Mukand Cold Storage vs Commissioner of Income Tax

Ajay Kumar Mittal, J.—This order shall dispose of I.T.A. Nos. 266 and 267 of 2013, as according to the learned counsel for the parties, the issue involved in both the appeals is identical. However, the facts are being extracted from I.T.A. No. 266 of 2013. I.T.A. No. 266 of 2013 has been preferred by the assessee u/s 260A of the income tax Act, 1961 (in short, "the Act"), against the order dated June 1, 2010, annexure A. 5 passed by the income tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh in I.T.A. No. 608/CHD/2009 for the assessment year 2003-04, claiming the following substantial questions of law:

"(I) Whether the income tax Appellate Tribunal was justified in disposing of the appeal, vide order dated June 1, 2010, annexure A. 5 without giving reasonable opportunity of being heard to the appellant firm and without allowing the appellant to argue its case and to refer to the paper book including written submissions and evidences filed before the authorities below which is against the principles of natural justice and that of right of hearing in view of trite law that no one should be condemned unheard?

(II) Whether the income tax Appellate Tribunal was justified in disposing of the miscellaneous petition, vide orders dated April 16, 2013, annexure A. 6 by dismissing it without appreciating the fact that during the initial hearing of the appeal, the hon''ble income tax Appellate Tribunal has simply closed the hearing with the observation that from the facts it is apparent that the matter has been wrongly decided against the assessee-firm and in view of the judgment of the jurisdictional High Court and that of the hon''ble Madhya Pradesh High Court the capital introduced by the partners in the firm has to be added in the hands of the partners and not to that of the firm so that the income tax Appellate Tribunal should have recalled its initial order dated June 1, 2010?

(III) Whether the income tax Appellate Tribunal was justified in disposing of the appeal, vide orders dated June 1, 2010, annexure A. 5 by dismissing it without appreciating the fact and making the addition of the impugned amount in the hands of the firm wrongly in view of the judgment of the jurisdictional High Court and that of the hon''ble Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Rameshwar Dass Suresh Pal Cheeka, and Commissioner of Income Tax Vs. Metal and Metals of India, and that of Commissioner of Income Tax Vs. Metachem Industries, wherein it was held that the capital introduced by the partners in the firm has to be added in the hands of the partners and not to that of the firm so the findings of the income tax Appellate Tribunal are erroneous?

(IV) Whether, under the facts and in the circumstances of the case, the income tax Appellate Tribunal was justified in concurring with the authorities below and thereby upholding the addition of Rs. 11,00,000 in the hands of the firm though the money belonged to individual partners as withdrawn by them from their account in the firm for earlier years for which ample evidences were given in the form of ledger accounts and the books of the firm?

(V) Whether, under the facts and in the circumstances of the case, the income tax Appellate Tribunal was justified in concurring with the authorities below and thereby upholding the addition of Rs. 11,00,000 in the hands of the firm though the money belonged to individual partners as withdrawn by them from their account in the firm for earlier years for which ample evidences were given in the form of ledger accounts and the books of the firm on the basis of gap in withdrawal and investment which is against the well settled law by this hon''ble court in the case of Ghuna Ram and Sons in CWP No. 163 of 1999 and CWP No. 4999 of 2010?

(VI) Whether the finding of the Tribunal is perverse on facts and its opinion is unsustainable in law and the order of the Tribunal is legally unsustainable and bad in law and the income tax Appellate Tribunal has misdirected itself in being influenced by irrelevant factors and applying the erroneous criteria while deciding the issue under the income tax Act, 1961?"

A few facts relevant for the decision of the controversy as narrated in I.T.A. No. 266 of 2013 are that the appellant is a partnership concern based at Yamuna Nagar. It is engaged in running cold storage. It filed its return of income for the assessment year 2003-04 declaring a loss of Rs. 5,240 which was processed and taken up for scrutiny. The Assessing Officer, vide order dated December 30, 2005, annexure A. 1 made an addition of Rs. 11,00,000 in the hands of the firm while accepting the loss of Rs. 5,240 as claimed. Aggrieved by the order, the appellant filed an appeal before the Commissioner of income tax (Appeals) (CIT(A)). Vide order dated December 19, 2007, annexure A. 2, the appeal was dismissed by the Commissioner of income tax (Appeals). Still not satisfied, the appellant filed an appeal before the Tribunal. Vide order dated July 31, 2008, annexure A. 3, the Tribunal allowed the appeal and remanded the case back to the Commissioner of income tax (Appeals) to decide the appeal of the asses-see afresh in accordance with law. Vide order dated March 13, 2009, annexure A. 4, the Commissioner of income tax (Appeals) again dismissed the appeal and confirmed the addition. The assessee again approached the Tribunal by filing appeal. Vide order dated June 1, 2010, annexure A. 5, the Tribunal dismissed the appeal. Thereafter, the assessee filed a miscellaneous application before the Tribunal for recalling the order dated June 1, 2010. The said application was also dismissed by the Tribunal, vide order dated April 16, 2013, annexure A. 6. Hence, the present appeals by the assessee.

There is delay in filing both the appeals. It was urged on behalf of the appellant that the application u/s 254(2) of the Act was filed for rectification of the order dated June 1, 2010, annexure A. 5, which was decided after lapse of more than two and a half years and it was in view thereof, the delay in filing the appeals has occurred. Relying upon judgment of the apex court in Suvarnalatha v. Mohan Anandrao Deshmukh (Civil Appeal No. 2994 of 2010 dated April 5, 2010) (arising out of SLP (C) No. 9482 of 2007), decided on April 5, 2010, it was urged that the said period should be excluded while condoning the delay.

After hearing learned counsel for the parties, the delay in filing as well as in refilling the appeals is condoned.

In the main appeals, learned counsel for the appellant submitted that no proper opportunity had been provided by the authorities to produce the relevant material so as to substantiate that the addition was not exigible in the hands of the firm. According to the learned counsel, the money belonged to the partners of the firm who had withdrawn on the earlier occasion and had produced sufficient material. In such circumstances, the addition could not be made either in the hands of the firm or in the hands of the partners.

Learned counsel for the respondents besides supporting the findings recorded by the Assessing Officer, the Commissioner of income tax (Appeals) and the Tribunal submitted that several opportunities were provided to the assessee but the assessee had failed to produce any material. He also submitted that the books of account of the assessee were rejected and, therefore, the addition made in the hands of the firm was justified.

It would be apposite to refer to the findings recorded by the Assessing Officer, the Commissioner of income tax (Appeals) and the Tribunal.

The Assessing Officer, vide order dated December 30, 2005, annexure A. 1 recorded as under:

"As stated above, the alleged partners have no independent source of income. On the contrary, the firm is carrying out cold storage business for the last at least more than 10 years as itself admitted by the assessee-firm. The assessee-firm was specifically asked to furnish the addresses of the farmers from whom cold storage rent is alleged to have been received. Despite this specific requisition the assessee-firm has failed to furnish the addresses of the alleged farmers. Moreover, no receipts in support of the alleged receipt of rent from the said farmers have been produced. It has been alleged that a part of the amount allegedly contributed by the partners was advanced to the farmers for earning more rent from the farmers. The assessee-firm has furnished copies of accounts of all the alleged farmers to whom the advances are claimed to have been made. Scrutiny of copies of accounts of all these farmers reveals that there was debit balance with almost all alleged farmers and no rent whatsoever has been credited to their accounts on account of use of cold storage by the alleged farmers. Further, it is also noticed that large amount has been advanced to the alleged farmers but the assessee-firm has no iota of the addresses of the alleged farmers. In case none of the alleged farmers does not use the cold storage of the assessee, the assessee has no option except to recover the alleged advances to them. In such an eventuality it is not understood as to how the assessee will recover the amount advanced to them in the absence of addresses. All these facts lead to the conclusion that the books of accounts maintained by the assessee-firm have not been maintained in the manner from which the true profits can be deduced.

Considering all the facts conjointly, it is held that the money introduced in the names of partners was in fact earned by the firm from its business of cold storage.

The assessee-firm has relied upon the judgments in the case of Commissioner of Income Tax Vs. Burma Electro Corporation, With due regard to the judgment of the hon''ble High Court, it is submitted that the facts of the present case are quite distinguishable from the case relied upon by the assessee. In that case, the partners have confirmed the deposits in their accounts. Whereas in the present case the partners have never come forward to confirm the introduction of money in their respective accounts. Moreover, in that case it was not proved that the money was earned by the firm whereas in the present case it stand established that the books of account are not maintained in the manner so as to deduce correct profits earned by the firm. Therefore, the case law relied upon by the assessee is not applicable in the present case.

The hon''ble Punjab and Haryana High Court in the case of Munshi Ram Vs. Commissioner of Income Tax, has held that the onus is on the assessee to explain away the said entry but if he fails to do so it will be open to the tax authorities to fasten with him with the tax liability on the said unexplained entry. In the instant case, the assessee has failed to discharge the onus by not producing the books of account for the years 1995-96 and 1996-97 relevant to the assessment years 1996-97 and 1997-98.

The hon''ble Supreme Court in the case of Sumati Dayal Vs. Commissioner of Income Tax Bangalore, has held that where any sum is found credited in the books of account for any preceding year the same may be charged to income tax as the income of the assessee of that year, if the explanation offered by the assessee about the nature and source thereof is in the opinion of the Assessing Officer not satisfactory, in case there is prima facie evidence against the assessee.

In the present case, there is prima facie evidence against the assessee. The assessee-firm did not produce the books of account for the years 1995-96 and 1996-97 from where the amounts alleged to have been withdrawn by the partners. The partners did not confirm the introduction of amount in their respective capital account. The books of account maintained by the assessee are not reliable and deserves to be rejected. It has been contended that there was dispute with the (sic) which was settled before November 7, 2002, and the money was not introduced with the perception that the money will be taken by the bank. However, the scrutiny of the capital accounts of the partners reveals that money is being introduced by the partners from April, 2002. Further, the dispute with the bank is claimed to have been settled in November, 2002. After the settlement of the dispute with the bank, the assessee could not be afraid of introduction of money in lump sum. Instead of introducing the money in lump sum after settlement of dispute with the bank, the partners preferred to introduce money in installments. This fact falsify by the assessee''s claim that the money was not introduced because of dispute with the bank. In fact the partners were not in possession of any money as on the day of settlement of dispute with the bank. In reality they wait for the receipt of money from the tenants of the cold storage and introduced the money as and when it was received from the users of the cold storage.

In view of these facts and circumstances of the case it is evident that the firm has introduced its unaccounted income in the names of the partners. The case is, therefore, squarely covered under the case of Sumati Dayal, referred to supra.

In view of the facts and circumstances of the case it is held that the money introduced in the names of partners is the income of the firm and, accordingly, brought to tax in the hands of the firm. Accordingly, the addition of Rs. 11 lakhs is made to the income of the firm."

The Commissioner of income tax (Appeals), vide order dated March 13, 2009, annexure A. 4, noticed as under:

"6. As mentioned in my earlier order, 16 hearings were given to the assessee by the Assessing Officer before finalization of assessment. Thereafter, the matter was remanded in appeal and several opportunities were again provided to the appellant. During the hearing of appeal earlier, 6 hearings were given by me. Now, after the matter has been restored back in appeal, the appellant has been provided further opportunities on 7 occasions as mentioned in the preceding paragraphs but even the basic information regarding evidence in support of withdrawals made, cash flow statement and the books of account have not been produced. The appellant was asked to produce the partners so that the actual position can be ascertained and even that has not been done in the light of these facts, I am of the considered opinion that the addition of Rs. 11 lakhs in the capital account of the partners remains unexplained and the addition is confirmed."

The Tribunal, vide order dated June 1, 2010, annexure A. 5 in appeal, held as under:

"We have examined the aforesaid plea set up by the appellant. In principle, we are in agreement with the plea of the assessee that where a partner admits to have made deposits with the firm, then as far as the firm is concerned, even if the source of the partner is held to be unexplained, such amount cannot be subjected to tax in the hands of the assessee-firm. So, however, in the present case, the facts stand on a different footing. Firstly, the proposition advanced by the appellant is based on a premise that the partners concerned have confirmed the introduction of cash by them. In the present case, the finding of the Assessing Officer in the assessment order is that the partners, at no stage of the proceedings have ever confirmed the introduction of cash by them and even before the Commissioner of income tax (Appeals), as is evident from the extract reproduced above, the assessee did not produce any confirmation from the concerned partners. In fact, the Commissioner of income tax (Appeals) allowed opportunity to the assessee to produce the partners so that the actual position could be ascertained. However, there was no compliance with the assessee to the exercise carried out by the Commissioner of income tax (Appeals). We have also noted the observation of the Commissioner of income tax (Appeals) that more than enough opportunities were allowed to the assessee to produce requisite evidence, which has not been done. Having regard to the fact situation noted by the Commissioner of income tax (Appeals), we are satisfied that enough opportunities were provided by the Commissioner of income tax (Appeals). Therefore, in our view, the proposition canvassed by the assessee cannot be applied to the facts of the present case."

The Tribunal, vide order dated April 16, 2013, annexure A. 6, passed in the application filed by the assessee for rectification of the order dated June 1, 2010, annexure A. 5 observed as under:

"No further evidence was furnished before the Tribunal and the same has been noted and an addition of Rs. 11 lakhs has been upheld by the Tribunal. In view of the above said facts we find no merit in the allegation made, vide paragraph 1, wherein it has been alleged that the matter has been wrongly decided against the applicant firm and reliance for that has been made on the decision of the hon''ble jurisdictional High Court and the hon''ble Madhya Pradesh High Court. Both the decisions have been considered by the Tribunal while adjudicating the issue in hand and the recourse made by the applicant, vide the present miscellaneous application is not sustainable in view of the limited mandate of section 254(2) of the Act. The Tribunal has limited power of correcting any apparent mistake of record while deciding the miscellaneous application filed u/s 254(2) of the Act. Further, the second plea of the applicant that it has not provided sufficient opportunity of hearing is not correct as is apparent from the observations of the Tribunal, vide later part of paragraph 3 wherein the submissions of the applicant have been noted and even reliance placed upon by the learned authorised representative for the applicant had been commented upon. In the totality of the facts and circumstances of the case, we dismiss the present miscellaneous applications filed by the applicant."

From the above, it emerges that the money introduced in the names of the partners was in fact earned by the firm from its business of cold storage and was its unaccounted income. Further, no material had been produced to show that the partners had independent source of income. The asses-see-firm in spite of several opportunities having been provided to it to produce the partners so that confirmation of introduction of cash by them could be verified, had failed to comply with it. Further, the assessee had not furnished the addresses of the farmers from whom cold storage rent is alleged to have been received as the assessee had been carrying on the business of cold storage for the last at least more than 10 years. Moreover, no receipts in support of the alleged receipt of rent from the said farmers had been produced. The plea of the assessee that it was the amount of the partners and not of the firm remained unsubstantiated. In view of the concurrent findings of fact recorded by the Assessing Officer, the Commissioner of income tax (Appeals) and the Tribunal, which have not been shown to be perverse or illegal in any manner, no substantial question of law arises. The appeals are accordingly dismissed.