The Commissioner Of Income Tax-Ii, Ludhiana v. M/S V.m. Spinning Mills

ITA No. 670 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 670 of 2009Date of Decision: 20.7.2010 The Commissioner of Income Tax-II, Ludhiana Versus ....Appellant. M/s V.M. Spinning Mills ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Vivek Sethi, Advocate for the appellant. ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order of the Income Tax Appellate Tribunal, Chandigarh Bench 'B',Chandigarh (hereinafter referred to as “the Tribunal”) passed on29.4.2009 in ITA Nos. 127/Chandi/2009 and 143/Chandi/2009, for theassessment year 2005-06, proposing to raise the following substantialquestions of law:- “(i)Whether on the facts and in law, the Hon'bleITAT was legally justified in holding that theaction of the A.O. in extrapolating of unrecorded sales to Rs.3,08,64,562/- on thebasis of undisputed unrecorded sales ofRs.1,11,99,427/- for 127 days, by adopting thesaid amount of unrecorded sales as themeasure for determining the quantum ofunrecorded sales for the whole year, wasillegal, unjustified or excessive? (ii) Whether on the facts and in law, the Hon'bleITAT was legally justified in restricting theunrecorded sales for whole of the financial yearto the extent of Rs.1,11,99,427/- i.e. theamount of sales represented by 17 unrecordedsale bills for 127 days only though the bestjudgment assessment was made under section144 of the Income-tax Act, 1961 by the A.O.?Whether on the facts and in law, the Hon'bleITAT was legally justified in deleting theaddition of Rs.21,00,000/- made by the A.O. onaccount of unexplained cash credits undersection 68 of the Act though the best judgmentassessment was made under section 144 ofthe Act and the assessee failed to discharge itsonus of proving identification, creditworthiness,genuineness of the transaction?” (iii) 2.The assessee is a partnership firm and engaged inmanufacturing yarn from wool top and fibre. The return declaring nil income was filed on 16.8.2005. The case of the assessee was taken upfor scrutiny and assessment was framed under Section 144 of the Act atan income of Rs.1,21,55,500/-. The additions inter alia were made onaccount of unrecorded sales and unexplained cash credit entries. TheCIT (A) on appeal by the assessee, upheld the plea of the assessee inrespect of unexplained cash credits by holding that since the partnerhad confirmed the entry, addition had to be made in the account of suchpartner and not the firm. As regards addition on account of unrecordedsales, the CIT (A) upheld the view of the Assessing Officer. On furtherappeal, the Tribunal held that to the extent the addition related to thebills, the same was justified but the rest of addition based on inferencewas not justified. Accordingly, to that extent the addition was deleted. 3.We have perused the findings on both the aspects. Thefinding recorded by the CIT (A) on the aspect of addition on account ofunexplained cash credits is as under:- “3.I have carefully considered the contention oflearned counsel for appellant and perused therelevant record. As no explanation with regard tosources of this credit have been filed by the appellantduring the assessment proceedings the AssessingOfficer cannot be faulted for taking an adverse viewagainst the appellant. However, there isconsiderable force in the alternative contention of thelearned counsel. The partner Shri Vipin KumarMahajan, HUF is an existing assessee with PAN: . In view of the ratio of decision of the “3.I have carefully considered the contention oflearned counsel for appellant and perused therelevant record. As no explanation with regard tosources of this credit have been filed by the appellantduring the assessment proceedings the AssessingOfficer cannot be faulted for taking an adverse viewagainst the appellant. However, there isconsiderable force in the alternative contention of thelearned counsel. The partner Shri Vipin KumarMahajan, HUF is an existing assessee with PAN: . In view of the ratio of decision of the Hon'ble Jurisdictional High Court of Punjab &Haryana in the case of Shanti Devi (supra) which hasbeen relied upon by the learned counsel, addition tothe capital account of the partner being duly admittedby the said partner who is an independent assessee,adverse inference, if any, under the provisions ofSection 68 of the Act could be drawn only in thehands of that partner. Therefore, though in principle,stand of the Assessing Officer for considering thisamount for addition u/s 68 is held to be justifiedconsidering the ratio of decision of the Hon'bleJurisdictional High Court mentioned above, fromlegal point of view such an inference could only bedrawn in the hands of Shri Vipin Kumar Mahajan,HUF the partner. The addition of Rs.21,00,000/-made in the hands of the appellant is, therefore, notsustainable and the same is accordingly deleted.” 4.With regard to the setting aside of addition by drawing aninference of there being unrecorded sales, the observations of theTribunal are as under:- “.... It is abundantly clear that the records produced by the assessee in the course of assessmentproceedings contained 17 sale bills amounting toRs.1,11,99,427/- which were not found recorded inthe regular books of account. Notably, the assesseecould not furnish any explanation in this regard before the Assessing Officer. The explanationfurnished before the Commissioner of Income-tax(A), to say the least, is totally inexplicable. Accordingto the assessee, these were fake bills issued only toobtain bank facilities. In our view, the explanationhas been rightly rejected by the Commissioner ofIncome-tax (A) as unreliable. In fact, the conduct ofthe assessee itself bears testimony that theexplanation furnished was lacking in bonafides. We,therefore, find no reasons to interfere with theconclusion drawn by the lower authorities on thisissue, in principle. However, in so far as the issuerelating to the quantification of the unrecorded salesconcerned, we find the approach of the AssessingOfficer unjustified. As seen earlier, the only evidencefound was with regard to the existence of unrecordedsales to the tune of Rs.1,11,99,427/-. There is nojustification to infer that the assessee would haveundertaken sales outside the books of account duringrest of the financial year also. Therefore, in our view,the assessment of unrecorded sales be limited toRs.1,11,99,427/- represented by 17 unrecorded salesbills found. As a consequence, we set aside theorder of the Commissioner of Income-tax (A) anddirect the Assessing Officer to restrict the addition byapplying GP rate of 10.35% to unrecorded sales computed at Rs.1,11,99,427/-. As a result, theassessee partly succeeds on this Ground.” 5.We have heard learned counsel for the revenue. 6.The CIT (A) as well as the Tribunal have relied upon thejudgment of this Court in Smt. Shanti Devi v. CIT, 171 ITR 532 forholding that once partners acknowledged the cash credit entries,addition had to be made in their hands and not in the hands of the firm.Learned counsel for the appellant is unable to distinguish the saidjudgment. No question of law has been claimed on this aspect. computed at Rs.1,11,99,427/-. As a result, theassessee partly succeeds on this Ground.” 5.We have heard learned counsel for the revenue. 6.The CIT (A) as well as the Tribunal have relied upon thejudgment of this Court in Smt. Shanti Devi v. CIT, 171 ITR 532 forholding that once partners acknowledged the cash credit entries,addition had to be made in their hands and not in the hands of the firm.Learned counsel for the appellant is unable to distinguish the saidjudgment. No question of law has been claimed on this aspect. 7.As regards unrecorded sales being made the basis fordrawing inference for addition, the Tribunal has clearly recorded afinding of fact that addition beyond unrecorded sales evidenced by 17sale bills was without any basis. The said finding has not been shownto be perverse. 8.Learned counsel for the revenue relies upon the judgmentof the Hon'ble Supreme Court in Commissioner of Sales Tax v. H.H.Esufali H.M. Abdulali, 90 ITR 271 to submit that in a proper case, theAssessing Officer could make addition by seeing the pattern ofundisclosed income even without material. 9.The proposition of law propounded in the judgment ofHon'ble Supreme Court in H.H. Esufali H.M. Abdulali's case (supra)is undisputed. Where an assessee suppresses the particulars ofassessable income, appropriate inference can be drawn in a factsituation. It is not always necessary that there should be tangiblematerial. Inference itself can be basis to justify addition. Whether or nota case is made out for addition being a question of fact, the view taken ITA No. 670 of 2009 -7- by the Tribunal is a possible view. 10.No substantial questions of law as claimed arises in this appeal. 11.Accordingly, we find no merit in this appeal. Dismissed. (ADARSH KUMAR GOEL) JUDGE July 20, 2010gbs (AJAY KUMAR MITTAL)JUDGE