High Court Of Allahabad
CIT & Ors. vs. Lal Mohar And Ors.
Section 68
Asst. Year 2001-02
Bharati Sapru & Saumitra Dayal Singh, JJ.
Income Tax Appeal No. 9 of 2015, 349 of 2016, 350 of 2016
28th November, 2017
Counsel Appeared:
Praveen Kumar, Gaurav Mahajan for the Appellant.: Amit Mahajan, Rishi Raj Kapoor, R.R. Kapoor, Amit Mahajan for the Respondent
BHARATI SAPRU & SAUMITRA DAYAL SINGH, JJ.
Heard Sri Praveen Kumar, learned counsel for the revenue and Sri R.R. Agarwal, Senior Advocate assisted by Sri Amit Mahajan, learned counsel for the assessee.
Since the facts and the issue involved in all the three appeals is identical, all the appeals are being heard together and disposed of by a common order which is being passed in Income Tax Appeal No.9 of 2015, treating as a leading case.
This appeal under Section 260A of the Income Tax Act, (hereinafter referred to as the ‘Act’) has been filed by the department against the order of the income Tax Appellate Tribunal, Lucknow Bench, Lucknow dated 21.08.2014 for the assessment year 2001-02. The appeal has been admitted on the following questions of law:
Whether members of AOP have distinct identity vis-a-vis as its constituent firm as in the case of partners & firm u/s 184.
Whether the unexplained capital introduced by member of AOP can be assessed as unexplained capital of the constituent firm.
Whether AOP by merely providing PAN/GIR and Income Tax Return its members establish their creditworthiness and also discharge its onus u/s 68.”
At the outset learned counsel for the revenue states that question no.2 infact covers the entire controversy involved in the present appeal.
The brief facts of the case are that the assessee was constituted as an association of persons (‘AOP’ in short) on 1st of April 2000. It commenced it’s business in the previous year 2000-01. On the first day of that accounting period cash credit entries of Rs.92,32,000/-appeared in the books of account of the assessee. During the assessment proceedings, the assessee explained the said entries to have arisen against deposits received from the constituent members. While there are about 25 constituents of the AOP, each has contributed varying amount such that the total contribution of all constituents taken together comes to Rs.92,32,000/-.
The Assessing Officer took up the assessment proceedings of the assessee under Section 143(3) of the Act and vide its assessment order dated 31.03.2004 disbelieved the cash credit entries of Rs.92,32,000/-and added the same to the income of the assessee. The assessee carried the matter in appeal up to the Tribunal. The Tribunal vide its order dated 31.01.2007 in I.T.A No.873 of 2006 allowed the appeal and remitted the matter to the Assessing Officer specifically on the issue of disallowance of cash credit entries. The Tribunal provided that the Assessing Officer shall give adequate opportunity of hearing to the assessee and pass fresh order accordingly.
It appears that in the proceedings thus remanded to the Assessing Authority, the assessee produced its books of account wherein the aforesaid cash credit entries were found recorded. The assessee further filed copies of confirmation of accounts issued by the constituent members of the AOP, their PAN numbers, copies of the assessment orders of such constituents, copies of Income Tax return of such constituents and also copies of withdrawal made by such constituents from earlier firms to explain the source of money deposited by them with the assessee. Affidavits of respective constituents are also stated to have been filed confirming the fact of their having made the deposit with the assessee.
However, the Assessing Officer proceeded to again rejected the claim of cash credit entries standing in the books of accounts of the assessee and added the same to its income. The assessee again carried out the matter in appeal to the CIT (Appeals), who vide its order dated 21.08.2009 allowed the appeals of the assessee. According to the CIT(Appeals), the identity of the persons making the deposit was not in doubt inasmuch as those persons were the very same persons who constituted the AOP/assessee.
As to the genuineness of the transactions, the CIT (Appeals) found that the assessee had filed affidavits/confirmation of all its constituents who had made contribution to the capital which was found existing by way of cash credit entries. The CIT (Appeals) also noted that the revenue had got conducted third party inquiry and no adverse report or inference had been brought on record either by the Assessing Officer or in any other manner in respect of subject matter of those inquiries. The CIT (Appeals) further noted that there was no evidence to disbelieve the documentary evidence in the shape of income tax return and the assessment orders filed by the assessee in support of the claim that the cash credit entries represented genuine transactions performed by persons who had the necessary capacity. The CIT (Appeals) also noted the fact that this was the first year of the business of the AOP and that the cash credit entries had arisen on the first day of the accounting period.
The CIT (Appeals) therefore, on one hand accepted the contentions of the assessee as to the identity of the depositors, genuineness of the transactions and also the creditworthiness of the depositors and on the other hand he also took note of the fact that the entries had arisen on the first day of business of the assessee and therefore, the same could not have been an unaccounted money of the assessee itself.
On such finding the CIT (Appeals) allowed the assessee’s appeal and deleted the addition of Rs.92,32,000/-made by the Assessing Officer under Section 68 of the Act.
The revenue carried out the matter in appeal to the Tribunal wherein it raised three grounds of appeal that have also been quoted by the Tribunal in its order in the following words as belowâ€
“1(1) The learned Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in deleting the addition of Rs.92,32,000/-made by the Assessing Officer, on account of unexplained capital introduced in the books of the AOP in the name of its members, without appreciating the facts of the case and the material brought on the record by the Assessing Officer.
1(2) In doing so, the Ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in wrongly relying the decision of the jurisdictional High Court, given in the case of CIT Vs. Jaiswal Grain Stores (2005) 272 ITR without appreciating that the facts of the present case are distinguishable from the facts of the aforesaid decision inasmuch as the assessee failed to establish that cash in fact been received from the members of AOP as it had failed to furnish the dates and amounts of such cash contributions and also avoided to produce the books of accounts before the Assessing Officer.
1(3) In doing so, the Ld. Commissioner of Income Tax (Apeals)-1 Kanpur has erred in Law and on facts in not appreciating that the assessee AOP had failed to proved that the cash credits standing in the name of members in the books of the firm actually belong to the partners and as such the ration of decision of Hon’ble High Court, Allahabad in the case of CIT Vs. Kapoor Bros. reported in 118 ITR 741 and the decision of the Hon’ble Patna High court reported in 142 ITR 133.”
Then in paragraph 4 of the order, the Tribunal noted that the revenue supported the assessment order on the strength of two judgments; one of this Court in the case of Commissioner of Income Tax Vs. Kapur Bros. [1979] 118 ITR 74(All) and also on a decision of Hon’ble Patna High Court rendered in the case of Commissioner of Income Tax Vs. Anupam Udyog reported in [1983] 142 ITR 133(Pat.).
No other argument had been noted by the Tribunal as having been made by the revenue in the appeal before the Tribunal and there is no dispute raised in the present appeal in that regard.
In the aforesaid factual background, learned counsel for the revenue submits that the assessee had failed to establish the genuineness of the transactions as also the creditwor hiness of the depositors inasmuch as the assessee never produced the liquor contract entered into with the Government of U.P. He therefore submits that the contract would have revealed whether any payment had been made by the assessee prior to the beginning of the previous year. It yes, then the case set up by the assessee would stand disproved.
It has also been submitted that the creditworthiness of th depositors was not established.
Opposing such argument, learned counsel for the assessee submits, while the Commissioner of Income Tax (Appeals) had recorded findings to the eff ct that the identity of the creditors, genuineness of the transactions and the creditworthiness of the creditors had been established; that authority had also recorded a finding that no addition could be made in the hands of the assessee being that too on the first day of it’s business of the assessee/AOP.
Also, the revenue pressed only one ground before the Tribunal which was confined to the second finding of the CIT (Appeals) that the additions could not be made in the hands of the assessee in the first year of business. He submits that the finding of the cash credit entries being genuine had not been questioned by the revenue in the appeal before the Tribunal and therefore, that issue is not open to challenge in the present appeal.
Even otherwise, it has been submitted that the findings recorded by the CIT (Appeals) to accept the cash credit entries are based on material and evidence; both documentary and oral, which exist on record. No material or evidence has been brought on record by the revenue to rebut or disbelieve the evidence relied upon by the CIT (Appeals). Therefore, the findings recorded by the CIT (Appeals) were in any case concluded findings of fact warranting no interference by this Court.
As to the argument raised by the revenue in the appeal before the Tribunal relying on the judgment of this Court in the case of Kapur Bros. (Supra), the learned senior counsel submits that the judgment in the case of Kapur Bros. (supra) is wholly distinguishable inasmuch as in that case the deposits had been received by the assessee at the fag end of the accounting period, only about three weeks prior to the end of the accounting period. In such facts, after rejecting the explanation furnished by the assessee, a finding had been recorded that such cash credit entries represented unaccounted income of the assessee. However, in the instant case the cash credit entries have arisen on the first day of business itself. It can never be said that they represent unaccounted or undisclosed income of the assessee as no business had been conducted till that date and no income could have, therefore, arisen to the assessee.
This distinguishing features has been considered in the subsequent judgment of this Court wherein Kapur Bros. case was distinguished on that count. Reliance in this regard has been placed on two judgments of this Court in the case of Abhyudaya Pharmaceuticals Vs CIT reported in 350 ITR 358 (All.) and India Rice Mills Vs. CIT reported in 218 ITR 508 (All.).
Having considered the arguments so advanced by learned counsel for the parties, we find, in the case of Abhyudaya Pharmaceuticals (supra), this Court considered the decision in the case of CIT Vs. Jaiswal Motor Finance [1983] 141 ITR 706 (All) as also the Kapur Brothers.(supra) and thereafter concluded that the authorities below had committed an error as they failed to take into account the fact that it being the first year of business, no addition could have been made to the undisclosed income of the assessee, that was a partnership firm.
Similarly, in the case of India Rice (supra) also, this Court has held that the Tribunal had fallen into a serious error in making the addition under Section 68 of the Act in the hands of the firm with reference to an amount that was found credited in its account before commencement of the business. In view of the aforesaid discussions, it cannot be disputed that no addition can be made under Section 68 of the Act in the hands of the firm or any artificial person in the first year of business that too on a day wh ch is the first day of its business. The underlying reason for such conclusion is self apparent that no undisclosed investment can arise in absence of any activity or business which may provide the source to generate such income.
The judgment in the case of Kapur Brothers (supra) and Anupam Udyog (supra) are, therefore, clearly distinguishable. The issue involved in the present case is squarely covered by decisions of this Court in the case of Abhyudaya Pharmaceuticals Vs. CIT (supra) and India Rice Vs. CIT (supra).
In view of the fact that it was the first year of business of the AOP, and no business activity having been shown to have been conducted by it that could lead to generation of Rs. 92,32,000/-on the first day of the relevant accounting period, the Tribunal has not committed any error in deleting the addition of that amount under Section 68 of the Act at the hands of the assessee.
The alternative submission made b the learned counsel for the revenue is that the genuineness of the transaction and the creditworthiness of the creditors was not established, also does not merit serious consideration in view of the fac that neither that issue appears to have been raised before the Tribunal at the time of argument nor even otherwise the same requires any further consideration in absence of the revenue having led any evidence to rebut or disapprove the evidence led by the assessee and relied upon by the CIT (Appeals) while recording the finding that the cash credit entries were genuine.
In view of above, the question of law no.2 is answered in favour of the assessee and against the revenue. The appeal is accordingly dismissed. No order as to costs.
[Citation : 409 ITR 95]
