Tirupati Structurals Ltd. vs Commissioner of Income Tax

Dipak Misra, C.J.—Heard Mr. C.S. Aggarwal, learned senior counsel for the appellant and Ms. Prem Lata Bansal, learned Counsel for the revenue.

In this appeal preferred u/s 260A of the Income Tax Act, 1961 (for brevity ''the Act'') the challenge is to the order dated 31.8.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench ''H'', New Delhi (for short ''the tribunal'') in ITA No. 2680/Del/2008 pertaining to the assessment year 2005-06.

The facts which are requisite to be unfurled are that the appellant - assessee is a public limited company engaged in the business of manufacturing of PVC pipes, HDPE pipe, PVC fittings, water tanks under the brand name of "Tirupati". The appellant filed its return of income for the assessment year 2005-06 on 31.3.2006 declaring its total income of Rs. 96,02,030/- along with computation of income and annual audited accounts. In course of assessment proceedings, the assessing officer called upon the assessee to explain the nature and source of the credits paid by one M/s Meeta Industries appearing in its books of accounts and satisfy the test u/s 68 of the Act. In response to a questionnaire dated 11.12.2006, the assessee furnished such of those details along with confirmations and copy of accounts in respect of advance received against supplies from customers and in particular details of advances received from M/s Meeta Industries along with confirmation. After the reply was filed by the assessee it was asked by the assessing officer to produce the aforesaid creditor. The assessee thereafter made an oral prayer to the assessing officer at the time of hearing to summon the creditor u/s 131 of the Act as an independent witness and the said prayer was rejected. The assessing officer adjourned the hearing to 9.10.2007 to enable the assessee to furnish the necessary correspondence and evidence to establish that the amount received represented advances against the supplies to be made by the appellant. In response to the aforesaid direction, the assessee furnished before the assessing officer a copy of the forwarding letter of purchase along with the purchase order as also a certificate of registration of the customer/creditor M/s Meeta Industries under the Sales Tax Act. It also furnished a letter addressed by the said concern to the assessee on 13.11.2004 to establish the circumstances under which the refund was made by the assessee. The assessing officer rejected the explanation and vide order dated 20.12.2007 framed an assessment u/s 143(3) of the Act determining the income at Rs. 1,74,02,030/-.

Being dissatisfied with the said order, the assessee preferred an appeal before the CIT(A) who by an order dated 16.5.2008 deleted the addition of Rs. 78,00,000/-.

The revenue thereafter preferred an appeal before the tribunal. Before the tribunal, the revenue contended that the assessee had grossly failed to discharge the onus cast on him u/s 68 of the Act; that the financial capability of the concern paying Rs. 78,00,000/- to the assessee was not proved in view of the fact that for the relevant assessment year no return of income was filed by the loan creditor. Defending the order of the first appellate authority, it was contended on behalf of the assessee that impugned advance of Rs. 78,00,000/- was received by account payee cheques and the assessee had returned a sum of Rs. 68,00,000/- by account payee cheques only and, hence, the assessee did not remain the ultimate beneficiary of the advance money.

The tribunal considered the rival submissions and eventually expressed the view as under:

However, we do not find any material on record evidencing the nature of transaction as trade, contrary to it the transaction was a financial transaction, wherein money was given to the assessee and the same was repaid by assessee. Even in the earlier or subsequent year, the assessee has not entered into any trade transaction with Meeta Industries. Since it was case of loan creditor, all the ingredients of Section 68 with regard to identity of creditor, genuineness of transaction of advancing loan and financial capacity of person advancing money is required to be satisfied. To meet with the requirement of Section 68 during the course of scrutiny assessment, the AO has asked the assessee to produce the Principal Officer of M/s Meeta Industries along with respective bank accounts through which payment was effected. However, the same was not met with. The AO made an independent enquiry with the bank of Meeta Industries and found that on all the dates on which the loan creditor issued the cheques to the assessee, cash was deposited in her bank account. The AO also recorded a finding to the effect that though the lender has obtained PAN number but no return of income for the corresponding period was placed on record to substantiate the financial capability of the lender depositing huge cash in the bank account immediately before issuing cheques. Without controverting all these findings of the AO and without bringing any positive material on record to negate the observation of the AO to the effect that cash was deposited in the bank account on all the dates of issuing the cheques, the CIT(A) has deleted the addition by relying on the decisions of Hon''ble Delhi High Court which are pertaining to the amount received from the shareholder, wherein only identity of shareholder is needed to be shown. In the instant case, the person advancing the money was not shareholder of assessee company, therefore the judicial pronouncements relied by CIT(A) for deleting the addition made u/s 68 are not relevant. We also found that confirmation letter as placed at page 39 was signed by ''Neelam'' as proprietor of M/s Meeta Industries, whereas another letter dated 10.4.2004 to which our attention was invited by the learned AR was signed by ''Bharti Sharma'' as proprietor of M/s Meeta Industries. On specific query of the Bench with regard to actual proprietor of M/s Meeta Industries, and the different person signing as proprietor, it was replied by the learned AR that it is for the AO to enquire, and since the AO has not doubted the genuineness of this confirmation and the letter written by M/s Meeta Industries, no adverse inference should be drawn by the Tribunal, even if different proprietor is there signing the letter in the name of M/s Meeta Industries. Undisputedly, the signature placed on various documents by different persons claiming to be the proprietor of M/s Meeta Industries raise a serious doubt regarding genuineness of documents placed on record by relying on which CIT(A) had deleted the addition. The AO has also specifically asked the assessee to produce M/s Meeta Industries, but the same was also not met with. The observation of the AO to the effect that on all the occasions of issuing the cheques, there was deposit of corresponding cash in the bank account of M/s Meeta Industries, has not been controverted by the CIT(A). Since the return for relevant assessment year under consideration was not place on record, the creditworthiness of loan creditor to deposit cash of Rs. 78 lakhs in the bank account, was also not established.

After so holding the tribunal remanded the matter to the file of assessing officer for deciding the same afresh and directed to clarify in the light of the observations made by it. It was further directed that the assessee shall file a copy of the income tax return of M/s Meeta Industries for the corresponding period filed with the income tax department wherein the corresponding transactions in the books of account of M/s Meeta Industries, also finds place. It was also directed that in case of assessee is unable to produce M/s Meeta Industries, the assessing officer shall exercise its power u/s 131 of the Act to call M/s Meeta Industries.

Though, various substantial questions of law have been sought to be raised by the assessee - appellant yet Mr. Aggarwal, learned senior counsel for the assessee restricted a submission to the singular ground that the tribunal being a fact finding authority should not have directed a remit. Learned senior counsel commended us to the decision in Hindustan Ferodo Ltd. v. Collector of Central Excise, Bombay 1997 (89) E.L.T. 16 (SC).

In Hindustan Ferodo Ltd. (supra) the Apex Court has held thus:

It is not the function of the Tribunal to enter into the arena and make suppositions that are tantamount to the evidence that a party before it has failed to lead. Other than supposition, there is no material on record that suggests that a small scale or medium scale manufacturer of brake linings and clutch facings "would be interested in buying" the said rings or that they are marketable at all. As to the brittleness of the said rings, it was for the Revenue to demonstrate that the appellants'' averment in this behalf was incorrect and not for the Tribunal to assess their brittleness for itself. Articles in question in an appeal are shown to the Tribunal to enable the Tribunal to comprehend what it is that it is dealing with. It is not an invitation to the Tribunal to give its opinion thereon, brushing aside the evidence before it. The technical knowledge of members of the Tribunal makes for better appreciation of the record, but not its substitution.

The Revenue sought to make the said rings dutiable as asbestos articles. The affidavit evidence of a dealer in asbestos was of some relevance. So was the affidavit evidence that explained the character and use of the said rings. It was wrong of the Tribunal to find that the deponents of these affidavits were "not the right persons to give opinion on the type of the products" with which it was concerned.

The ratio laid in the said aforesaid decision is not applicable to the case at hand inasmuch as the tribunal has not carried out any exercise beyond the material brought on record. It has not made any suppositions that would tantamount to the evidence that a party before it has failed to lead. It has not given any opinion as an expert. On the contrary, as we have noticed, it has dealt with the facts and thought it appropriate to direct a remit.

In our considered opinion, the order of remand by the tribunal cannot be really found fault with. We are inclined to think so as the tribunal has also issued directions which would offer an opportunity to the assessee to establish its plea. Against such an order of remand, no substantial question of law arises as urged by Mr. Aggarwal, learned senior counsel for the assessee.

In the result, we do not perceive any merit in this appeal and, accordingly, the same stands dismissed in limine.