Raghuvir Construction Co., Baroda vs Assessee

These two appeals (quantum and penalty) by the Assessee are directed against the separate orders of the Ld.Commissioner of Income Tax(Appeals)-IV, Baroda ('CIT(A)' in short) dated 17/01/2011 and 13/06/2011 pertaining to Assessment Year (AY) 2003-04 respectively. These appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.

ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -2-

2. First, we take up the quantum appeal, i.e. ITA No.1030/Ahd/2011 for AY 2003-04. The assessee has raised the following grounds of appeal:-

01. On the facts and circumstances of the case as well as in law, the lrd.CIT(A)-IV, Baroda, was erred in confirming addition u/s.68 on the ground that Appellant was failed to prove primary onus eventhough appellant has discharged primary onus and give sufficient details.

02. Appellant pray you Honour to delete the addition u/s.68.

Relief claimed in appeal Addition made u/s.68 of Rs.15 lacs may be deleted or appropriate relief as per facts and circumstance of the case.

3. Briefly stated facts are that this is a second round of litigation. In earlier round, the Tribunal (ITAT 'C' Bench Ahmedabad) had restored the issue of addition of Rs.15 lacs made u/s.68 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") to the file of ld.CIT(A) in ITA No.2939/Ahd/2006 for AY 2003-04 vide order dated 14/12/2007. However, the ld.CIT(A), after obtaining Remand Report from the Assessing Officer ((AO in short), again confirmed the addition on the basis that the assessee could not establish the identity of the creditors, genuineness of the transaction and creditworthiness of the creditors. Against this, the assessee has filed the present appeal.

ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -3-

4. Ground Nos.1 & 2 are inter-related and, therefore, the same are decided together. The ld.counsel for the assessee submitted that the authorities below were not justified in making the addition and confirming the same. He submitted that the assessee had obtained confirmations from all the creditors. Such confirmations were placed before the ld.CIT(A). The ld.counsel for the assessee submitted that we have written to the creditors vide letter dated 16/10/2010 to furnish Xerox copy of PAN Card, other identity car, 7/12 & 8/12 extract, sale bill of agriculture for the year 2002-03 and onwards and copy of income-tax returns before the AO. He submitted that the creditors despite having reminders did not turn up before the assessing authority. He further submitted that the assessee has no control over the creditors and cannot enforce their presence before the assessing authority. He submitted that it was categorically written to the creditors mentioning the cheque numbers vide which the loan amount was received. Hence, the loan transactions were effected through banking channels. He submitted that the AO ought to have enforced the presence of creditors by exercising the powers as conferred on the AO by the Act. He submitted that under these facts, the AO should not have made addition. He further submitted that the assessee cannot be fastened with unreasonable tax liability. 4.1. On the contrary, ld.Sr.DR Shri M.K.Singh vehemently opposed the submissions of the ld.counsel for the assessee and pointed out that the assessee was given sufficient opportunities by the authorities below to ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -4-

produce the evidences proving the genuineness of the transactions and creditworthiness of the creditors. He submitted that the onus was upon the assessee to furnish these primary evidences. He submitted that the authorities below have categorically given a finding that the assessee could not prove the creditworthiness of the creditors and also the summon(s) issued to some of the parties; namely, Dhirubhai P.Patel which was returned with the postal remarks that no such person existed there.

5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) in para-3 of his order has decided this issue by observing as under:-

"3. I have considered the matter. When a question arises as to whether a cash credit appearing in the books of account of an assessee has to be accepted or to be rejected and addition to be made in accordance with section 68, the assessee is required to establish identity of creditor, capacity of the creditor to advance the money and genuineness of the transaction. If the assessee establishes the aforesaid three pre-conditions, then it would be for the Department to disprove the same [CIT vs. Baishnav Charan Mohanty (1955) 212 ITR 199, 201 (Orissa)]. Mere filing of confirmatory letters does not discharge the onus that lies on the assessee [Bharti Pvt.Ltd. vs. CIT (1978) 111 ITR 951 (Cal); CIT Vs. W.J. Walker & Co. (1979) 117 ITR 690, 694 (Cal); CIT vs. United Commercial & Industrial Co. (Pvt.) Ltd. (1991) 187 ITR 596, 599 (Cal)]. Mere furnishing of the particulars is not enough.

ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -5-

Mere payment by account payee cheque is not sacrosanct nor can it make a non genuine transaction genuine [CIT vs. Precision Finance Pvt.Ltd. (1999) 208 ITR 465, 470, 471 (Cal)]. It is thus an established position in law that the onus was on the appellant to adduce sufficient evidence to prove identity of the creditors, their creditworthiness or capacity to advance the money and genuineness of the transactions. Appellant filed confirmations; however, the capacity of the creditors to advance the money could not proved. In all the cases, loans were claimed to have been given out of agricultural income derived by the creditors but no evidence, not even proof of land holding could be filed by the appellant to substantiate this claim. In three cases, the land records filed were pertaining to persons other than the creditors and in one case, the land records pertained to year under than F.Y. 2002-03. It was appellant who filed this evidence in the first place and it was upto the appellant only to have filed further evidence after Assessing Officer's observations regarding defects in land records were conveyed to the appellant. As regards appellant's contention about lapse of time, the matter was set aside by the Hon'ble ITAT at appellant's behest for providing another opportunity to file additional evidences. It is not open to the appellant now to turn around and say that after so many years, it is not possible for him to lead evidence [Pushp Trading Co. vs. CIT (1991) 190 ITR 618 (Del)]. Appellant's contention that onus was shifted to the Department is totally unacceptable. The general principle as to when the onus shifts, as laid down in Stoney vs. Eastbourne RD Council (1927) 1 Ch.367, 397 is "...'

"there can only be sufficient evidence to shift the onus from one side to the other if the evidence is sufficiently prima facie to establish the case of the party on whom the onus lies. It is not merely a question of weighing feathers on the one side or the other, and on saying that if there were two feathers on one side and one on the other, that would be sufficient to shift the onus.

ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -6-

What is meant is, that in the first instance, the party on whom the onus lies must prove his case sufficiently to justify a judgement in his favour if there is no other evidence."

Appellant has not been able to adduce sufficient evidence to prima facie establish its case regarding identity of the creditors or their capacity to advance the money. It was appellant's responsibility to provide whereabouts of the creditors correctly or produce them before the Assessing Officer for verification. Appellant did not produce the creditors before the Assessing Officer. There was no response by the creditors to the summons u/s.131 issued by the Assessing Officer at appellant's request. On other hand, one of the letters (Dhirubhai P.Patel) returned with the postal remarks that no such person existed there. Authenticity of confirmations provided by the appellant or correctness of creditors' addresses supplied by the appellant is therefore not established. It cannot therefore be said that appellant discharged onus of establishing identity of the creditors. Further, onus of prima facie establishing capacity of the creditors to advance the money cannot be said to have been discharged when land records in their names could not be filed to justify even prima facie their claimed source of agricultural income, equivalent amount of cash was deposited in creditors' bank accounts immediately before issuing cheques in favour of the appellant and there were no other transactions in their bank accounts during the entire year. Since appellant has not been able to discharge the initial onus u/s.68, there is no question of onus shifting to the Assessing Officer. It is held that the addition of Rs.15,00,000/- u/s.68 is justified and the same is confirmed."

5.1. It is settled principle of law that the assessee is required to prove genuineness of transaction, identity of creditors and creditworthiness of such creditors. In the absence of such proof, the Assessing Authority ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -7-

would be justified in making addition by invoking provisions of section 68 of the Act. In the case in hand, admittedly, the assessee could not furnish the evidences for proving creditworthiness of the creditors. Therefore, we do not find any infirmity in the order of the ld.CIT(A), same is hereby upheld. Thus, grounds of assessee's appeal are rejected. As a result, assessee's quantum appeal in ITA No.1030/Ahd/2011 is dismissed.

6. Now, coming to the penalty appeal, i.e. ITA No.2113/Ahd/2011 for AY 2003-04. The assessee has raised the following grounds of appeal:-

01. On the facts and circumstances of the case as well as in the law, the lrd.CIT(A)-IV, was erred in confirming penalty u/s.271(1)(c) on the ground that appellant has filed inaccurate particulars of income and was also erred in following decision of Hon'ble S.C. in the case of Dharmendra Textile vs. Union of India reported in (2008) 306 ITR 277.

02. The appellant prays to leave, amend, alter or cancel ground of appeal at the time of hearing.

Relief claimed in appeal We request your Honor to delete the penalty levied u/s.271(1)(c).

6.1. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Act was framed vide order dated 31/03/2006, thereby the AO made various additions and also initiated penalty proceedings u/s.271(1)(c) of the Act ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -8-

on such additions. Out of three additions; namely, addition amounting to Rs.50,12,491/- on account of payment made to sub-contractors/labour contractors by treating the same as bogus, addition of Rs.15 lacs made on account of unexplained loan by treating the same as assessee's income from undisclosed source and addition of Rs.41,626/- being the difference in closing stock of M/s.A.P.Construction. On appeal, the ld.CIT(A) sustained the additions of Rs.15 lacs & Rs.14,626/- and deleted the addition of Rs.50,12,491/-. On this sustained addition, the AO levied the penalty at 100%. Against this, assessee filed an appeal before the ld.CIT(A), who after considering the submissions, dismissed the appeal. Now, the assessee is further in appeal before this Tribunal.

7. At the outset, the ld.counsel for the assessee submitted that the authorities below failed to appreciate the fact that the penalty proceedings and the assessment proceedings are two different and distinct proceedings and to be appreciated in accordance with the provisions governing the same. He submitted that this is not the case where the assessee has concealed the income, but it is the case where the assessee had accepted the deposits from various persons. He submitted that the assessee made all the efforts and co-operated in the proceedings below the authorities to furnish the evidences. He submitted that the assessee had disclosed all material particulars related to these credits. He submitted that under the identical facts, a view has been taken by the Jurisdictional High Court that the penalty cannot be sustained. He ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04 -9-

placed reliance on the judgement(s) of Hon'ble Gujarat High Court rendered in the case of CIT vs. Jalaram Oil Mills reported at (2002) 253 ITR 192 (Guj.) and of National Textiles vs. CIT reported at (2001) 249 ITR 125 (Guj.) to buttress its contention that there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. He further placed reliance on the decision(s) of Coordinate Benches (ITAT Ahmedabad) rendered in the case of Shri Natubhai Naranbhai Virani vs. ITO in ITA No.1433/Ahd/09 for AY 2003-04, dated 07/08/2009 and of ACIT vs. Manish Organics India Ltd. reported at (2012) 17 taxmann.com 25 (Ahd.):: ITA No.2155/Ahd/2010 for AY 1994-95, dated 30/11/2011. He submitted that the assessee made all efforts to produce the persons who had given loans to the assessee. He further submitted that there is no finding that the impugned amount was received by the assessee represented the income of the assessee and there is no finding by the authorities below that the amount belonging to the assessee came through such credits. He submitted that in the absence of such finding, penalty ought not to have been imposed.

7.1. On the contrary, the ld.Sr.DR supported the orders of the authorities below and submitted that the assessee was given sufficient opportunities by the authorities below to prove the creditworthiness of the depositors. He submitted that the assessee failed to discharge this primary onus by furnishing the evidences.

ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04

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8. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgements/decisions relied upon by the ld.counsel for the assessee. Admittedly, the deposits have been received through banking channels. The assessee has furnished confirmations from creditors. However, the assessee could not enforce the presence of the creditors before the assessing authority. There is no finding by the authorities below that the money belonging to the assessee has been circulated through the so- called creditors. The addition has been sustained on the basis that the assessee could not discharge its onus with regard to the creditworthiness of the creditors. The Hon'ble Gujarat High Court rendered in the case of National Textiles vs. CIT (supra) held as under:-

"22. In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. 1 but it has bearing only on factor No. 2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If a assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04

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case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee."

8.1. Further, the Hon'ble Gujarat High Court rendered in the case of CIT vs. Jalaram Oil Mills(supra), has held that applying the ratio laid down by the Hon'ble Apex Court in the case of CIT vs. Anwar Ali (1970) 76 ITR 696(SC) and of CIT vs. Khoday Eswarsa and Sons (1972) 83 ITR 369(SC), it can be stated on the basis of the assessee agreeing to have the credit entries in its books of account treated as its income, by virtue of the provisions of section 68 of the Act, the said sums shall be deemed to be income of the year under consideration. However, de hors the said provision, it is not possible to state with certainty that the said sums would be "concealed income" of the assessee for the year under consideration. In the instant case also, it cannot be said with certainty that the sum received from the creditors would be "concealed income" of the assessee. The Coordinate Bench (ITAT Ahmedabad Bench 'A') in the case of ACIT vs. Manish Organics India Ltd.(supra) has followed the judgement of Hon'ble Jurisdictional High Court in the case of National Textiles vs. CIT(supra). The Revenue has not placed any material to take a different view than taken by the Coordinate Bench in the case of ACIT vs. Manish Organics India Ltd.(supra). In view of the ratio laid down by the Hon'ble Jurisdictional High Court in the case(s) of National ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04

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Textiles vs. CIT(supra) and of CIT vs. Jalaram Oil Mills(supra), this is not a case where penalty cannot be sustained. Therefore, the AO is hereby directed to delete the addition. As a result, assessee's appeal(penalty) in ITA No.2113/Ahd/2011 is allowed.

9. In the combined result, assessee's appeal(quantum) in ITA No.1030/Ahd/2011 for AY 2003-04 is dismissed, whereas assessee's appeal(penalty) in ITA No.2113/Ahd/2011 for AY 2003-04 is allowed.

Order pronounced in the Court on Friday, the 20th day of February, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सद य या यक सद य ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 20/ 02 /2015 ट*.सी.नायर, व. न.स./T.C. NAIR, Sr. PS आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to : 1. अपीलाथ# / The Appellant 2. $%यथ# / The Respondent. 3. संबं4धत आयकर आयु6त / Concerned CIT 4. आयकर आयु6त(अपील) / The CIT(A)-IV, Baroda

5. 7वभागीय $ त न4ध, आयकर अपील*य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स%या7पत $ त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad ITA Nos.1030/Ahd/2011 & 2113 /Ahd/2011 M/s.Raghuvir Construction Co. vs. ACIT Asst.Year - 2003-04

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1. Date of dictation ..12.2.15 (dictation-pad 18- pages attached at the end of this File)z

2. Date on which the typed draft is placed before the Dictating Member ..12/19.2.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......23.2.15

7. Date on which the file goes to the Bench Clerk.....................23.2.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................