1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH AT NAGPUR Income Tax Appeal No.80/2010 ( The Commissioner of Income Tax-IV, Nagpur. ..Vs.. M/s. S.K. Banerjee, J.V. Transport Plaza, Nagpur. ) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Office Notes, Office Memoranda of Coram, Court's or Judge's orders appearances, Court's orders of directions and Registrar's orders - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mr. Anand Parchure, Adv. for appellant. Mr. C.J. Thakkar, Adv. for respondent. CORAM : S.A. BOBDE & S.B. DESHMUKH JJ. DATE : 31.3.2 011 . 1. This appeal is filed by the appellant against the order of the Income Tax Appellate Tribunal, Nagpur Bench, Nagpur. 2. In exercise of powers under section 68 of the Income Tax Act, the Assessment Officer found that an amount of Rs. 1,71,78,161/- was unexplained cash credit in the form of WIP (work in progress) in the books of the assessee firm. 3. The facts which gave rise to the order under section 68 of the Income Tax Act, 1961 are that the work of Transport Plaza for the Nagpur Improvement Trust was undertaken by M/s. S.K. Banerjee Firm. This firm transferred the entire work to a new firm known as “M/s. S.K. Banerjee J.V. 2 Transport Plaza” (hereinafter referred to as “J.V. Firm” for short), which was formed for completion of job of Transport Plaza allotted to M/s. S.K. Banerjee firm by addition of two additional partners namely Shri Surendra Golechha and Shri Abhishek Golechha. The entire expenditure incurred for purchase of materials etc. up to 4/12/2004 for Rs.1,71,51,161 were transferred to M/s. S.K. Banerjee J.V. Transport Plaza i.e. the assessee firm and the amount was credited to the current capital account of the partner of M/s. S.K. Banerjee and debited to different accounts. The transfer was at the costs price and no depreciation has been taken into account. However, the Assessing Officer found what appears to be irregularities in the books of account of the old firm and that of M/s. G. and B. Infrastructure and Developers which was a sub-contractor of the old firm. The Assessing Officer noted several items, which according to the Assessing Officer, were not properly explained and therefore, the said amount is found as unexplained in the accounts of the new firm i.e. J.V. Firm. Since the Assessment Officer made the addition of the aforesaid amount, the matter was carried in appeal before the Commissioner of Income Tax (Appeal) [hereinafter referred to as “C.I.T. (Appeal)” for short]. The C.I.T.(Appeal) went into all the alleged irregularities found by the Assessment Officer, and after examining evidence, the case in the assessment 3 order, remand report, the submissions of the appellant and after appreciation of the evidence came to the conclusion that the amount is not unexplained at all as contemplated by section 68 of the Income Tax Act. The Appellate Authority came to the conclusion that appropriate books of accounts have been maintained by the S.K. Banerjee firm and every item of transfer is supported by purchase bills, delivery memo etc. The C.I.T. (Appeal) also observed that the items of fixed assets transferred from M/s. G and B are supported by purchase bills and no depreciation has been claimed either by M/s. S.K. Banerjee or M/s. G. and B. Infrastructure on the same. The depreciation has been claimed only for six months, on these fixed assets. The C.I.T. (Appeal) further found at the time of transfer of the project by M/s. S.K. Banerjee to the assessee, credit was given by a journal entry in the books of the assessee firm to the capital account of M/s. S.K. Banerjee and simultaneously, the entire expenditure transferred was debited to the respective account in the books of assessee. The audited balance sheet, as on 31st March 2005 was also perused and C.I.T. (Appeal) found that the amount of Rs.1,71,78,161/-, which is an investment in new partnership firm, is dully reflected in Schedule ‘D’ of Debtors and Advances in the name of M/s. S.K. Banerjee (Transport Plaza) in the Balance Sheet of the partner. As regards the 4 relationship of M/s. G. and B. Infrastructure, which was a sub-contractor of the old firm, the C.I.T. (Appeal) has observed as follows :- “On the basis of facts available on record I have also examined the role of M/s. G & B which has been the bone of contention for the A.O. Its an indisputable finding of fact that M/s. G & B procured material on behalf of M/s. SKB and made payments to the parties. Since the materials are purchased on behalf, subsequently the debit notes were raised by M/s. G & B to M/s. SKB on the basis of which M/s. SKB recorded the expenditure on Transport Plaza in its books of account. The payments were made by M /s. SKB to M/s. G & B. This according to the assessee was a mutual arrangement in between the two firms i.e. M/s. S.K.B. And M/s. G.B. The assessee has further claimed that the construction at site was given on labour contracts basis to M/s. G & B which the A.O. has doubted on the basis that it is an after thought. However, on perusal of the various document including the return of income of M/s. G & B, Balance Sheet, Profit and Loss Account, TDS Certificates and other records, I find that the labour work was provided by M/s. G & B and TDS has been deducted at the time of payment which event occurred even before the issue of notice u/s. 143(2) in the case of assessee for Asstt. Year 2005-06. The bills for labour charges were raised in the subsequent years i.e. A.Y, 2006-07 5 according to the arrangements between the parties.” 4. The C.I.T. (Appeal) thus come to the conclusion that there is no transfer of funds involved from the incoming partner of M/s. S.K. Banerjee and the credit is raised in the partners capital account by way of a journal entry and that the Assessing Officer has misinterpreted the entry in the books of account made on 31/12/2004 and held that debit note in respect of transfer of material by the partner of M/s. S.K. Banerjee is without actually receiving the material i.e. physical form, from the partner. The C.I.T. (Appeal) has observed that the finding of the Assessment Officer is contrary to his own finding of fact and misleading about the nature of transfer. Theses reasons are discussed in details in para 3.7 of the order of the C.I.T. (Appeal). In conclusion the C.I.T.(Appeal) observed as follows :- “The corresponding credit entry in the capital account is substantiated from the books of M/s. SKB with corresponding debit entry in their books of accounts. Thus when it is found that the credit entry in the partners capital account is also reflected as debit outstanding in the partners own books of account, then in such circumstances no doubt can be raised on such credit. In the instant case the credit entry in the capital account of partner has been 6 satisfactorily explained and the onus which lie on the assessee has been properly discharged.” 5. The C.I.T. (Appeal) has also observed that the Assessment Officer has not applied his mind to the documents referred to and therefore, came to the conclusion that the addition of Rs.1,71,78,161/- as bogus cash credit, is not justified on the basis of the lack of factual integrity on record. In Appeal, the Income Tax Appellate Authority has approved the order of the C.I.T. (Appeal) and held that once it is established that the amount has been invested by a particular person, he being a partner or an individual, then the responsibility of the assessee firm is over and that in the instant case the assessee has successfully established the source of credit entry in the partners capital account. Accordingly, it has been held that the burden of the assessee has been fully discharged and dismissed the appeal. 6. Mr. Parchure, learned Advocate for the appellant, submitted that the addition is contrary to Section 68 of the Income Tax Act which reads as follows - “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation 7 offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 7. We find that the Section 68 of the Income Tax empowers the Assessing officer to charge income tax for the sum found to be credited in the books of an assessee for previous year and for which there is no explanation offered or the explanation offered is not found to be satisfactory. In the present case the source of the amount of Rs.1,71,78,161/-, found in the books of the assessee, has been found to have been properly explained by the C.I.T. (Appeal), which has given reasons for the said finding. The amount has been found to be credited in the name of the assessee by way of a journal entry by which the WIP (work in progress) was transferred from old firm to new firm i.e. M/s. S.K. Banerjee to S.K. Banerjje J.V. Firm. 8. Mr. Thakkar, learned Advocate for the assessee, relied on the decision of this Court in Commissioner of Income Tax V/s. Tania Investments (P) Ltd. reported in (2010) 322 ITR 394 (Bom) where the Division Bench held that under section 68 an assessee has to established (i) the identity of the party, (ii) capacity and (iii) genuineness of the transaction. In the 8 present case, we find that the identity of the party is well established due to the fact that one partner of the old firm is common with new firm i.e. J.V. Firm and that the amount is credited to his account. The Authorities have concluded on facts that there is only a transfer of WIP (work in progress) from the earlier firm to the assessee and that there is no reason to either doubt the genuineness of the transaction or the capacity. We see no reason to disagree with the finding of facts which are based on evidence. There is no error of law. Hence appeal is dismissed. JUDGE JUDGE Tambaskar.