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TMI Blog2013 (9) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the circumstances of the case, the Commissioner of Income-tax (Appeals) should have held that even if the Assessing Officer disbelieved the partners' explanation of availability of Rs. 20 lakhs with him there was no justification for taxing that sum as undisclosed income of the firm. 4. On the facts and in the circumstances of the case, the Departmental authorities erred in disbelieving the assessee's contention that the partner concerned Shri Kantilal R. Patel had conclusively explained the availability of that sum of Rs. 20 lakhs with him and had reasonably proved the availability of the said sum with persons concerned from whom he had received the respective sums. 5. On the facts and in the circumstances of the case, the Departmental authorities erred in holding that it was a fit case for disallowance of some part of interest expenditure and further erred in quantifying such disallowance in a sum of Rs. 4,96,231." Briefly stated facts in this case the scrutiny assessment was finalised under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act). While drawing assessment order the Assessing Officer made addition of Rs. 20,00,000 under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai and Delhi-vide annexure-A of the assessment order prepared for justifying and quantifying disallowance out of interest expenses. That very annexure-A actually tabulates cash balances as per the books of those 24 branches as on the last day of each of the 12 months of the previous year relevant to this appeal, viz., the financial year 2003-04. As per that annexure A cash balance has varied from Rs. 8,35,767 as on December 31, 2003 to Rs. 55,13,776 as on March 31, 2004. Obviously, the assessee-firm had fairly extensive business as couriers. 2. Into the bank accounts of the assessee-firm Rs. 20 lakhs in all were credited for the fresh capital brought in by the working partner Shri Kantilal R. Patel. The Departmental authorities have held that Shri Kantilal R. Patel has not been able to explain the corresponding transactions of receipt by him and also availability of the said sum of Rs. 20 lakhs with him. His explanation that he received gifts totalling Rs. 12 lakhs from four different persons Rs. 8 lakhs from his son Shri Narendra R. Patel has been disbelieved by the Departmental authorities in spite of the fact that apart from anything else all those transactions also were t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taxed by treating the said amount as undisclosed income, but the firm cannot be subjected to tax on that ground." (5) Narayandas Kedarnath v. CIT [1952] 22 ITR 18 (Bom): ". . . There may be a genuine case where a partner or a stranger may bring in moneys to the credit of the firm and the partner or the stranger may have come into those moneys by thoroughly dishonest means, but it is not for the firm which is being assessed to satisfy, the Department that the moneys which it received from the partner or the stranger were moneys which the partner or the stranger obtained by honest means. In my opinion that would be throwing too heavy a burden upon the assessee. We do not wish to lay down any general law which should apply to all cases. In most cases it would depend upon the facts actually found. On the facts actually found and strictly confining our decision to the facts of this case we are of the opinion that there were no materials on which the Department could have come to the conclusion that these credits represented undisclosed profits of the firm." (6) Where identity of partner is not in doubt and he has impugned cash credit, the addition for the same in the assessee-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 20 lakhs introduced by Shri Kantilal R. Patel through his bank accounts was only a strategy to route the unaccounted income of the assessee-firm-there is absolutely no basis for holding that it was the unaccounted income of the firm itself. 6. Without prejudice, it is submitted that Shri Kantilal R. Patel has explained the availability of that money with him by showing and proving that he has received wholly through banking channels Rs. 12 lakhs as gifts from five different persons and Rs. 8 lakhs as loan from his son Shri Narendra R. Patel. Relevant facts and figures may be tabulated as follows: Sr. No. Name Nature Amount (Rs.) (a) (b) (c) (d) 1. Sashikant H Valani Gift 5,00,000 2. Jyotsna N. Patel Gift 2,50,000 3. Gomati V. Patel Gift 1,50,000 4. Bechar N. Patel Gift 1,50,000 5. Narendra Patel Gift 8,00,000 Total 20,00,000 7. It is submitted that the statement of facts (SOF) furnished before the Commissioner of Income-tax (Appeals) along with the appeal papers describes in great detail in paragraphs 1.1 to 1.11 on pages 2 to 9 thereof the factual and legal aspects support of Shri Kantilal R. Patel's claim of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transactions-Capacity of the lender to advance money to the assessee was not a matter which the assessee could be required to establish as that would amount to calling upon him to establish the source of the source-Therefore, additions in respect of the entries in the names of said creditors cannot be sustained." 10. It is submitted that on the basis of preponderance of probabilities it cannot be reasonably held that the said Shri Kantilal R. Patel has not been able to explain the availability of the aforesaid sum of Rs. 20 lakhs with him. On this basis also the addition made deserves to be deleted. 11. It may kindly be observed that the assessee had cited many decisions in support of his case but the learned Commissioner of Income-tax (Appeals) in paragraph 7 on page 5 has summarily held that the ratio of the decisions cited has been rightly distinguished. In paragraph 7 itself the Commissioner of Income-tax (Appeals) has relied on some decisions for supporting the Department's case for rejecting the assessee's claim. The position in regard to the decisions cited by the Commissioner of Income-tax (Appeals) is as follows: (1) D. C. Rastogi (HUF) v. Asst. CIT [1996] 57 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the Revenue is not in appeal." In paragraph 50, it is recorded as follows:- "50. As has already been pointed out the donor is claimed to be widow unable to support her family, in these circumstances, the genuineness of the gift cannot be said to have been established as also the capacity of the donors to make the gift....." Thus, factual matrix is distinguishable. (2) Sajan Dass and Sons v. CIT [2003] 264 ITR 435 (Delhi) The relevant part of the headnotes are as follows : "The assessee claimed Rs. 3 lakhs as a gift for the assessment year 1993-94. During the course of assessment proceedings, the Assessing Officer made enquiries which revealed that in the affidavit filed in support of the said gift the date of attestation by the notary and the date of execution of the affidavit by the deponent did not tally ; the notary affirmed that on the date on which the notary notarised the document the deponent was present before him but the passport of the deponent showed that he was not in India on that date ; the signatures of the donor on the gift deed and the passport did not tally. Moreover the donor himself had contradicted the assertions of the assessee and had sent a let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is a partner should be considered to be assessee's own books and the reply given by the High Court was in negative. So that decision does not help the Department. (3) Laxmi Narain Gupta v. CIT [1980] 124 ITR 94 (Patna): In that decision also the point involved is the same as noticed in decision at Sr. No. (2) above, and it was held that for taxing the undisclosed income the previous year would be the financial year. Thus, this decision also does not help the Department. (4) Jagmohan Ram Ram Chandra v. CIT [2005] 274 ITR 405 (All): In para marked 6.3.1 on page 17, the assessment order reproduces the conclusion of that decision and the first part of that conclusion may be reproduced herein also as follows : '. . . wherein it is held that if any entry of cash credit is found in the books of account of a firm, it is for the firm to give an explanation regarding the identity and source of such deposits and if the explanation is believed then it is to be added as income under section 69 of the Income-tax Act, 1961, in the hands of the firm ....' It is submitted that it is that part of the conclusion which is relevant for the case of the firm as an assessee and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cash balance the assessee should keep with him. He submitted that even the basis adopted by the Assessing Officer is not correct. He submitted that huge cash has been kept in accordance with to the contingencies of the business and the width of the range of cash balance show that such contingencies themselves had a very wide range. He further submitted that the Assessing Officer quantified disallowance by impliedly by presuming that no cash was at all needed for the purpose of business in so far as disallowance is computed by taking the whole of the maximum sums of Rs. 55,13,776. Obviously these presumptions are wholly wrong because some cash is always needed. He submitted that quantification of disallowances done as if that maximum cash balance of Rs. 55,13,776 has existed on or 365 days of the year while actually as per annexure A itself there is balance as low as Rs. 8,35,667. He submitted that paragraph 7 on page 18 of the assessment order purport to give interest bearing fund available and corresponding sums of interest. It noticed therein in fact more than 95 per cent. of total interest paid is to the partners. Disallowance has been computed on total interest paid including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or loss in transit and hence the assessee is required to make payments to those persons. This reply of the assessee was not acceptable to the Assessing Officer for the following reasons : "1. The assessee has huge receipts and receives the same in cash every day and hence the day to day receipts are sufficient to meet the day to day expenses of the assessee. The chart of monthly cash balances shows that huge cash is maintained at each and every branch throughout the year without its business use. 2. The assessee has not furnished details of any such instances when cash/goods lost of the clients in transit and that the assessee was required to compensate out of the cash available with it. 3. The argument of the assessee regarding the transfer of cash from one branch to another is also not tenable because the assessee has not proved by any evidence whatsoever the exigencies of transfer of cash and its utilisation. It is a matter on record that the assessee is maintaining huge cash only to pre-empt any action by the enforcement agencies against the assessee clients whose cash is being transported from one place to another. Whenever the earner of cash/goods is caught by the enfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s parties was concerned and overall interest expenditure was claimed, it was not objected by the Assessing Officer that claim of expenditure was not genuine. The question of reasonableness of expenditure is a subjective matter which is to be determined by the assessee who is running a business and it is not expected from the Assessing Officer to step into the issues of a businessman. A businessman is required to judge about the requirement of the cash in his line of business. The business need and the business purpose depends upon the circumstances of each case. As far as the decisions cited by the learned Departmental representative are concerned, both are not akin to the facts and circumstances of the present appeals. In the case of Inarnulhaq S. Traki v. Addl. ClT (supra), there was a finding that the assessee had mixed funds and could not establish any commercial expediency. Some of the funds were given for interest-free advances, hence the disallowance was confirmed. Likewise, the Departmental representative has placed reliance on Punjab Stainless Steel Industries v. CIT [2010] 324 ITR 396 (Delhi), but the facts were that the interest-free advances were extended out of borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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