High Court Of Gauhati
Prabash Chandra Saha & Ors. vs. CIT
Section 69
Asst. Year 1989-90
D. Biswas & Smt. A. Hazarika, JJ.
IT Appeal No. 48 of 2003
20th September, 2006
Counsel Appeared :
G.K. Joshi, R.K. Joshi & Ms. U. Chakraborty, for the Assessee : U. Bhuyan, for the Revenue
JUDGMENT
D. Biswas, J. :
This appeal under s. 260A of the IT Act, 1961 is directed against the order dt. 27th May, 2002, passed by the Tribunal, Gauhati Bench, Guwahati, in ITA No. 336/Gau/1996 relevant for the asst. yr. 1989-90.
2. The appeal was admitted for hearing on the following substantial questions of law : “(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the addition of Rs. 3,58,824 in the hands of the appellant-firm by holding on extraneous considerations and by ignoring the relevant materials on record that the assessee-firm and its partner, Shri Prabhash Chandra Saha were the same entity ? (2) Whether, on the facts and circumstances of the case, the findings of the Tribunal to the effect that the appellant-firm and its major partner, Shri Prabhash Chandra Saha were the same entity was vitiated and perverse by the use of irrelevant consideration and by ignoring the relevant materials on record and in that view of the matter, whether the upholding of such addition was sustainable in law ? (3) Whether, on the facts and circumstances of the case, in confirming the addition of Rs. 3,58,824 in the hands of the appellant-firm, the Tribunal misdirected itself in law in basing its conclusion on extraneous considerations by ignoring the essential and irrelevant materials on record ? (4) Whether, on the facts and circumstances of the case, the addition made by the Tribunal was perverse in the sense that no reasonable man could come to it on proper consideration of the materials on record ?”
3. The AO added Rs. 40,000 as amount of profit and Rs. 41,819 and Rs. 3,17,005 as income from undisclosed sources. The total income of the assessee has been worked out as below :
(1) Net profit as per P&L a/c 82,490
(2) Trading addition as discussed 40,000
(3) Income from undisclosed source as discussed (A) 41,819
(4) Income from undisclosed source as discussed (B) 3,17,005 Total income 4,81,314 or 4,81,310
It would appear from the assessment order that the assessee had executed contract works for a total value of Rs. 19,00,034 and out of this amount the assessee received Rs. 16,30,494.19 after deduction of security deposit, value of materials and taxes deducted at source. The assessee has no bank account of its own and all the cheques received were credited to the personal bank account of Sri P.C. Saha, the steering partner at SBI, Agartala. The assessee disclosed a net profit of Rs. 82,493 at 5 per cent of gross receipt of Rs. 19,00,034. The assessee explained the reason for low profit due to unsuitable work site, higher labour charges, etc. The AO noticed that the expenses for purchase of raw materials were not vouched for and no stock register was maintained and that the drawings of the partners were low and incompatible with their standard of living. For these reasons, the AO added a sum of Rs. 40,000 as profit at 11 per cent identical with other assessees during the relevant period. Further, the AO found that the cheques amounting to Rs. 15,000 and Rs. 26,819 totalling Rs. 41,819 were not credited to the bank account and hence, treated this amount as income of the assessee from undisclosed sources. The AO found that cheques amounting to Rs. 1,86,762 were deposited in the bank account of Shri P.C. Saha and the amounts were realised on 4th April, 1989. The balance sheet filed along with the return did not show “cheque in hand” or liability to the extent of Rs. 1,86,762. The AO rejected the explanation of the assessee that the cheque was deposited in the bank account of Sri P.C. Saha and, therefore, the assessee has nothing to do with the amount of the cheque. The closing balance as on 31st March, 1989, amounting to Rs. 1,30,243 was not shown in the balance sheet of the assessee. Having failed to bifurcate the transaction of the firm from the personal transaction of Sri P.C. Saha, the AO added both the amounts totalling Rs. 3,17,000 as income of the assessee from undisclosed sources.
4. The assessee filed an appeal before the CIT(A), Guwahati. The CIT(A) found no basis for addition of Rs. 40,000 in the trading account on the ground that the AO did not point out that the cases of other contractors relied upon by him were similarly situated and for identical works. The assessee was also not given any opportunity to explain that the cases have no relevance so far as the works executed by the assessee are concerned. The CIT(A) also held that the low drawing by the partners cannot be a ground for adverse presumption and on that count no notional income can be fixed. Observing this, the CIT(A) deleted the addition of Rs. 40,000. There was no appeal by the Revenue before the learned Tribunal and, therefore, the order of deletion passed by the CIT(A) attained finality.
With regard to the addition of Rs. 3,58,824, after consideration of the materials on record, the CIT (A) found that the AO nowhere stated that the assessee executed any other work not accounted for in its return of income against which some payments were received. The partnership firm was executing the contract orders issued in favour of the financing partner Sri Saha who is an enlisted contractor, and the firm has a liability to explain the value of the contracts assigned to it for execution and not beyond that. The learned Tribunal was of the opinion that the assessee-firm and the major partner were the same and, therefore, the firm is accountable for any discrepancy in the bank account of the major partner. Holding thus, the learned Tribunal upheld the addition of Rs. 3,58,824.
We have carefully examined the assessment order, the order passed by the CIT(A) and the order passed by the learned Tribunal. We have also considered the other materials available on record. We are unable to agree with the learned Tribunal that the assessee-firm would be accountable for the value of any contract executed by the major partner in his individual capacity. The assessee-firm has been executing contract orders assigned to it by the major partner. There is no material on record to show that the assessee has executed any other contract and the value thereof has not been shown in the return of income. The income which is not in the hands of the assessee- firm cannot be taxed as income of the firm. It is the major partner who will be liable for any discrepancy in his bank account and the authorities below should have proceeded accordingly. Mr. Joshi, learned senior counsel, submitted that the discrepancy sought to be projected with regard to the non-credit of Rs. 41,819 and Rs. 1,86,762 is because of improper appreciation of the materials placed by the assessee before the AO. According to Mr. Joshi, both the amounts have been duly accounted for and this is discernible from the assessment order itself and the other materials available on record. The statement of contract works of the firm and the copy of the ledger account of the major partner, if properly scrutinized, will clarify the misgivings.
We have examined the records produced by Mr. Bhuyan, learned counsel for the Revenue. The cheque amounts of Rs. 15,000 and Rs. 26,819 totalling Rs. 41,819 have been credited to the ledger account of the major partner. The deposit of Rs. 1,86,762 is also discernible from the records. The AO appears to have failed to take note of the same. That apart, the statement of the contract works executed by the assessee-firm shows that the value of the total works executed during the asst. yr. 1989-90 is Rs. 19,00,034.68 and the firm has duly accounted for it in its return of income. The AO, the CIT(A) and the learned Tribunal could not find any material on record to hold that the assessee had executed any other contract than what has been assigned to it and reflected in the return of income. On this background, it can be said that the learned Tribunal erred in law in holding that the discrepancy in the bank account of the major partner or any other amount received by the major partner and deposited in his bank
account would be treated as an income of the assessee-firm. For this reason, the order of the learned Tribunal is liable to be set aside. Accordingly, the same is set aside and that of the CIT(A) is restored.
The questions of law formulated at the time of admission of the appeal are accordingly answered in favour of the assessee and against the Revenue.
[Citation : 287 ITR 259]
