Satish Kulkarni,, Pune vs Assessee

Satish Kulkarni, Prop. Shree Infotech Systems, B-1, Keshar, 46/2-B Paud Road, Behind Jog Hospital, Pune - 411 038. PAN : ABEPK3225G .... Appellant

Vs.

Income Tax Officer, Ward 3(4), Pune. .... Respondent

Assessee by : Mr. Kishor Phadke Department by : Mr. B. C. Malakar Date of hearing : 24-02-2015 Date of pronouncement : 31-03-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the assessee is directed against the order of

the Commissioner of Income Tax (Appeals)-II, Pune dated 12.01.2012 which,

in turn, has arisen from an order dated 27.12.2010 passed by the Assessing

Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act") pertaining to

the assessment year 2008-09.

2. In this appeal, assessee has raised the following modified Ground of

Appeal Nos.1 to 5 and an Additional Ground of Appeal by way of Ground of

Appeal No.6, which read as under :-

"1. The learned CIT(A)-II erred in law and on facts in confirming the addition of Rs.85 lacs u/s 69 of the ITA, 1961 made by learned AO to the taxable income of the appellant.

2. The learned CIT(A)-II, Pune erred in law and on facts in confirming the action of the learned AO in adding the amount of Rs.85 lacs to the appellant's taxable income, simply on the basis of a fraudulent letter dated 24/03/2008, the contents of which were denied vide statements u/s 2 ITA No.831/PN/2012

131 by the appellant. In fact, the learned AO's own findings as per para 5 of the 143(3) order reveals that the Demand Drafts alleged as belonging to the appellant were, in fact, those belonging to Smt. Sheela Sharma and Mr. Bankebihari Agarwal of Jaipur.

3. The learned CIT(A)-II and the learned AO erred in law and on facts in not appreciating that as per the letters of M/s Inspira Enterprise Private Limited (IEPL) dated 16th December 2010 and 20th December 2010, it is clear that the appellant had no role of whatsoever nature in transactions of payment of Rs.85 lacs.

4. The learned CIT(A)-II, Pune; erred in law and on facts in not appreciating that the learned AO; before using alleged incriminating material (in the form of letters, etc.) availed from IEPL against the appellant; ought to have voluntarily extended copy of the same to the appellant considering the principle of natural justice.

5. The learned CIT(A)-II erred in law and on facts in not appreciating that the appellant's repeated requests for extending copies of the alleged incriminating material were overlooked by the learned AO, thus leading to serious breach of principle of natural justice.

6. Appropriate suitable cost of litigation incurred by the appellant may please be awarded to the appellant considering the high handed manner of making additions to the income of the appellant leading to a lot of mental stress and agony."

3. In so far as the Ground of Appeal No.6 (being Additional Ground) is

concerned, the same has not been pressed at the time of hearing and the

same is accordingly dismissed.

4. Although, the assessee has raised multiple Grounds of Appeal, namely,

Ground of Appeal Nos.1 to 5, essentially the solitary dispute arises from the

action of the CIT(A) in confirming an addition of Rs.85,00,000/- made by the

Assessing Officer by invoking section 69 of the Act.

5. Briefly put, the relevant facts are that appellant is an individual who filed

his return of income for assessment year 2008-09 declaring a total income of

Rs.4,42,390/-. The appellant is engaged in the running of proprietory concern,

Shree Infotech Systems, which is undertaking trading of computer software

and hardware. With respect to the impugned addition, the pertinent facts are

that in the course of assessment proceedings, assessee was show-caused to 3 ITA No.831/PN/2012

explain the sources of transmitting Rs.85,00,000/- to one M/s Inspira

Enterprises Pvt. Ltd., Mumbai as per following details :-

DD No. Amount Date Name of the Bank 367803 35,00,000/- 01.04.2008 Oriental Bank 111379 7,00,000/- 24.03.2008 Bank of Baroda 111380 6,00,000/- 24.03.2008 Bank of Baroda 111381 7,00,000/- 24.03.2008 Bank of Baroda 111382 5,00,000/- 24.03.2008 Bank of Baroda 101752 8,00,000/- 24.03.2008 Bank of Baroda 101753 4,00,000/- 24.03.2008 Bank of Baroda 006903 7,00,000/- 24.03.2008 Bank of Baroda 006904 6,00,000/- 24.03.2008 Bank of Baroda

6. The assessee submitted that the said amount was not paid by him to

M/s Inspira Enterprises Pvt. Ltd. and that such amount was also not reflected

in the account books maintained. The assessee communicated to the

Assessing Officer vide a communication dated 15.11.2010 that he was not

maintaining any bank account referred in the aforesaid Tabulation and it was

categorically asserted that no such payments were made. The assessment

order reveals that a statement, u/s 131 of the Act, of the assessee was also

recorded on 08.12.2010. During such examination, assessee was specifically

asked as to whether he had purchased the Demand Drafts (DDs) shown in the

aforesaid Tabulation, which the assessee denied. However, the Assessing

Officer confronted the assessee with a letter dated 24.03.2008 purportedly

written on the letter head of the assessee's proprietory concern which was

addressed to M/s Inspira Enterprises Pvt. Ltd. whereby the above

DDs/Cheques were stated to have been forwarded to M/s M/s Inspira

Enterprises Pvt. Ltd.. The assessee again denied having written such a letter

to M/s Inspira Enterprises Pvt. Ltd. and also pointed out that the letter in

question appeared to be a fictitious document. It transpires from the

assessment order that Assessing Officer made further enquiries which

revealed that the DDs under consideration were purchased by five persons,

namely, (i) Banke Bihari Agarwal; (ii) Surendra Tambi; (iii) Banke Bihari 4 ITA No.831/PN/2012

Agarwal (HUF); (iv) Mrs. Sheela Sharma; and, (iv) Dr. Madhusudhan Sharma.

The Assessing Officer also noted that M/s Inspira Enterprises Pvt. Ltd.

confirmed the receipt of DDs of Rs.85,00,000/- through one, Mr. Rahul Patil an

employee of M/s Inspira Enterprises Pvt. Ltd., who was stated to have

handed-over the letter under consideration of Shree Infotech Systems.

7. On the basis of the aforesaid, the Assessing Officer held that assessee

had failed to explain the source of money utilized for the purchase of the

impugned DDs and therefore he invoked section 69 of the Act and added a

sum of Rs.85,00,000/- to the returned income. The CIT(A) has also affirmed

the addition, against which assessee is in appeal before us.

8. Before us, the Ld. Representative for the assessee has primarily

submitted that there was no material on record to suggest that the assessee

had obtained the DDs from the bank and given the same to M/s Inspira

Enterprises Pvt. Ltd.. In this context, it was pointed out that the subsequent

communications of M/s Inspira Enterprises Pvt. Ltd. dated 16.12.2010 and

20.12.2010 addressed to the Assessing Officer, clarified that assessee had

nothing to do with such DDs. A reference has been made to the aforesaid

communication, copies which have been placed in the Paper Book at pages

12 to 13 and 20 to 21 respectively.

9. On the other hand, the Ld. Departmental Representative appearing for

the Revenue has emphasized that the recipient M/s Inspira Enterprises Pvt.

Ltd. has initially confirmed that the DDs in question were received under the

covering letter of the assessee through one of their employee, Mr. Rahul Patil,

who was associated with assessee's proprietory business of Shree Infotech

Systems.

5 ITA No.831/PN/2012

10. We have carefully concerned the rival submissions. Ostensibly, in the

present case, section 69 of the Act has been invoked by the income-tax

authorities in order to justify the impugned addition of Rs.85,00,000/-. As per

the Revenue, payment of Rs.85,00,000/- has been made to M/s Inspira

Enterprises Pvt. Ltd. by means of DDs/Cheques as Tabulated earlier, for

which assessee has failed to explain any source of income. Section 69 of the

Act provides that where in the financial year, assessee has made investments

which are not recorded in the account books of account, if any maintained by

him for any source of income, and the assessee offers no explanation about

the nature and source of the investment or the explanation offered by him is

not, in the opinion of the Assessing Officer, satisfactory, the value of such

investments may be deemed to be the income of the assessee of such

financial year. Notably, the deeming provision of section 69 of the Act would

be triggered if it is established that "the assessee has made investments which

are not recorded in the books of account". In other words, before fastening tax

liability in the hands of the assessee by application of section 69 of the Act, it

is imperative to establish that assessee has indeed made such investments,

which fall within the mischief of section 69 of the Act. Ostensibly, the burden

is on the Assessing Officer to establish that assessee has indeed made

investments which are not recorded in the account books. Of course, once the

Assessing Officer is able to establish making of investment by the assessee,

the onus thereafter shifts on to the assessee to explain the sources of income

for making such investment. The aforesaid discussion is relevant in the

present case because the case set-up by the assessee before the lower

authorities as well as before us is to the effect that he has not made any such

investment. As per the assessee he has not obtained the impugned

DDs/Cheques of Rs.85,00,000/- for payment to M/s Inspira Enterprises Pvt.

Ltd.. At the very outset, when assessee was confronted on this aspect he

denied of having made any such payment. Not only that, assessee also 6 ITA No.831/PN/2012

denied of having any connection with the bank accounts from where such

DDs/Cheques were found to have been issued.

11. In this context, we find that the verification exercise conducted by the

Assessing Officer revealed the name of persons who had obtained such

DDs/Cheques from the respective banks. Ostensibly, there is no material to

link such persons with the assessee. It is also not brought out by the

Assessing Officer as to whether assessee had any beneficial interest in the

bank account from where such DDs/Cheques were issued. In-fact, there is

complete silence on this aspect in the assessment order.

12. The only point made out by the Assessing Officer is that M/s Inspira

Enterprises Pvt. Ltd. initially stated that the said DDs/Cheques were received

by it with a covering letter of assessee's proprietory concern, and that such

material was received through one, Mr. Rahul Patil, who was their employee.

In this context, we find that in the course of assessment proceedings itself, M/s

Inspira Enterprises Pvt. Ltd. vide communication dated 16.12.2010 clarified

that subsequently it came to their notice that the aforesaid amount of

Rs.85,00,000/- which was received through Mr. Rahul Patil was not pertaining

to the assessee's proprietory concern and that it was collected from different

parties by Mr. Rahul Patil and handed-over to them. The said communication

also clarified that necessary rectification entries were also passed by M/s

Inspira Enterprises Pvt. Ltd. in its account books. The said communication of

M/s Inspira Enterprises Pvt. Ltd. also contained a statement showing details of

the refund to respective parties of the aforesaid amount. The aforesaid

material is placed in the Paper Book at pages 12-13. In-fact, the parties to

whom the amount of Rs.85,00,000/- has been refunded are the same which

were found by the Assessing Officer on verification i.e. (i) Banke Bihari

Agarwal; (ii) Surendra Tambi; (iii) Banke Bihari Agarwal (HUF); (iv) Mrs. 7 ITA No.831/PN/2012

Sheela Sharma; and, (iv) Dr. Madhusudhan Sharma. In the said details

furnished by M/s Inspira Enterprises Pvt. Ltd. the names of persons through

whom the payments are received have been mentioned as also the details of

the Cheques through which the re-payment has been effected have also been

mentioned. Subsequently, on 20.12.2010, the said concern i.e. M/s Inspira

Enterprises Pvt. Ltd. also furnished the address of Mr. Rahul Patil to the

Assessing Officer. All the aforesaid material, which was very much before the

Assessing Officer, clearly shows that the investment in obtaining the

DDs/Cheques in question amounting to Rs.85,00,000/- cannot be attributed to

the assessee. Therefore, in our considered opinion, having regard to the

material and evidence on record the Assessing Officer has failed to establish

the basic pre-requisite of section 69 of the Act, namely, that assessee has

made the impugned investment. In the absence of the fulfillment of such

primary pre-requisite of section 69 of the Act, in our view, the impugned

addition is untenable in the hands of the assessee. We therefore deem it fit

and proper to set-aside the order of the CIT(A) and direct the Assessing

Officer to delete the addition of Rs.85,00,000/-. Thus, on this aspect assessee

succeeds.

13. In the result, the appeal of the assessee is partly allowed.

Order pronounced on 31 st March, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 31 st March, 2015. Sujeet 8 ITA No.831/PN/2012

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-II, Pune; 4) The CIT-II, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune