PER S.S.GODARA, JUDICIAL MEMBER The assessee/firm Vinayaga Fireworks Industries appeal
I.T.A.No.2009/Mds/2013, the Revenues appeal I.T.A.No.2015/Mds/ 2013 in case of individual/assessee P. Ganesan and the said assessees cross objections therein No.60/Mds/2014, all for assessment year 2009-10, are directed against separate orders both dated 7.8.2013 of the Commissioner of Income-tax (Appeals) Madurai, passed in Appeal Nos.187/2010-11 and 136/ 2010-11, respectively in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the Act).
2. We notice from a combined perusal of these case files that individual assessee herein Shri P. Ganesan [hereafter Shri Ganesan] is a partner in the firm-assessee M/s Vinayaga Fireworks Industries. These regular assessments have arisen from a search dated 21.10.2008. The Assessing Officer quotes failure on Shri Ganesans part to explain the source of ` 50 lakhs on-money as withdrawals from the firms account for adding this sum as unexplained investment in his hands and unexplained expenditure of ` 50.20
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 3 -: lakhs in case of the firm-assessee. Therefore, we take up these appeals together for decision on merits.
3. Shri Ganesan is the managing partner of the main group concern M/s Sony Fireworks Pvt. Ltd. He is also a partner in the firm- assessee herein. The department had conducted a search on 20.10.2008 in the main group concerns business premises as well as residence of its founder. This led to seizure of books and other alleged incriminating material. A survey was also carried out in business premises and factories of the group concerns on the same day. The assessing authority sent section 142(1) notices dated 30.11.2009 to Shri Ganesan as well as the firm-assessee.
2. In response, Shri Ganesan filed his return on 19.9.2010 admitting income of `11,00,492/- with agricultural income of `4.25 lakhs. In scrutiny, the Assessing Officer came across a registered sale deed dated 30.9.2008 relating to a property Survey No.117/5, Begur Village, Begur Hobli, Bangalore South Taluk, measuring 6000 sq ft. The registered sale deed quoted consideration money of ` 40 lakhs. Its agreement dated 21.4.2008 stated the same as ` 90 lakhs. This led to a differential sum of ` 50 lakhs. Shri Ganesans statement during search had deposed total purchase price of ` 90 lakhs. Per Assessing
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 4 -: Officer, the vendee/assessee had only accounted for a sum of ` 40 lakhs. At the first instance, Shri Ganesan claimed the sale price to be `40 lakhs only. The Assessing Officer confronted him with the sale agreement. He also inferred that the difference amount of ` 50 lakhs was an on-money not reflected in the books. On this, Shri Ganesan changed his stand and relied on his earlier statement quoting sale price as ` 90 lakhs. He attributed source of this balance sum of ` 50 lakhs as withdrawals from the firm-assessees (M/s Vinagaya Fireworks Industries) bank accounts which were alleged to have been mistakenly debited in the accounts of two other entities i.e M/s Sree Sakthi Paper Mills Ltd, Kochi and M/s Vetrivel Trading Company, Mumbai. The Assessing Officer noticed that these withdrawals related to the period April 2008 to March 2009 whereas the sale deed had been executed in May 2008. He referred to the assessees act/conduct in adopting different stands and termed his explanation only an afterthought plan to cover up the on-money of `50 lakhs. This resulted in unexplained investment addition of `50 lakhs in assessment order dated 27.12.2011.
3. Shri Ganesan preferred an appeal. The CIT(A) has deleted the impugned addition of ` 50 lakhs. He observes after referring to
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 5 -: the sale price of ` 90 lakhs stated in the agreement, statement recorded during survey and also the source of the on-money to withdrawals from the firm-assessees saving accounts. Per CIT(A), once an amount of ` 50 lakhs had been added in the firms hands, similar approach in this case would lead to double addition. Thus, Shri Ganesan has succeeded in the lower appellate order.
4. Now we come to the firm-assessees case. It had filed its return on 28.12.2009 admitting income of ` 7,19,248/-. The Assessing Officer took up scrutiny. The firm-assessees books prepared upto the date of search/survey i.e 21.10.2008 had demonstrated payments made to the two entities (supra) to the tune of ` 26,58,237/- and `24 lakhs; respectively. The relevant time period was from 2.4.2008 to October 2008. These payments had been made from its bank accounts with State Bank of India and Axis Bank. The Assessing Officer found that the former entity had received a sum of ` 38,237/- in lieu of purchasing paper boards. Rest of the transactions appeared to be the firms self withdrawals. Per Assessing Officer, this indicated diversion of funds by way of raising bogus expenditure claims. He cross verified the entries from the said entities books. This did not prove the assessees transactions with them to the extent stated hereinabove. The assessee pleaded
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 6 -: that these entries had been mistakenly made which stood reversed on 31.3.2009. It submitted that these reverse entries had transferred the impugned debits to Building Account of the partners. The Assessing Officer disagreed to the said explanation. He observed that the reversal entries were an afterthought exercise post search/survey to cover up its diversion of funds. He opined that it would not be a mere co-incidence that an identical mistake had occurred in two entities (supra) cases. The Assessing Officer also referred to Shri Ganesans version that there was no on-money involved (supra) to disbelieve the firms plea of attributing a sum ` 50.20 lakhs to its partner Shri Ganesan (supra) towards purchase of the Bangalore property. He quoted total withdrawals with aforesaid two entities upto 2008 as ` 7 lakhs only. The Assessing Officer referred to the assessees failure in dispelling the total unexplained expenditure of ` 50.20 lakhs and made the impugned disallowance/addition.
5. In firms appeal, the CIT(A) has affirmed the Assessing Officers action as under:
12. I have considered the submissions made by the appellant as well as assessment order. The Assessing Officers order itself confirms that there is cash withdrawal to the tune of ` 50,20,000/- debited in the accounts of M/s Vetrivel Trading Company/M/s Sakthi Paper mill. The account statement of M/s Sakthi Paper Mill confirms that there is purchase to the tune of ` 1,10,906/- only from them and Nil from M/s Vetrivel Trading Company. This
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 7 -: reveals that there is no need for debiting this ` 50,20,000/- in these accounts i.e all these are wrong debits. As the books of accounts were unaudited one at the time of search, the appellant's reversal of these wrong debits to the partner's account at the time of finalization of accounts correcting the partners account in the books of the appellant. The Assessing Officer has not found any other expenditure debited to the P&L account out of these cash withdrawals. The Assessing Officer has added the above cash withdrawals as they are not business expenditure (Bogus expenditure on purchase account) as Claimed by the assessee. The appellant has not claimed these cash withdrawals as expenditure but debited to the partner's account only which itself confirms that these were not claimed as expenditure by the appellant. The Assessing Officer has mentioned in the order that the land was purchased in May 2008 and withdrawals accounted in M/s. Sakthi Paper Mill and M/s. Vetrivel Trading Company upto September 2008 cannot be treated as source for on money payment. The appellant has submitted Bangalore land document copy which confirms that the land was purchased 1 registered on 30.09.2008. In view of the above, withdrawal in the accounts of M/ls. Sakthi Paper Mill and M/s. Vetrivel Trading Company upto 02.09.2008 i.e., all withdrawals before purchase/ registration of Bangalore land document, could be treated as payments for Bangalore land purchase. The Assessing Officer has mentioned in the order that Bangalore property was purchased for Rs. 50.00 lacs.(but actual registered value Rs. 40.00 lacs). The appellant stated in the reply dt.26/10/2010 that no on money payment beyond the registered vale of Rs. 40 .00 lacs. He stated so on presumption that no on money payment beyond Rs.40.00 lacs was made. The balance sheet of P. Ganesan and P .Karvannan filed with assessing officer confirms that these on money payment has been properly accounted as above. P. Ganesan Bangalore property account ` 65,10,000/- P. Karvannan Bangalore property account ` 25,10,000/- Total ` 90,00,000/- However, there is no confirmation that cash withdrawals in the name of M/s Sakthi Paper Mill and M/s Vetrivel Trading Company were used for on money payment for Bangalore land purchase. Hence, the addition made by the Assessing Officer towards bogus expenditure at ` 50,20,000/- in the case of the appellant is confirmed.
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 8 -: In this backdrop of facts, the assessee/firm has filed
I.T.A.No.2009/Mds/2013. The Revenues appeal I.T.A.No.2015/Mds/ 2013 is preferred in Shri Ganesans case. The latter assessee has also instituted cross objections justifying the CIT(A)s order in his case.
6. We have heard both parties and perused the case file as well as the paper books taken on record. Common facts of both the appeals already stand narrated hereinabove. We repeat that the individual/assessee, Shri Ganesan is a partner in the firm-assessee. He had purchased the Bangalore property through a registered sale deed dated 30.9.2008 in furtherance to an agreement to sell dated 21.4.2008. The agreement quoted sale consideration as ` 90 lakhs. The sale deed has recorded the purchase money as ` 40 lakhs. It has come on record from Shri Ganesans statement (supra) that the actual sale price was ` 90 lakhs. The issue between the parties is qua this amount of `50 lakhs. Shri Ganesan attributed its source to withdrawals of ` 50.20 lakhs from the firm. He has filed an affidavit dated 13.2.2014 averring that from 2.4.2008 to 2.9.2008, a sum of ` 50.20 lakhs had been debited from the firm to his account as partner. The corresponding bank statements also form part of the record at pages 67 to 84 of the paper book. The lower authorities infer that
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 9 -: once the withdrawal entries had been made in the accounts of the two entities upto the date of search/survey on 21.10.2008, the firm as well as its partner had resorted to a cover up exercise. We do not find any specific material supporting this conclusion. We reiterate that the sale deed had been executed on 30.9.2008 after agreement dated 21.4.2008. These withdrawals of ` 50.20 lakhs stood debited on various dates from 2.4.2008 to 2.9.2008. In other words, they correspond to the time period of agreement and sale deed. Although the firm had debited the withdrawals in its accounts of the two entities (supra), it would resort to reversal of entries on 31.3.2009 (supra). The CIT(A) has also concluded that Shri Ganesan had explained source of ` 50 lakhs on-money as withdrawals from the firms account. In these circumstances, we see no reason to disagree with the firms arguments that the CIT(A)s findings on the very issue are self- contradictory qua the same very issue. Coupled with this, the Revenue has only raised oral submissions and does not rebut the contents of the affidavit based on the bank statements forming part of record. In this manner, we observe that the on-money trails of ` 50 lakhs relate to withdrawals of ` 50.20 lakhs in the firm/assessees partner account. Thus, there is no reason for us to treat it either as a case of unexplained expenditure or unexplained investment in the hands of
I.T.A.Nos. 2009/13, 2015/13 & C.O 60/14 :- 10 -: the firm or the individual assessee. We agree with the submissions of the firm as well as Shri Ganesan. Consequently, I.T.A.No. 2009/Mds/2013 is accepted. The Revenues grounds in
I.T.A.No.2015/Mds/2013 are rejected. The cross objections of individual-assessee/Shri P. Ganesan supporting the CIT(A)s order have become infructuous.
7. To sum up, assessee-firms appeal I.T.A.No.2009/Mds/2013 is allowed. The Revenues appeal I.T.A.No.2015/Mds/2013 is dismissed and the assessees cross objections therein 60/Mds/2014 have become infructuous. Order pronounced on Wednesday, the 10th of September, 2014, at Chennai. Sd/- Sd/- (. . . ) (DR. O.K. NARAYANAN) /VICE-PRESIDENT (. . ) (S. S. GODARA) !/JUDICIAL MEMBER /Chennai $/Dated: 10th September, 2014 RD & '( )(/Copy to:
1. +/Appellant 4. ,/CIT
2. &-+/Respondent 5. ( & 0/DR