) CIT vs. H.S. Builders (P) Ltd. (2012) 254 ITR 542 (Raj.)

These judgments lay down proposition that in case the assessee

discharges its primary onus, the addition u/s 68 cannot be made. Hon'ble

Delhi High Court in the case of CIT vs. Orbital Communications (P) Ltd.

(supra) held that failure to physically produce the creditors was not

material.

2.14 Apropos second ground, the ld. Counsel for the assessee contends

that the ld. CIT(A) was not justified in assuming the role of a handwriting

experts because it was not in the scope of the direction given by ITAT

which was restricted the verification of members list in AY 1998-99,

which has been demonstrated by the assessee to be so.

2.15 The ld. DR supported the orders of the lower authorities.

2.16 We have heard the rival contentions and perused the materials

available on record. The above mentioned multiple proceedings make it

clear that this is fourth round of litigation before ITAT and includes

corresponding orders of AO & CIT(A). Jaipur ITAT in assesses own case

for the same year vide its last order dated 31-03-2010 (reproduced above)

held that lower authorities have failed to implement the specific direction

of the ITAT's order dated 25-01-2007. The direction simply obligated on 14 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

the part of the AO to verify about similarity of 162 members of the AOP

in assessment years 1998-99 and 1999-2000. The AO and the ld. CIT(A)

instead of restricted their inquiries and orders to this limited direction

have traveled afar in other issues. From the details submitted by the

assessee, it is evident that 162 members remained same in assessment

year 1998-99 and 1999-2000 as Excise License was issued for 2 years.

The capital contribution of same members is accepted in assessment year

1998-99, it cannot be assumed that the assessee has failed to discharge its

onus in respect of establishing the identity, genuineness and

creditworthiness of the members for A.Y. 1999-2000. Since all the

documents are part of the record, list of members being same in both

assessment years, we hold that the assessee has discharge its burden in

respect of capital contribution of members and these credits cannot be

treated as unexplained and cannot be added to assessee's income. The

other issues raised by the AO and the ld. CIT(A) have no relevance

inasmuch as the assessee has demonstrated that all these papers were filed

before the lower authorities which is available in the chart reproduced at

pages 11 and 12 of the ld. CIT(A)'s order. Since the assessee produced

income-tax returns and confirmations of remaining members, their

identity, genuineness and creditworthiness cannot be questioned. More 15 ITA No. 261/JP/2013 M/s. Hari Ram Chhagan Lal & Party vs. ACIT Circle- 5, Jaipur

so, when it is accepted in assessment year 1998-99. In view of the facts

and circumstances of the case, we delete the addition. Thus the appeal of

the assessee is allowed.

3.0 In the result, the appeal of the assessee is allowed,

Order pronounced in the open court on 24 /07/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 24th JUL, 2015

*Mishra

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

1. vihykFkhZ@The Appellant- Shri Hari Ram Chhagan Lal & Party, Jaipur

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

3. vk;dj vk;qDr¼vihy½@ CIT(A).

4. vk;dj vk;qDr@ CIT,

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

6. xkMZ QkbZy@ Guard File (ITA No.261/JP/2013)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar