Satyadev Construction Co. v. The Income Tax Officer- Ward-3(3)
[Citation -2007-LL-1019-6]

Citation 2007-LL-1019-6
Appellant Name Satyadev Construction Co.
Respondent Name The Income Tax Officer- Ward-3(3)
Court ITAT-Ahmedabad
Relevant Act Income-tax
Date of Order 19/10/2007
Judgment View Judgment
Keyword Tags unexplained cash credit • additional evidence • confirmation letter • co-operative bank • contract business • road construction • telephone charges • sale of property • source of income • business purpose • welfare expenses • trading company • issue of notice • stock register • initial burden • staff welfare • income liable • personal use • car loan • karta
Bot Summary: CIT(A)-II, Baroda has also erred by not considering the assessee s facts for disallowing 1/5th personal use in the respect of Car loan interest, vehicle expenses, depreciation, mobile expenses etc. The assessee furnished the 2 I T A No.1 3 15 / A hd / 200 4 address of M/s Giriraj Transport in connection with cartage expenses and of M/s Giriraj Trading Company in connection with the purchase of kapachi/grit. The assessee submitted confirmation of the said party, wherein it was stated that the amount was paid as advance against the purchase of the assessee s property at village Thalatej, Dist. Where there is an unexplained cash credit, it is open to the Assessing Officer to hold that it is income of the assessee and no further burden lies on the Assessing Officer to show that income in question comes from any particular source. If the credit entry stands in the names of the assessee's wife and children, or in the name of any other near relation, or an employee of the assessee, the burden lies on the assessee, though the entry is not in his own name, to explain satisfactorily the nature and source of that entry. Once the identity of the third party is established before the Income-tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him ... 8.1 In the case under consideration, the assessee did not submit an iota of evidence establishing identity and creditworthiness of the aforesaid creditor nor even genuineness of the transaction, before the AO. Even when a confirmation was filed before the ld. AR did not demonstrate as to how these decisions are applicable to the facts of the case under consideration, especially when the assessee did not submit any confirmation before the AO and thus, failed to discharge the initial onus placed upon them.


IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD Before S/Shri Mahavir Singh, JM, and A.N. Pahuja, A.M. ITA No.1315/Ahd/2004 Asst. Year:2000-01 M/s Sat yadev V/s. Incom e-tax Officer, W ard Construction Co., 24, 3(3), Petlad. Sunrise Shopping Centre, Drive-in-Road, Thaltej, Ahmedabad- 380052. PAN :AAGFS8114D (Appellant) .. (Respondent) Assessee by :- Ms. Urvashi Shodhan, AR Revenue by:- Ms. Neeta Shah, DR ORDER A.N. Pahuja :This is recalled matter vide order dated 5/12/2008 in M.A.No.130/Ahd/2008 arising out of ITA No.1315Ahd/2004. assessee has raised following grounds against order dated 16.3.2004 of ld. CIT(A)-II,Baroda,in their appeal :- 01. ld. CIT(A)-II, has erred by disallowing of total cash expenditure of Rs.1,41,181/- under difference heads expenditure as explained in Relief Claimed Statement of first para. Further please note that said cash expenditures are supported by vouchers with recipient signature and payment made in cash below Rs.20,000/- for each transaction and it is made under business expediency and as per need for business purpose only. And therefore such addition be deleted from addition of business income. 02. ld. CIT(A)-II has also erred by making addition of Rs.75,000/- received under sale of property Banakhat dated 12.08.1999 of firm for which legal agreement being sale banakhat was made and payer of amount has confirmed in agreement and also in separate letter of confirmation and he has also produced another person confirmation letter from whom he managed to raise money for payment of such amount even though addition was made ignoring proof of payment and confirmation letters and legal I T No .1 3 15 / hd / 200 4 documents. This is payment made against purchase of assets in cash and therefore, sec.40A(3) is not applicable for cash payment. 03. ld. CIT(A)-II, Baroda has also erred by not considering assessee s facts for disallowing 1/5th personal use in respect of Car loan interest, vehicle expenses, depreciation, mobile expenses etc. fact was that in firm there is only one male partner Shri P.B. Patel and he died on 15.9.1999 and request was made by assessee that 1/5th disallowance of said expenses be restricted up to expenditure incurred for period 15.9.1999 because after death of Shri P.B. Patel business handled by managerial Staff only and after death of partner expenses incurred be considered as incurred by staff only and not by partners. same fact be considered and proportionate expenditure of addition after 15.9.1999 be deleted from firm s income. 2. Facts, in brief, as per relevant orders are that return declaring income of Rs.69,540/- filed on 30.10.2000 by assessee, carrying on business of road construction for Ahmedabad Municipal Corporation on contract basis, after being processed u/s 143(1) of Income-tax Act,1961[hereinafter referred to as Act ] was taken up for scrutiny with issue of notice u/s 143(2) of Act on 30.10.2001. During course of assessment proceedings, Assessing Officer[AO in short] notice that assessee had declared loss of Rs.23,610/- from contract receipts of Rs.86,49,200/- and other receipts of Rs.6,84,000/- by way of dumper rent (credited under head labour charges), machinery rent of Rs.5,60,000/- and bank interest of Rs.1,73,544/-. To query by AO, assessee, vide their letter dated 10.12.2002 submitted that stock register was not maintained and it was not possible to give quantitative details of material consumed. Even partywise details of purchases, wages, cartage, diesel expenses, salary, kitchen expenses, dumper repairs, erection charges and transportation charges were not submitted. Vide letter dated 2.3.2003, assessee submitted that party-wise details of purchase of kapachi, grit, metal, asphalt, mixed material, wages, cartage, diesel oil was not practicable but quantity- wise purchase of all these items was given while diesel oil was purchased through cash memos. It was further submitted that kitchen expenses and dumper repairs were mostly incurred in cash and, therefore, party-wise details of these expenses were not available. assessee, however, furnished 2 I T No .1 3 15 / hd / 200 4 address of M/s Giriraj Transport in connection with cartage expenses and of M/s Giriraj Trading Company in connection with purchase of kapachi/grit. Later, assessee filed before Assessing Officer certain details besides photocopies of wages register containing signature of labours and month- wise details of salary containing names and signatures of employees. photocopies of 5 bills of M/s G.H. Vijapura & Co. for purchase of mix materials were also filed. AO, however, observed that some of details filed did not make any sense and most of expenses were unsupported by documentary evidences. Accordingly, AO invoked provisions of section 145(3) of Act on ground that in absence of stock register, it was not possible to verify consumption of material while expenses such as those on diesel and oil, wages, cartage were not verifiable and kitchen expenses, staff welfare expenses, dumper repairs, transportation charges, computer expenses and vehicle expenses were incurred in cash. He also mentioned that assessee s counsel had agreed for disallowance of Rs.41,000/- out of kitchen expenses, which proved that these expenses were unverifiable. After rejecting book results, AO computed net profit @ 8% of gross receipts of Rs.8,04,262/- on account of contract business, dumper and machining rent as also bank interest as against loss of Rs.23,610/-. 3. On appeal, assessee submitted written submissions, giving details furnished before AO. These written submissions were forwarded to AO. In his remand report dated 29.12.2003 and supplementary report dated 22.1.2004, AO did not offer any comments whatsoever on issues raised in this ground and confined himself to explanation regarding credits in partner s account and cash credit of Rs.75,000/-. ld. CIT(A) called for complete vouchers of expenses mentioned by Assessing Officer along with payment details and while concluding that provisions of sec. 145(3) of Act are not attracted in this case, upheld disallowance out of wages- Rs. 6,210/-,cartage-Rs.15,390/-,salary-Rs.6.700/-kitchen expenses-Rs.41.000 (offered by assessee itself),dumper repairs-Rs.17,308/-computer- Rs.53,255/-,vehicle-Rs.1,318/- & material purchase-Rs.17,495/- on ground that these expenses were unverifiable, in absence of relevant 3 I T No .1 3 15 / hd / 200 4 vouchers. Accordingly, ld. CIT(A) upheld total disallowance of Rs.1,41,181/- in following terms :- Having regard to these facts , particularly escalation factor, incurring of loss during year has to be taken as generally explained. However, since part of expenses are not verifiable, disallowance has to be made by estimate. Having regard to discussion in para 3 supra, expenses of Rs.1,41,181/- (6,210 + 15,390 + 6,700 + 41,000 + 17,308 + 53,255 + 1,318 + 17,495) out of wages, cartage, salary, kitchen expenses, dumper and machinery repairs, computer expenses, vehicle expenses and purchase of material deserve to be disallowed other than expenses of Rs.1,60,890/- on purchase of metal. appellant has to obtain duplicate bill of M/s Parag Transport for purchase of metal as original bill is stated to have been lost. Assessing Officer will verify genuineness of this bill and payments claimed through cheques and allow this expenditure, otherwise not. expenditure to extent of Rs.1,41,181/- will be disallowed in any case. 4. Aggrieved, assessee is now in appeal before us against aforesaid findings of ld. CIT(A). ld. AR on behalf of assessee while carrying us through impugned orders, reiterated their submissions before lower authorities. She relied on page no. 5 of paper book ,which contains copy of account of Source , reflecting certain transactions. Admittedly, said document was never placed before lower authorities nor any request has been made before us for admission of additional evidence. On other hand, ld. Departmental Representative while pointing out that assessee has not placed any material/vouchers before ITAT suggesting interference with findings of ld. CIT(A) in upholding disallowance to extent of Rs. 1,41,181/-,supported impugned order . ld. DR vehemently argued that admittedly page no.5 of paper book was never placed before lower authorities nor any request has been made for admission of additional evidence before ITAT. In these circumstances, no cognizance can be taken of said document. 5. We have heard both parties and gone through facts of case. We find that ITAT, vide their order dated 12.6.2008 in ITA no.1932/Ahd./2004 dismissed appeal of Revenue against findings of ld. CIT(A) that provisions of sec. 145(3) of Act are not attracted in this case and when each and every item is considered by CIT(A) for making disallowance and adding same to income of assessee, there is 4 I T No .1 3 15 / hd / 200 4 no reason to interfere with order of CIT(A), which is in accordance with law. In appeal under consideration, though ld. AR vehemently argued against aforesaid disallowance upheld by ld. CIT(A), not iota of evidence was referred to before us , which could enable us to take different view in matter. ld. CIT(A) in impugned order concluded that expenditure to extent upheld by him is unverifiable, inter alia, for want of relevant vouchers. Even document placed at page no. 5 of paper book was never placed before lower authorities nor any request has been made before us for admission of additional evidence. In these circumstances, no cognizance can be taken of said document. In view of foregoing, especially when no material has been brought to our notice, warranting interference with findings of ld. CIT(A), we have no hesitation in upholding his findings. Therefore, ground no.1 in appeal is dismissed. 6. Ground no.2 pertains to addition of Rs.75,000/- on account of cash credit in name of one Shri Vijaybhai Trivedi. Since despite several opportunities, assessee neither furnished confirmation nor explained source of fresh deposit of Rs. 75,000/-, AO added amount u/s 68 of Act. On appeal. assessee submitted confirmation of said party, wherein it was stated that amount was paid as advance against purchase of assessee s property at village Thalatej, Dist. Ahmedabad shown as Sunset Bunglow in balance sheet. As mentioned in impugned order, copy of sale agreement (in Gujarati) dated 12.8.1999 on stamp paper of Rs.20/- was filed where under property is proposed to be sold for Rs.7,50,000/- and advance of Rs.75,000/- is stated to have been received. This being additional evidence, ld. CIT(A) forwarded same to Assessing Officer for his examination. In his remand report dated 29.12.2003, Assessing Officer reported that summons issued u/s 131 of Act to Shri Vijaybhai Trivedi, were not responded. Instead, his representative attended and gave in writing that this amount of Rs.75,000/- was received by Shri Vijaybhai Trivedi as advance from one Shri Subhashbhai Rangawala on 12.8.1999 towards proposed sale of (agricultural) land at village Varsoda (Kheda dist.). Thereupon, summons were issued to Shri Rangawala, who also did not respond. During course 5 I T No .1 3 15 / hd / 200 4 of appellate proceedings, confirmation of Shri Subhashbhai S. Rangawala dated 16.11.2003 was filed. He has stated that advance of Rs.75,000/- was paid to Shri Vijaybhai J. Trivedi out of his savings. Shri Rangawala has indicated his PAN as 31-042-PZ-1342. But no further details could be furnished. Assessing Officer with whom Shri Rangawala is assessed to tax was not specified. In nutshell, creditworthiness of Shri Rangawala or genuineness of transactions was not established. Accordingly, ld. CIT(A) observed that there is no plausible reason why he did not respond to summons issued by Assessing Officer while property of assessee in question i.e. Sunset Bunglow is not sold till date nor agreement to sell this property was registered. In these circumstances, ld. CIT(A) concluded that genuineness of its contents cannot be verified while money is claimed to have been received in cash. There is nothing to indicate any source of income of creditor. He in turn claims to have received cash advance of equivalent amount from another person against proposed sale of his agricultural land without producing any supporting document for ownership or sale agreement in respect of said land. Only confirmation of Shri Rangawala has been filed. creditworthiness of Shri Rangawala is also not proved nor even genuineness of transaction for sale of land. In such circumstances, ld. CIT(A) observed that source of source can be enquired into u/s 68 of Act as settled in Supreme Court decision in case of CIT vs. Biju Patnaik 160 ITR 674 (Supreme Court). Accordingly, ld. CIT(A) upheld said addition. 7. assessee is now in appeal before us. ld. AR on behalf of assessee while reiterating their submissions before authorities below relied upon decisions in case of CIT v. Orissa Corporation P. Ltd. [1986]159 ITR 78, CIT v. Rohini Builders [2002]256 ITR 360(Guj) &CIT Vs. Pragati Co-operative Bank Ltd., 278 ITR 170(Guj) and has also submitted written submissions. On other hand ld. Departmental Representative while carrying us through orders of lower authorities and remand report of AO pleaded that neither creditworthiness of alleged creditor nor genuineness of various documents submitted before ld. CIT(A) had been established. While relying upon decisions in case of Power Petro 6 I T No .1 3 15 / hd / 200 4 Products Ltd. Vs. ACIT,301 ITR 228(Mad.) and Indus Valley Promoters Ltd. Vs. CIT,305 ITR 202(Del.), ld. DR supported findings of ld. CIT(A). 8. We have heard ld. Representatives of both parties and gone through facts of case as also decisions relied upon. We find that despite sufficient opportunity given, assessee did not file any confirmation before AO nor established identity, creditworthiness of alleged creditor or even genuineness of transaction. It was only before ld. CIT(A) that assessee for first time submitted confirmation of alleged creditor, Shri Vijaybhai Trivedi, wherein it was stated that amount was paid as advance against purchase of assessee s property at village Thalatej, Dist. Ahmedabad shown as Sunset Bunglow in balance sheet. In pursuance to directions of ld. CIT(A), even when summons were issued u/s 131 of Act to Shri Vijaybhai Trivedi, he did not respond. Instead, his representative submitted that this amount of Rs.75,000/- was received by Shri Vijaybhai Trivedi as advance from one Shri Subhashbhai Rangawala on 12.8.1999 towards proposed sale of (agricultural) land at village Varsoda (Kheda dist.). Despite opportunity given by AO either during assessment proceedings or even during remand proceedings, creditworthiness of alleged creditor Shri Vijaybhai Trivedi was not proved nor explanation of having received amount from Shri Subhashbhai Rangawala was substantiated in any manner. Since creditworthiness of alleged creditor or even genuineness of transaction had not been established while ld. CIT(A) found property of assessee in question i.e. Sunset Bunglow had not been sold and amount had been received in cash, ld. CIT(A) concluded that genuineness of transactions had not been established. There is no material before us to controvert these findings of ld. CIT(A). Though ld. AR in her written submissions referred to order of ld. CIT(A) against penalty order, we are of opinion that this is not of any relevance ,especially when assessee did not discharge initial onus of establishing identity and creditworthiness of alleged creditor nor even genuineness of transactions. It is well-settled that assessee must discharge burden of proving identity of creditor and also to give source of deposit. 7 I T No .1 3 15 / hd / 200 4 In other words, creditworthiness of depositor must be established to satisfaction of Assessing Officer. Where there is unexplained cash credit, it is open to Assessing Officer to hold that it is income of assessee and no further burden lies on Assessing Officer to show that income in question comes from any particular source. facts of this case clearly show that assessee has not been able to prove creditworthiness of said creditor with respect to cash credit in question and persons involved did not respond to summons. assessee received payment in cash. In these circumstances, especially when there is no material before us to take different view in matter, we have no alternative but to uphold findings of ld. CIT(A). Here we may refer to decision of Hon ble Patna High Court in case of Sarogi Credit Corporation v. CIT [1976] 103 ITR 344, wherein it was observed in following words: "... if credit entry stands in name of assessee himself, burden is undoubtedly on him to prove satisfactorily nature and source of that entry and to show that it does not constitute part of his income liable to tax. If credit entry stands in names of assessee's wife and children, or in name of any other near relation, or employee of assessee, burden lies on assessee, though entry is not in his own name, to explain satisfactorily nature and source of that entry. But, if entry stands not in name of any such person having close relation or connection with assessee, but in name of independent party, burden will still lie upon him to establish identity of that party and to satisfy Income-tax Officer that entry is real and not fictitious. Once identity of third party is established before Income-tax Officer and other such evidence are prima facie placed before him pointing to fact that entry is not fictitious, initial burden lying on assessee can be said to have been duly discharged by him ... 8.1 In case under consideration, assessee did not submit iota of evidence establishing identity and creditworthiness of aforesaid creditor nor even genuineness of transaction, before AO. Even when confirmation was filed before ld. CIT(A), alleged creditor was not produced nor he responded to summons issued by AO. property against which advance is stated to have been received was yet to be sold and no evidence was placed before AO or ld. CIT(A) regarding genuineness of receipt of amount from Shri Subhashbhai Rangawala. In 8 I T No .1 3 15 / hd / 200 4 these circumstances, decisions relied upon on behalf of assessee are not of any assistance since ld. AR did not demonstrate as to how these decisions are applicable to facts of case under consideration, especially when assessee did not submit any confirmation before AO and thus, failed to discharge initial onus placed upon them. Even before ld. CIT(A) when assessee submitted confirmation of alleged creditor, said person was not produced before AO or ld. CIT(A) while summons issued to him were not even responded. Mere fling of confirmation would not suffice. initial onus is on assessee to establish identity and creditworthiness of creditor to satisfaction of AO apart from genuineness of transactions. On other hand, well established principles laid down in decisions relied upon by ld. DR support case of Revenue. Since assessee miserably failed to establish any of three ingredients before AO and ld. CIT(A), we find no reason to interfere with order of CIT(A) on this issue and uphold same. Thus, ground no.2 is dismissed. 9. Ground no.3 relates to disallowance of 1/5th expenses on account of interest on car loan, vehicle expenses, depreciation besides 25% of expenditure towards use of mobile phone. There is no discussion on this aspect in assessment order. ld. CIT(A) while observing that use of car by karta or other members of HUF partners having not been denied, 1/5th of interest on car loan, 1/5th of vehicle expenses of Rs.39,197/- and 1/5th of depreciation on car will be disallowed. ld. CIT(A) further noticed that telephone expenses of Rs.75,605/- include mobile telephone charges of Rs.20,860/-. Out of mobile telephone charges, 25% were disallowed for personal use. 10. assessee is now in appeal before us against aforesaid findings of ld. CIT(A). ld. AR on behalf of assessee while reiterating their submissions before ld. CIT(A) submitted that interest on car loan can not be disallowed in view of decision dated 20.7.2007 of ITAT in ITA no. 9 I T No .1 3 15 / hd / 200 4 1920/Ahd./2001 in case of M/s Patel Chimanlal Vrajlal. On other hand ld. Departmental Representative supported order of CIT(A). 11. After hearing parties and considering facts of case, we find that restriction of disallowance on account of mobile telephone expenses upheld by learned CIT(A) is reasonable and no interference is warranted. Since personal use of vehicle by HUF partners and their family members has not been denied nor it was claimed that partners or their family members had their independent vehicles for personal use, in our opinion disallowance of 1/5th of aforesaid expenses on account of vehicle maintenance and depreciation there on , in light of provisions of sec. 38(2) of Act, is reasonable . However, disallowance of 1/5th interest on car loan is deleted, in view of decision dated 20.7.2007 of ITAT in ITA no. 1920/Ahd./2001 in case of M/s Patel Chimanlal Vrajlal Therefore, ground no. 3 of appeal is allowed to this extent. 12. In result, appeal is partly allowed. Order pronounced in Open Court on 18 /12 /2009 Sd/- Sd/- (Mahavir Singh) (A.N. Pahuja) Judicial Member Accountant Member Ahmedabad, Dated :18/12 /2009 Mahata/- Copy of Order forwarded to:- 1. Assessee. 2. Incom e-tax Officer, W ard 3(3), Petlad. 3. CIT(Appeals)- II,Baroda 4. CIT concerned. 5. DR, ITAT, Ahmedabad 6. Guard File. BY ORDER, Deputy/Asstt.Registrar ITAT, Ahmedabad 10 Satyadev Construction Co. v. Income Tax Officer- Ward-3(3)
Report Error