Patel Beverages, Ahmedabad vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA No. 3278/Ahd/2009 िनधा रण वष /Assessment Year: 2005-06 M/s. Patel Beverages, Vs ITO, Prop. M/s. Navneet B. Patel HUF Ward-2(2) 857/3, GIDC, Makarpura, Baroda Baroda PAN : AAHHP 5307 C

अपीलाथ / अपीलाथ / (Appellant) ू यथ यथ / थ / (Respondent)

Assessee(s) by : Shri Hardik Vora, AR Revenue by : Shri Roop Chand, Sr. DR.

सु नवा ई क" ता र$ ख / Date of Hearing : 24/04/2015 घोषणा क" तार$ख / Date of Pronouncement: 15/05/2015

आदे श/O R D E R

PER G.D. AGRAWAL, VICE PRESIDENT:

This is an appeal filed by the assessee and is directed against the order of the Commissioner of Income-tax(Appeals)-II, Baroda dated 22.09.2009 pertaining to the Assessment Year 2005-06.

2. Ground Nos. 1, 2 and 3 of the assessee's appeal, which read as under, were not pressed by the ld. Counsel for the assessee at the time of hearing. Accordingly, the same are rejected as not pressed.

1.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts dismissing the ground of appeal, challenging the status of the appellant adopted by the Id. A.O. as partnership firm instead of HUF, on the basis that the same was not pressed.

2.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in recording the following finding in para 4.2, page No. 5 of his order as below:

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"In appeal the learned Authorized Representative withdrew his claim of being a proprietary concern and admitted to being a partnership firm."

3.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in dismissing the ground of appeal relating to an addition of Rs.1,00,000/- u/s 68 on the basis that the same was not pressed

3. Ground No.4 of the assessee's appeal reads as under:-

4.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the addition of Rs. 8,08,938/- in respect of opening capital balance as on 1st April, 2004.

4. The facts of the case are that for the year under consideration i.e. Assessment Year 2005-06, Shri Navnitbhai B Patel HUF has filed the return of income as Proprietor of M/s. Patel Beverages. On verification of the return of income and its enclosures, the Assessing Officer found that the assessee is a partnership firm and its partners are Shri Navnitbhai B Patel and Shri Viral N Patel. In view of these facts, the Assessing Officer assessed the assessee namely M/s. Patel Beverages as partnership firm and tax rate applicable to the firm have been charged, though the return has been filed by the assessee as HUF. The Assessing Officer further noticed that in the balance-sheet enclosed alongwith return of income for Assessment Year 2005-06, the assessee has shown the opening capital of both the partners are as under:-

Shri Navneet B Patel - Rs.4,04,469/- Shri Viral N. Patel - Rs.4,04,469/- ----------------- Total Rs.8,08,938/- ==========

5. On verification of record, the Assessing Officer found that the assessee has not filed its return of income for Assessment Year 2004-05. No ITA No. 3278/Ahd/2009 M/s. Patel Beverages vs. ITO AY: 2005-06 3

other documentary evidence in support of partners' opening capital was furnished. He, therefore, treated the sum of Rs.8,03,938/- as unexplained credit u/s 68. During the course of appeal before the CIT(A), the assessee pointed out that the return of income of the partners was filed for Assessment Year 2004-05; however, on verification of the return, he found that the return was filed by Shri Navnitbhai B Patel-individual and there is no evidence of these amounts showing as closing balance in that year. The relevant finding of the CIT(A) reads as under:-

"3.3.... To explain the source of this contribution, the appellant sought to show that a return of income of the partnership was filed for assessment year 2004-05. On verification of the return dated 02.11.2004 filed in Ward-2(2), Baroda it is noted that the return has been filed of Shri Navneetbhai B Patel, individual. There is no evidence of these amounts forming the closing balance of the previous year. Further since the partnership was signed on 15.03.2004, to explain the source of the entries in the capital account as on 01.04.2004 should not have been an impossible task. It is claimed that M/s.Patel Beverages has been running its business in the status of a firm since the year 2000. However, no return of income has been filed by the firm. It is also seen that no confirmation has been filed form Shri Viral N. Patel claiming the source of the credit entries in the capital account. In view of the fact that there is no evidence on record to explain the credit entries of Rs.8,08,938/-, the addition made by the Assessing Officer is confirmed. Through the amount discussed in the body of the order is Rs.8,08,938/- the addition made is Rs.8,03,938/- which is patently a typing mistake. Hence the amount of Rs.8,08,938/- is confirmed."

6. At the time of hearing before us, the ld. Counsel for the assessee contended that the assessee is a partnership firm and therefore, the cash credit in the account of partner cannot be assessed as unexplained cash credit of the firm. The Assessing Officer can make necessary inquiries in the case of partners but he cannot treat the same as unexplained cash credit of the firm. In support of this contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Pankaj Dyestuff Industries vide Income Tax Reference No.241 of 1993. However, when at ITA No. 3278/Ahd/2009 M/s. Patel Beverages vs. ITO AY: 2005-06 4

the time of hearing the Bench asked the assessee to prove that the partnership firm filed the return of income for Assessment Year 2004-05 in which there is a closing balance in the account of both the partners amounting to Rs.4,04,469/- each, the assessee was unable to produce any such return. The assessee was also asked to produce the return of partners for Assessment Year 2004-05 showing the closing balance with the partnership firm at Rs.4,04,469/-. However, the assessee was unable to furnish the same also. We find that in the case of Pankaj Dyestuff Industries, the Hon'ble jurisdictional High Court held as under:-

"13. Applying the aforesaid principles to the facts of the present case, it is apparent that the assessee had furnished the details which would discharge the onus which lay on the assessee. It is not the case of the revenue that the partners of the assessee firm are fictitious. The income-tax officer has not disputed that the credits in the accounts of the partners were not deposits from the partners. Moreover, it is an admitted position that this was the second year of the firm, and that it was running in loss. It is true that the Income-tax Officer did not accept the explanation given on behalf of the assessee in respect of the new deposits or cash credits in the accounts of the partners. The mere non-acceptance of that explanation does not however provide material for finding that the said sum represented income of the assessee firm. As held by the Allahabad High Court in the case of CIT, Allahabad vs. Jaiswal Motor Finance (supra) in the absence of any material to indicate that there were profits of the firm, the amount credited to the partners' accounts could not be assessed in the hands of the firm. Once the partners have owned that the monies deposited in their accounts are their own, the Income-tax Officer is entitled to and may proceed against the partners and assess the same in their hands if their explanation is not found satisfactory.

14. In the facts and circumstances of the present case, both the Deputy CIT (Appeals) and the Tribunal have found that the assessee had discharged the primary onus which was on it by offering explanation, which has not been found to be incorrect or false in any manner. The interest of the revenue is also safeguarded as the Income Tax Officer has been given the liberty to consider the said credits in the hands of the partners if he is not satisfied with the sources of investment of cash credits in the accounts of the partners."

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7. From the above, it is evident that in the above mentioned case, the assessee has furnished the details which discharged the onus which lay upon the assessee. In that case, the genuineness of the firm and the credit in the account of the partners was not in dispute. However, in the case of the assessee, the series of incident raises serious doubt about the genuineness of the partnership firm as well as the credit balance in the account of the partners. The assessee appears to be partnership firm as per the balance- sheet, but filed the return for the year under consideration in the status of HUF. In the account of the partners, there is opening balance but the assessee did not file the return of the partnership firm for Assessment Year 2004-05, though the return was filed by Shri Navnitbhai B Patel, as Proprietor of M/s. Patel Beverages for Assessment Year 2004-05. However, the CIT(A) has recorded the finding that in such return there is no closing balance in the account of partners amounting to Rs.4,04,469/- each. On these facts, the onus was heavy upon the assessee to justify how he has shown the opening credit balance for the Assessment Year 2005-06 when there was no closing balance in Assessment Year 2004-05. In these peculiar facts, the decision of the Hon'ble Jurisdictional High Court in the case of Pankaj Dyestuff Industries (supra), would not be applicable to the case of the assessee. Considering the facts of the case and the arguments of both the sides, we do not find any justification to interfere with the order of the CIT(A) on this point and the same is sustained. Accordingly, Ground No.4 of the assessee's appeal is rejected.

8. Ground No.5 of the assessee's appeal reads as under:-

4.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the disallowances to the extent of Rs. 3,24,921/- out of total disallowances of Rs.9,74,514/-.

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9. We have heard both the parties and perused the material placed before us. We find that the Assessing Officer has disallowed various expenses amounting to Rs.9,74,514/-; the details of which are as under:-

Sr. No. Nature of expenses Amount 1 Freight inward and octroi 84360 2 Testing charges 112370 3 Consulting expenses 178690 4 Legal and professional charges 139631 5 Freight outward expense 399463 6 Security charges 60000 Rs.9,74,514

10. The Assessing Officer made the disallowance on the ground that the assessee failed to deduct the TDS on the above payments and therefore, applying the provisions of Section 40(a)(ia), he made disallowance. On appeal, the CIT(A) recorded the finding that, considering the nature of expenses, there was no liability upon the assessee to deduct TDS and therefore, provisions of Section 40(a)(ia) was not applicable. Thereafter, he proceeded to consider nature of each and every expenditure and its allowability or otherwise; and after detailed discussion from page No.4 to 7, he sustained the disallowance at Rs.3,24,921/- out of the total disallowance of Rs.9,74,514/-.

11. We have carefully considered the arguments of both the sides and perused the material placed before us, including the order of the CIT(A). We are of the opinion that the CIT(A) considered each and every expenses and has sustained the disallowance only when the expenditure was not allowable. The ld. Counsel for the assessee was unable to controvert the findings recorded by the CIT(A). Accordingly, the same is sustained and Ground No.5 of the assessee's appeal is rejected.

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12. Ground No.6 of the assessee's appeal, which reads as under, was not pressed by the ld. Counsel at the time of hearing. Accordingly, the same is rejected as not pressed.

6.0 Without prejudice to the Ground No. 5, the learned Commissioner of Income-tax (Appeals) erred in law and on facts in disallowing certain expenses by invoking the provisions of section 40A(3) of the Act, without issuing any Show Cause Notice to the assessee.

13. Ground No.7 of the assessee's appeal which reads as under:-

7.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the additions to the extent of Rs.15,07,974/- out of total disallowance of expenses amounting to Rs.18,84,968/-

14. We have heard both the parties and perused the material placed before us. The assessee has debited total expenditure of Rs.92,54,942/- in the profit and loss account. The Assessing Officer has disallowed the sum of Rs.9,74,514/- separately on account of failure of the assessee to deduct the tax. He reduced the sum of Rs.7,40,556/- on account of depreciation debited to the profit and loss account. He, therefore, worked out the balance expenditure at Rs.75,39,872/- (Rs.92,54,942 - Rs.9,74,514 - Rs.7,40,556/-)

15. Since the assessee did not produce the supporting bills and vouchers in respect of expenses debited in the profit and loss account, he disallowed 25% of Rs.75,39,872/- i.e. Rs.18,84,968/-. On appeal, the CIT(A) reduced the disallowance to 20%. Accordingly, the disallowance was sustained at Rs.15,07,974/-.

16. We have heard both the parties and carefully considered the arguments of both the sides. After considering the facts of the case and the ITA No. 3278/Ahd/2009 M/s. Patel Beverages vs. ITO AY: 2005-06 8

arguments of both the sides, in our opinion, when all the expenses debited to the profit and loss account have been considered for disallowance, the disallowance sustained at 20% of all the expenses is excessive. We, therefore, reduce the same to 10% and direct that the disallowance be restricted to Rs.7,53,987/-.

17. In the result, the assessee's appeal is partly allowed.

Order pronounced in the Court on 15th May, 2015 at Ahmedabad.

Sd/- Sd/-

(RAJPAL YADAV) (G.D. AGRAWAL) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 15/05/2015 Biju T., PS

षत Copy आदे श क" ूितिल*प अमे*षत/ of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. संबंिधत आयकर आयु- / Concerned CIT 4. आयकर आयु-(अपील) / The CIT(A)

5. *वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

/ BY ORDER, आदे शानुसार

TRUE COPY

Dy./Asstt.Registrar) उप/सहायक पंजीकार ( उप/ अिधकरण, अहमदाबाद / आयकर अपीलीय अिधकरण, ITAT, Ahmedabad