High Court Of Bombay
CIT Vs. S.K. Banerjee, J.V. Transport Plaza
Assessment Year : 2005-06
Section : 68
S.A. Bobde And S.B. Deshmukh, JJ
ITA No. 80 Of 2010
MarchÂ 31, 2011
1. This appeal is filed by the appellant against the order of the Income-tax Appellate Tribunal, Nagpur Bench, Nagpur.
2. In exercise of powers under section 68 of the Income-tax Act, the Assessing Officer found that an amount of Rs. 1,71,78,161 was unexplained cash credit in the form of WIP (work-in-progress) in the books of the assessee-firm.
3. The facts which gave rise to the order under section 68 of the Income-tax Act, 1961, are that the work of the Transport Plaza for the Nagpur Improvement Trust was undertaken by M/s. S. K. Banerjee firm. This firm transferred the entire work to a new firm known as “M/s. S. K. Banerjee, J.V. Transport Plaza” (hereinafter referred to as “the J. V. Firm” for short), which was formed for completion of the job of the Transport Plaza allotted to M/s. S. K. Banerjee firm by addition of two additional partners, namely, Shri Surendra Golechha and Shri Abhishek Golechha. The entire expenditure incurred for purchase of materials, etc., up to December 4, 2004, for Rs. 1,71,51,161 was transferred to M/s. S. K. Banerjee J. V. Transport Plaza, i.e., the assessee-firm and the amount was credited to the current capital account of the partner of M/s. S. K. Banerjee and debited to different accounts. The transfer was at the cost price and no depreciation has been taken into account. However, the Assessing Officer found what appears to be irregularities in the books of account of the old firm and that of M/s. G. and B. Infrastructure and Developers which was a sub-contractor of the old firm. The Assessing Officer noted several items, which according to the Assessing Officer, were not properly explained and, therefore, the said amount is found as unexplained in the accounts of the new firm, i.e., J. V. Firm. Since the Assessing Officer made the addition of the aforesaid amount, the matter was carried in appeal before the Commissioner of Income-tax (Appeals) (hereinafter referred to as “the CIT (Appeals)” for short). The Commissioner of Income-tax (Appeals) went into all the alleged irregularities found by the Assessing Officer and, after examining evidence, the case in the assessment order, remand report, the submissions of the appellant and after appreciation of the evidence, came to the conclusion that the amount is not unexplained at all as contemplated by section 68 of the Income-tax Act. The appellate authority came to the conclusion that appropriate books of account have been maintained by the S. K. Banerjee firm and every item of transfer is supported by purchase bills, delivery memo, etc. The Commissioner of Income-tax (Appeals) also observed that the items of fixed assets transferred from M/s. G and B are supported by purchase bills and no depreciation has been claimed either by M/s. S. K. Banerjee or M/s. G. and B. Infrastructure on the same. Depreciation has been claimed only for six months on these fixed assets. The Commissioner of Income-tax (Appeals) further found at the time of transfer of the project by M/s. S. K. Banerjee to the assessee, credit was given by a journal entry in the books of the assessee-firm to the capital account of M/s. S. K. Banerjee and simultaneously, the entire expenditure transferred was debited to the respective account in the books of the assessee. The audited balance-sheet, as on March 31, 2005, was also perused and the Commissioner of Income-tax (Appeals) found that the amount of Rs.1,71,78,161, which is an investment in the new partnership firm is duly reflected in schedule D of debtors and advances in the name of M/s. S. K. Banerjee (Transport Plaza) in the balance-sheet of the partner. As regards the relationship of M/s. G. and B. Infrastructure, which was a sub-contractor of the old firm, the Commissioner of Income-tax (Appeals) has observed as follows :
“On the basis of facts available on record, I have also examined the role of M/s. G and B which has been the bone of contention for the Assessing Officer. It is an indisputable finding of fact that M/s. G and B procured material on behalf of M/s. SKB and made payments to the parties. Since the materials are purchased on behalf, subsequently the debit notes were raised by M/s. G and B to M/s. SKB on the basis of which M/s. SKB recorded the expenditure on the Transport Plaza in its books of account. The payments were made by M/s. SKB to M/s. G and B. This according to the assessee was a mutual arrangement in between the two firms, i.e., M/s. S. K. B. and M/s. G. and B. The assessee has further claimed that the construction at site was given on labour contracts basis to M/s. G and B which the Assessing Officer has doubted on the basis that it is an afterthought. However, on a perusal of the various documents including the return of income of M/s. G and B, balance-sheet, profit and loss account, TDS certificates and other records, I find that the labour work was provided by M/s. G and B and TDS has been deducted at the time of payment which event occurred even before the issue of notice under section 143(2) in the case of the assessee for the assessment year 2005-06. The bills for labour charges were raised in the subsequent years, i.e., the assessment year 2006-07 according to the arrangements between the parties.”
4. The Commissioner of Income-tax (Appeals) thus came to the conclusion that there is no transfer of funds involved from the incoming partner of M/s. S. K. Banerjee and the credit is raised in the partners’ capital account by way of a journal entry and that the Assessing Officer has misinterpreted the entry in the books of account made on December 31, 2004, and held that the debit note in respect of transfer of material by the partner of M/s. S. K. Banerjee is without actually receiving the material, i.e., physical form, from the partner. The Commissioner of Income-tax (Appeals) has observed that the finding of the Assessing Officer is contrary to his own finding of fact and misleading about the nature of transfer. Theses reasons are discussed in detail in para. 3.7 of the order of the Commissioner of Income-tax (Appeals). In conclusion the Commissioner of Income-tax (Appeals) observed as follows :
“The corresponding credit entry in the capital account is substantiated from the books of M/s. SKB with the corresponding debit entry in their books of account. Thus, when it is found that the credit entry in the partners’ capital account is also reflected as debit outstanding in the partners’ own books of account, then in such circumstances no doubt can be raised on such credit. In the instant case, the credit entry in the capital account of the partner has been satisfactorily explained and the onus which lay on the assessee has been properly discharged.”
5. The Commissioner of Income-tax (Appeals) has also observed that the Assessing Officer has not applied his mind to the documents referred to and, therefore, came to the conclusion that the addition of Rs. 1,71,78,161 as bogus cash credit, is not justified on the basis of the lack of factual integrity on record. In appeal, the Income-tax Appellate Tribunal has approved the order of the Commissioner of Income-tax (Appeals) and held that once it is established that the amount has been invested by a particular person, he being a partner or an individual, then the responsibility of the assessee-firm is over and that in the instant case the assessee has successfully established the source of the credit entry in the partners’ capital account. Accordingly, it has been held that the burden of the assessee has been fully discharged and dismissed the appeal.
6. Mr. Parchure, learned advocate for the appellant, submitted that the addition is contrary to section 68 of the Income-tax Act which reads as follows :
“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
7. We find that section 68 of the Income-tax Act empowers the Assessing Officer to charge income-tax for the sum found to be credited in the books of an assessee for previous year and for which there is no explanation offered or the explanation offered is not found to be satisfactory. In the present case, the source of the amount of Rs. 1,71,78,161, found in the books of the assessee, has been found to have been properly explained by the Commissioner of Income-tax (Appeals), who has given reasons for the said finding. The amount has been found to be credited in the name of the assessee by way of a journal entry by which the WIP (work-in-progress) was transferred from the old firm to the new firm, i.e., M/s. S. K. Banerjee to S. K. Banerjee J. V. Firm.
8. Mr. Thakkar, learned advocate for the assessee, relied on the decision of this court in CIT v. Tania Investments P. Ltd. reported in  322 ITR 394 (Bom) where the Division Bench held that under section 68 an assessee has to establish (i) the identity of the party, (ii) capacity, and (iii) genuineness of the transaction. In the present case, we find that the identity of the party is well established due to the fact that one partner of the old firm is common with the new firm, i.e., the J. V. Firm and that the amount is credited to his account. The authorities have concluded on the facts that there is only a transfer of WIP (work-in-progress) from the earlier firm to the assessee and that there is no reason to either doubt the genuineness of the transaction or the capacity. We see no reason to disagree with the findings of fact which are based on evidence. There is no error of law. Hence, the appeal is dismissed.
[Citation : 335 ITR 563]