Income Tax Appellate Tribunal - Hyderabad
Rao Ravi Kumar, Hyderabad vs Assessee on 12 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
Sl.
ITA No. A.Y. Appellant Respondent
No.
1 1595/Hyd/2010 2000-01
2 SA No. 139/Hyd/12 2000-01
in 1595/Hyd/2010
3 1593/Hyd/2010 2001-02
4 SA No. 137/Hyd/12 2001-02
in 1593/Hyd/2010
5. 1594/Hyd/2010 2002-03
6. SA No. 138/Hyd/12 2002-03
Sri Rao Ravi Kumar The DCIT
in 1594/Hyd/2010
Hyderabad Central Circle-2
7. 1598/Hyd/2010 2003-04
PAN: ABGPR8885B Hyderabad
8. SA No. 142/Hyd/12 2003-04
in 1598/Hyd/2010
9. 1596/Hyd/2010 2004-05
10. SA No. 140/Hyd/12 2004-05
in 1596/Hyd/2010
11. 1597/Hyd/2010 2005-06
12, SA No. 141/Hyd/12 2005-06
in 1597/Hyd/2010
13. 1599/Hyd/2010 2006-07
14. 1563/Hyd/2010 2002-03 The DCIT Sri Rao Ravi Kumar
Central Circle Hyderabad
Hyderabad PAN: ABGPR8885B
15. 150/Hyd/2011 2000-01
16. SA No. 149/Hyd/12 2000-01
in 150/Hyd/2011
17. 151/Hyd/2011 2001-02
18. SA No. 150/Hyd/12 2001-02
Sri Rao Shiva Kumar The DCIT
in 151/Hyd/2011
Hyderabad Central Circle-2
19. 152/Hyd/2011 2002-03
PAN: ABSPR4641M Hyderabad
20. SA No. 151/Hyd/12 2002-03
in 152/Hyd/2011
21. 153/Hyd/2011 2003-04
22. SA No. 152/Hyd/12 2003-04
in 153/Hyd/2011
23 154/Hyd/2011 2004-05
24 SA No. 153/Hyd/12 2004-05
in 154/Hyd/2011
25 155/Hyd/2011 2005-06 Sri Rao Shiva Kumar The DCIT
26 SA No. 154/Hyd/12 2005-06 Hyderabad Central Circle-2
in 155/Hyd/2011 PAN: ABSPR4641M Hyderabad
27 156/Hyd/2011 2006-07
28 SA No. 155/Hyd/12 2006-07
in 156/Hyd/2011
2 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
========================
29 240/Hyd/2011 2001-02 The DCIT Sri Rao Shiva Kumar
30. 241/Hyd/2011 2004-05 Central Circle-2 Hyderabad
Hyderabad PAN: ABSPR4641M
31. 6/Hyd/2011 2000-01
32. SA No. 143/Hyd/12 2000-01
in 6/Hyd/2011
33 7/Hyd/2011 2001-02
34 SA No. 144/Hyd/12 2001-02
in 7/Hyd/2011
35 8/Hyd/2011 2002-03
36 9/Hyd/2011 2003-04
Sri Rao Satya Kumar The DCIT
37 SA No. 145/Hyd/12 2003-04
Hyderabad Central Circle-2
in 9/Hyd/2011
PAN; ABSPR4640L Hyderabad
38 10/Hyd/2011 2004-05
39 SA No. 146/Hyd/12 2004-05
in 10/Hyd/2011
40 11/Hyd/2011 2005-06
41 SA No. 147/Hyd/12 2005-06
in 11/Hyd/2011
42 12/Hyd/2011 2006-07
43 SA No. 148/Hyd/12 2006-07
in 12/Hyd/2011
44 39/Hyd/2011 2000-01
The DCIT Sri Rao Satya Kumar
45 40/Hyd/2011 2001-02
Central Circle-2 Hyderabad
46 41/Hyd/2011 2002-03
Hyderabad PAN; ABSPR4640L
47 42/Hyd/2011 2006-07
48 144/Hyd/2011 2001-02
49 SA No. 131/Hyd/12 2001-02 M/s. Gautami
The DCIT
in 144/Hyd/2011 Constructions,
Central Circle-2
50 145/Hyd/2011 2002-03 Hyderabad
Hyderabad
51 SA No. 132/Hyd/12 2002-03 PAN: AABFG6614P
in 145/Hyd/2011
52. 146/Hyd/2011 2003-04
53 SA No. 133/Hyd/12 2003-04
in 146/Hyd/2011
54 147/Hyd/2011 2004-05
55 SA No. 134/Hyd/12 2004-05 M/s. Gautami
The DCIT
in 147/Hyd/2011 Constructions,
Central Circle-2
56 148/Hyd/2011 2005-06 Hyderabad
Hyderabad
57 SA No. 135/Hyd/12 2005-06 PAN: AABFG6614P
in 148/Hyd/2011
58 149/Hyd/2011 2006-07
59 SA No. 136/Hyd/12 2006-07
in 149/Hyd/2011
60 170/Hyd/2011 2000-01 M/s. Gautami
The DCIT
.61 171/Hyd/2011 2001-02 Constructions,
Central Circle-2
62 173/Hyd/2011 2003-04 Hyderabad
Hyderabad
63 172/Hyd/2011 2005-06 PAN: AABFG6614P
64 638/Hyd/2011 2000-01 Sri Rao Subba Rao The DCIT
65 SA No. 156/Hyd/12 2000-01 (Ind.), Hyderabad Central Circle-2
in 638/Hyd/2011 PAN: ABSPR4642J Hyderabad
3 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
========================
66 639/Hyd/2011 2001-02 Sri Rao Subba Rao The DCIT
67 SA No. 157/Hyd/12 2001-02 (Ind.), Hyderabad Central Circle-2
in 639/Hyd/2011 PAN: ABSPR4642J Hyderabad
68 640/Hyd/2011 2002-03
69 SA No. 158/Hyd/12 2002-03
in 640/Hyd/2011
70 641/Hyd/2011 2003-04
71 SA No. 159/Hyd/12 2003-04
in 641/Hyd/2011
72 642/Hyd/2011 2004-05
73 SA No. 160/Hyd/12 2004-05
in 642/Hyd/2011
74 643/Hyd/2011 2005-06
75 SA No. 161/Hyd/12 2005-06
in 643/Hyd/2011
76 644/Hyd/2011 2006-07
77 SA No. 162/Hyd/12 2006-07
in 644/Hyd/2011
78 826/Hyd/2011 2003-04
The DCIT Sri Rao Subba Rao
79 827/Hyd/2011 2004-05
Central Circle-2 (Ind.), Hyderabad
80 828/Hyd/2011 2005-06
Hyderabad PAN: ABSPR4642J
81 829/Hyd/2011 2006-07
82 787/Hyd/2011 2000-01
83 SA No. 163/Hyd/12 2000-01
In 787/Hyd/2011
84 788/Hyd/2011 2001-02
85 SA No. 164/Hyd/12 2001-02
In 788/Hyd/2011
86 789/Hyd/2011 2002-03
87 SA No. 165/Hyd/12 2002-03
In 789/Hyd/2011
Rao Subba Rao (HUF) The DCIT
88 790/Hyd/2011 2003-04
Hyderabad Central Circle-2
89 SA No. 166/Hyd/12 2003-04
PAN: AAKHR7236R Hyderabad
In 790/Hyd/2011
90 791/Hyd/2011 2004-05
91 SA No. 167/Hyd/12 2004-05
In 791/Hyd/2011
92 792/Hyd/2011 2005-06
93 SA No. 168/Hyd/12 2005-06
In 792/Hyd/2011
94 793/Hyd/2011 2006-07
95 SA No. 169/Hyd/12 2006-07
In 793/Hyd/2011
Assessee by: Sri K.C. Devdas
Revenue by: Sri M. Ravinder Sai
Date of hearing: 12.12.2012
Date of pronouncement: 31.01.2013
4 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
========================
ORDER
PER CHANDRA POOJARI, AM:
These are appeals by the assessee as well as by the Department are directed against different orders of the CIT(A) for the above assessment years. Since the issues arising out of these appeals are common and identical and all the assessees belong to same group, all these appeals are clubbed together, heard together and are being disposed of by this common order for the sake of convenience. There are also Stay Applications filed by the assessees in 39 cases relating to different assessees herein. First we will take up the appeals in respect of Sri Rao Ravi Kumar.
Rao Ravi Kumar
Sl. Assessee's appeal Sl. Revenue appeal
A.Y.
No. ITA No. No. ITA No.
1. 1595/Hyd/2010 2000-01
2. 1593/Hyd/2010 2001-02 1. 1563/Hyd/2010
3. 1594/Hyd/2010 2002-03
4. 1598/Hyd/2010 2003-04
5. 1596/Hyd/2010 2004-05
6. 1597/Hyd/2010 2005-06
7. 1599/Hyd/2010 2006-07
ITA No. 1595/Hyd/2010 - Assessee appeal
2. The first grievance of the assessee is with regard to limiting of agricultural income at Rs. 50,000 out of the agricultural income declared by the assessee at Rs. 1,19,300 and treating the balance Rs. 69,300 as 'income from other sources'.
2.1 The contention of the learned AR is that the assessee is having 24 acres of land at Aleru and has derived income from this land at Rs. 1,19,300. The Assessing Officer is having no material to show that the assessee derived income 5 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== from sources other than agriculture to treat Rs. 69,300 as 'income from other sources'.
2.2 On the other hand, the learned DR relied on the order of the CIT(A).
2.3 We have heard both the parties and perused the material on record. The Department has not doubted assessee owning 24 acres of land at Aleru. The assessee was cultivating mango and the Assessing Officer also admitted that there are fruit bearing mango trees on the said land. The Assessing Officer rejected the claim of the assessee on the reason that the assessee has not maintained book of account for agricultural income. In our opinion, when the Assessing Officer not doubted owning of agricultural land and the existence of fruit bearing mango trees in the agricultural land, the income of Rs. 1,19,300 cannot be doubted. The disallowance by the Assessing Officer on this issue is only on suspicion and surmises, without bringing any material to show that the assessee has not derived agricultural income to that extent. When the Assessing Officer accepted the existence of 24 acres of land with fruit bearing mango trees, he is not justified in limiting the same to the tune of Rs. 50,000, without any positive material in hand. Being so, we are inclined to accept the contention of the assessee's counsel and allow the claim of the assessee. This ground of the assessee is allowed. ITA No. 1595/Hyd/2010 (assessee's appeal) is allowed.
ITA No. 1593/Hyd/2010 - Assessee appeal3. The first ground in this appeal is with regard to treating the agricultural income at Rs. 50,000 out of Rs. 1,40,000 declared by the assessee and treating the balance 6 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Rs. 90,000 as 'income from other sources'. This issue is similar to the issue in ITA No. 1595/Hyd/2010. Being so, on the same reasons, this issue is decided in favour of the assessee. In the result, ITA No. 1593/Hyd/2010 (assessee's appeal) is allowed.
ITA No. 1594/Hyd/2010 - Assessee appeal4. The first ground in this appeal is with regard to limiting the agricultural income to Rs. 50,000 out of Rs. 1,40,000 declared by the assessee. The Assessing Officer treated Rs. 90,000 as 'income from other sources'. This ground is decided in favour of the assessee on the same lines as discussed ITA No. 1595/Hyd/2010. This ground is allowed.
5. The next ground in this appeal is with regard to addition of Rs. 1,41,000 as unexplained rental deposit without considering documentary evidence showing that the amount was received by way of security deposit from Blue Dart Express Ltd., and the amount was found mentioned in the lease agreement filed and particularly when the matter was examined by the Assessing Officer at the stage of remand proceedings who recommended that the transaction is genuine and not calling for any addition.
5.1 We have heard both the parties on this issue. The Assessing Officer accepted the receipt of Rs. 1,51,100 vide cheque through lease agreement made with the Blue Dart Express Ltd., executed on 31.3.2001. This cheque consists of two portions, (i) Rs. 1,41,000 towards rental deposit and
(ii) Rs. 10,110 towards rental income. The amount was credited into bank account on 18.4.2001. Because of gap of 18 days between the date of rental agreement and the 7 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== amount credited in the bank account, the lower authorities doubted the transaction. In our opinion, there is no merit in doubting the transaction as the amount has been received from Blue Dart Express Ltd., and duly credited into the bank account. Being so, the addition is not sustainable. Accordingly, we delete the addition.
6. The next ground is with regard to taxing capital gain of Rs. 3 lakhs, even though the same was already offered to tax in the return of income filed in response to notice u/s. 153C of the IT Act. The CIT(A) made an addition of Rs. 3 lakhs on the basis of the Remand Report submitted by the Assessing Officer. The contention of the assessee's counsel is that the assessee sold two flats (i) bearing No. C-502 at R.K. Towers, Begumpet, Hyderabad at Rs. 5.5 lakhs and flat No. E-402 at Vamsi Span Collective Homes, Begumpet, Hyderabad and thus, Rs. 3 lakhs was considered to be offered to tax out of capital gain derived from above transfers. The CIT(A) confirmed the same on the reason that there is no reference of this investment of Rs. 3 lakhs in the Cash Flow Statement. In our opinion, reflection of investment of Rs. 3 lakhs to be considered with reference to the Cash Flow Statement filed by the assessee before the Assessing Officer and to be decided accordingly. If the investment of Rs. 3 lakhs is duly reflected in the Cash Flow Statement, the addition cannot be sustained. Accordingly, we remit the issue back to the file of the Assessing Officer for fresh consideration. In the result, ITA No. 1594/Hyd/2010 is partly allowed for statistical purposes.
ITA No. 1563/Hyd/2010 - A.Y. 2002-03 Revenue appeal7. The first ground in this appeal is with regard to deletion of addition of Rs. 28.75 lakhs which represents the 8 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== unaccounted cash deposits of Rs. 15 lakhs received on account of mortgage loan and Rs. 14.35 lakhs unaccounted cash deposit into bank account.
7.1 Brief facts of the issue are that the Assessing Officer made an addition of Rs. 15 lakhs towards unexplained cash credit and Rs. 14.35 lakhs being cash deposit into bank account in SBI Personal Banking Branch, R.P. Road, Secunderabad i.e., Rs. 5 lakhs on 15.6.2001 and Rs. 9.35 lakhs on 14.6.2001. This is as per seized material A/RSR/29 page Nos. 89-90. On appeal the CIT(A) deleted the same. Against this the Revenue is in appeal before us.
7.2 The learned DR relied on the order of the Assessing Officer stating that it is not explained satisfactorily.
7.3 On the other hand, the learned AR submitted that there was a mistake in the preparation of Cash Flow Statement. The assessee had actually availed mortgage loan of Rs. 6,00,000 from SBI, SP Road Branch, loan account No. 01090005225 and the same was withdrawn on 11.01.2002. However, in the original cash flow statement, he had taken only Rs. 6,00,000/- as a source. As regards the balance sum of Rs. 9,00,000/-, there is a cash deposit, which has been withdrawn within 3 days. Since, the original cash flow statement is taken as a basis, the AR requested that the balance amount of Rs. 9,00,000/- may be ignored. He furnished a copy of the said loan account as additional evidence before the CIT(A).
7.4 On such submissions of the AR before the CIT(A), the Assessing Officer in his remand report submitted that the claim of the assessee has been gone through. On verification of the said loan account of SBI, SP Road Branch, an amount of Rs. 6,00,000/- sanctioned by the bank was reflected, whereas the 9 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== balance amount of Rs. 9,00,000/- was not explained. He stated, hence a notice dated 11.08.2009 was issued to the assessee for furnishing explanation in that regard. In response to the same, the assessee has filed reply on 21.08.09, stating that the amount of Rs. 9,00,000/- was deposited on 24.03.2002 and the same has been withdrawn on 27.03.2002. The Assessing Officer further submitted that the assessee has also filed a cash book containing the day to day cash flow, and the same has been examined by him. He submitted, accordingly, the claim of the assessee may be considered on merit.
7.5 Later, during hearing of appeal before the CIT(A), while reiterating their earlier submission, the AR submitted, that an amount of Rs. 9,00,000/- was deposited by the assessee on 24.03.2002 in the same loan account. This transaction is reflected in the cash book. It was submitted, as may be seen from the cash book entries, the opening cash balance on 24.03.2002 was Rs. 6,42,321/-. Out of this, an amount of Rs. 35,000/- was deposited in the same bank account. Further an amount of Rs. 3,00,000/- was withdrawn through cheque No. 123473 from SBI account No. 10161692436 maintained at SP Road Branch. Thus, the cash balance available with the assessee was Rs. 9,07,321/- and out of that amount, he deposited the said amount of Rs. 9,00,000/- in the above mentioned loan account. In this regard, he furnished certified copies of the said cash book entries before the CIT(A), which have been filed before the Assessing Officer. With these submissions and stating that the actual amount of mortgage loan obtained by the assessee was only Rs. 6,00,000/-, the AR submitted that no addition is called for as unexplained deposit appearing in the bank account. He requested that the said addition made in the assessment was rightly deleted by the CIT(A).
10 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 7.6 We have heard both the parties and perused the material on record. The CIT(A) before deletion of the above addition called for Remand Report from the Assessing Officer. In the Remand Report vide his letter dated 22.2.2010 with regard to unexplained mortgage loan at Rs. 15 lakhs the Assessing Officer stated as follows:
"The claim of the assessee has been gone through. On verification of the said account at SBI, SP Road Branch, the amount of Rs. 6 lakhs sanctioned by the Bank was reflected whereas the balance amount of Rs. 9 lakhs was not explained. Hence, a notice dated 11.8.2009 was issued to the assessee and explanation was called. In response to the letter, the assessee has filed his reply on 21.8.2009 stating that the amount of Rs. 9,00,000 was deposited on 24.3.2002 and has been withdrawn on 27.3.2002. Further, he has also filed a cash book containing the day to day cash flow. The same has been examined.
Accordingly, the claim of the assessee may be considered on merit."
7.7 After considering this submission by the Assessing Officer, the CIT(A) was satisfied that the source has been duly examined by the Assessing Officer and found to be correct. Being so, the CIT(A) deleted the addition. We do not find any infirmity in the action of the CIT(A) as the Assessing Officer has no objection to delete the same. Accordingly, we confirm the action of the CIT(A) on this issue.
8. Now coming to deletion of Rs. 14.35 lakhs. The DR relied on the order of the Assessing Officer.
8.1 Referring to the above addition made by the Assessing Officer, the AR submitted that the Assessing Officer has mentioned that there is a bank deposit of Rs. 5,00,000/- on 15.06.2001 and Rs. 9,35,000/- on 14.06.2001. It was submitted that the 11 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== same is a duplicate addition made by the Assessing Officer, in view of their earlier explanation furnished in the context of the said addition of Rs. 28,75,000/-, towards unexplained cash deposit in bank. It was stated, in view of their such explanation furnished against the addition, no addition is called for in this case. On such submissions of the AR the Assessing Officer in his above remand report to CIT(A), submitted that, it is nothing but duplication where the same was added already in the said amount mentioned earlier. Further stating that the assessee has also explained the sources, the Assessing Officer submitted that, hence the claim of the assessee may be considered on merit.
8.2 We have heard both the parties on this issue. Herein also the Assessing Officer sent the Remand Report vide his letter dated 22.2.2010 stating that it is nothing but the duplication where the same was added already and the assessee also explained the source.
8.3 After considering this Remand Report, the CIT(A) deleted the addition as it is a double addition. Being so, the Department cannot have any grievance on this issue. The deletion of addition is confirmed. This ground of the Revenue is rejected.
9. The next ground in ITA No. 1563/Hyd/2010 is with regard to deletion of addition made towards rental income at Rs. 60,000.
9.1 Brief facts of the issue are that the Assessing Officer made addition of Rs. 66,000 towards rental income from flat No. C-502, RK Towers, Begumpet. According to the AR the flat is self-occupied. On hearing the assessee's counsel, the CIT(A) called for Remand Report from the Assessing Officer. In the Remand Report vide letter dated 22.2.210 the 12 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Assessing Officer confirmed that the property under consideration was self occupied. Being so, the CIT(A) deleted the addition. Against this, the Revenue is in appeal before us.
9.2 We have heard both the parties on this issue. As submitted by the Assessing Officer in his Remand Report dated 22.2.2010 the property in disputed is under self- occupation by the assessee and the assessee has not received any rental income from this flat No. C-502, RK Towers, Begumpet. Being so, we confirm the order of the CIT(A) on this issue. This ground of the Revenue is rejected.
10. The next ground in the Revenue appeal in ITA No. 1563/Hyd/2010 is with regard to deletion of addition of Rs. 60,000 on account of rental income from flat No. E-402, Vamsi Span Collective Homes, Begumpet. The contention of the DR is that the addition is to be sustained and two properties mentioned cannot be self-occupied. The AR relied on the order of the CIT(A).
10.1 We have heard both the parties and perused the material on record. We find merit in the argument of the DR. Two properties cannot be self-occupied. The ALV of the property at E-402, Vamsi Span Collective Homes is to be considered as 'income from house property'. However, the assessee is entitled for statutory deductions u/s. 24 of the Act. This ground of the Revenue is allowed. In the result, the Revenue appeal in ITA No. 1563/Hyd/2010 is partly allowed.
13 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== Rao Ravi Kumar ITA No. 1598/Hyd/2010 ITA No. 1596/Hyd/2010 Assessee ITA No. 1597/Hyd/2010 appeals ITA No. 1599/Hyd/2010
11. In all the above appeals, the first common ground is with regard to treatment of Rs. 90,000 out of Rs. 1,40,000, income declared by the assessee as agricultural income as 'income from other sources'. Similar issue already came for consideration in assessee's own case in earlier paras in ITA No. 1595/Hyd/2010 wherein we have held that the agricultural income is to be accepted as declared by the assessee in view of the land holdings by the assessee at 24 acres and there is no positive material to hold that the assessee earned any income other than agricultural income. Being so, we allow the ground taken by the assessee in all the above appeals. In the result, assessee's appeals in ITA Nos. 1598, 1596 1597 and 1599/ Hyd/2010 are allowed.
Rao Shiva Kumar
Sl. Assessee appeal Sl. Revenue Appeal
No. A.Y. No.
ITA No. ITA No.
1. 150/Hyd/2011 2000-01
2. 151/Hyd/2011 2001-02 (1) 240/Hyd/2011
3. 152/Hyd/2011 2002-03
4. 153/Hyd/2011 2003-04
5. 154/Hyd/2011 2004-05 (2) 241/Hyd/2011
6. 155/Hyd/2011 2005-06
7. 156/Hyd/2011 2006-07
12. The first common ground in ITA Nos. 150, 151 and 156/Hyd/2011 is with regard to disallowance on account of interest on drawings and treating the same as income of the assessee without appreciating the true nature of the claim and the treatment given by the assessee in his book of 14 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== account, when the Assessing Officer verified and confirmed the fact in the Remand Report.
12.1 In these cases, the assessee is a partner in M/s. Gautami Constructions from where he has received interest on his capital balance in this assessment year and also paid interest on his drawings. The assessee's claim is to set off of the interest received from interest paid, and tax the net of these two. The lower authorities not accepted the claim of the assessee on the reason that the partnership deed does not stipulate the payment of interest on drawings by the partners and only the receipt of interest was considered as income of the assessee without netting payment of interest by the assessee on drawings.
12.2 We have heard both the parties on this issue. Similar issue came for consideration before the Hon'ble Supreme Court in the case of Keshavji Raoji & Co. etc., etc. v. CIT (183 ITR 1) wherein the Hon'ble Supreme Court held that in making disallowance for the interest paid by the partnership firm to a partner u/s. 40(b) the interest, in turn, paid by the partner on his borrowings from the firm should be taken into account of and deducted and only the balance is to be disallowed u/s. 40(b) of the Act. Further, in the case of CIT vs. T.V. Ramanaiah & Sons (157 ITR 300) (AP) the High Court held that only the net amount of interest paid by the firm after deducting interest paid by the same partner to the firm can be disallowed u/s. 40(b) of the Act. In view of the above judgements, it is clear that only the net amount of interest to be treated as income in the hands of the assessee and the gross interest cannot be considered. Accordingly, this ground of the assessee is allowed in all these appeals.
15 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
========================
13. The next common ground in ITA Nos. 150, 151, and 152/Hyd/2011 is with regard to treatment of annual letting value (ALV) in case of penthouse in RK Towers, Begumpet, Hyderabad as income from house property of the assessee, though the said property was self-occupied by the assessee. The assessee has not disclosed the rental income from penthouse in RK Towers, Begumpet, Hyderabad. The assessee's claim is that it is self-occupied by him. The CIT(A) called for Remand Report from the Assessing Officer. The Assessing Officer submitted in his Remand Report that the claim of the assessee is genuine. The assessee also filed a copy of the certificate dated 16.10.2010 from concerned authority of Radhakrishna Complex Welfare Association confirming that assessee's father Sri Rao Subba Rao and his family members were staying therein in flat No. C-501-502 along with penthouse. Since no evidence was produced before the Assessing Officer and it was obtained after remand proceedings, the CIT(A) not considered the same.
13.1 In our opinion, this act of the CIT(A) is not justified. The Department has no material to show that it was not occupied by the assessee himself or it was rented to any other person so as to derive the rental income from it. Being so, the claim of the assessee cannot be denied on mere suspicion and surmises. Accordingly, in the absence of any evidence contrary to the evidence produced by the assessee, we are inclined to decide the issue in favour of the assessee as it is self-occupied. This ground of the assessee is allowed in all the above appeals.
14. The next common ground in all the appeals of the assessee, in ITA Nos. 150 to 156/ Hyd/2011 is with regard to disallowance of agricultural income. In the A.Y. 2000-01 16 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== the assessee claimed Rs. 70,000 as agricultural income. In other A.Ys., the assessee shown agricultural income at Rs. 1,40,000. The lower authorities treated Rs. 35,000 out of Rs. 70,000 as 'income from other sources' in A.Y. 2000-01. Similarly, the Assessing Officer treated Rs. 1 lakh as 'income from other sources' out of Rs. 1,40,000 shown as agricultural income declared by the assessee in A.Y. 2001- 02 to A.Y. 2006-07. Against this, the assessee is in appeal before us.
14.1 We have heard both the parties on this issue. The same issue came for consideration earlier paras in the case of Rao Ravi Kumar in ITA Nos. 1595 to 1599/Hyd/ 2010 wherein we have held that when the Department not doubted owning of agricultural land and having no positive material against the assessee to hold that the assessee earned income from any other source other than agricultural income. Being so, the Department is not entitled to treat the agricultural income declared by the assessee as non agricultural income. Accordingly, this ground of the assessee is allowed in all the above appeals on similar lines.
15. The next ground in ITA Nos. 151, 152, 153, 154 and 155/Hyd/2011 is with regard to treatment of amount received from assessee's brother Rao Satya Kumar from NRI funds, though it was routed through bank account and evidenced by affidavit, confirmation letter and other documentary evidences. The addition was made as follows:
A.Y. 2001-02 - Rs. 69,330
A.Y. 2002-03 - Rs. 8,39,529
A.Y. 2003-04 - Rs. 4,37,736
A.Y. 2004-05 - Rs. 4,50,025
A.Y. 2005-06 - Rs. 2,11,040
17 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
========================
15.1 According to the assessee, this amount was received from assessee's brother who is an NRI and amount received through bank account and also assessee filed confirmation letter, affidavit and return filed by Rao Satya Kumar in USA and it is a genuine gift given by his close relative who is his brother and it cannot be treated as unexplained credit/gift.
15.2 The DR submitted that though the confirmation letter was filed by the assessee, there were no details specifically explaining the sources from which such remittances were made. He submitted that the addition should be sustained.
15.3 We have heard both the parties and perused the material on record. In this case, the remittances of gift came from the close relative of the assessee who is none other than his brother Rao Satya Kumar who is an NRI. The assessee filed confirmation letter and bank account details and also IT returns of the donor. Being so, identity and capacity of the donor and genuineness of the transaction are proved. In these circumstances, as the gift is received from close relative of the assessee addition cannot be sustained. Accordingly, we delete the addition. This ground is allowed in all the above appeals.
16. The next ground in ITA No. 151/Hyd/2011 is with regard to addition of Rs. 5 lakhs on account of encashment of FD though the funds routed through bank account of the assessee. Brief facts of the issue are that the Assessing Officer made an addition of Rs. 25 lakhs on account of cancellation of FD as there is no satisfactory explanation by the assessee.
16.1 Before the CIT(A) it was submitted that though the Assessing Officer has made such addition towards 18 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== cancellation of FD brought into bank account maintained in SBI, there is no such entry in the bank account maintained in that bank. It was stated by the AO that such addition has been made on basis of second cash flow statement and under the circumstance, the accuracy of such entry is doubtful.
16.2 It was further submitted that in fact, such amount pertains to a deposit made in the Canara Bank Kundann Bagh Branch, bearing account no. 9787. It was stated that the sum of Rs. 25,00,000/- was deposited by Mr. Rao Subba Rao, in the bank account of the assessee for making a payment on his behalf to Mr. D.N. Chenoy & Others. This amount of Rs. 25,00,000/- has been duly reflected, in the cash flow statement of Mr. Rao Subba Rao, filed before DDIT (Inv.) and, therefore, no separate addition should have been made in the hands of the assessee.
16.3 With reference to above submissions, the Assessing Officer in his remand report before the CIT(A) submitted that the claim of the assessee has been gone through. He further noted that the bank account copy of the assessee was called for examination. He stated that after getting the detailed reply from the assessee on 21.08.2009, it appears that the claim of the assessee is genuine. He further noted, it is to be mentioned here that Sri Rao Subba Rao (father of the assessee) has deposited this amount into his bank account and the same has been given to D.N. Chenoy & Others. With these observations, he submitted, hence the contention of the assessee may be considered on merits. Later, in response to queries raised by the Addl. CIT for making further enquiry into the above matter, the Assessing Officer in his second report furnished vide letter dated 01.06.2010 before the CIT(A) submitted that, it was explained by the assessee that the said addition was made with description of cancellation of FD amount brought into the bank account maintained in SBI. It was also 19 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== submitted that, there is no such entry in the bank account maintained in SBI. In the written submissions dated. 21.05.2010 before the lower authorities, the assessee has explained that a sum of Rs. 25,00,000/- was deposited by Mr. Rao Subba Rao, father of the assessee, into the bank account of the assessee for making payment to Sri D.N. Chenoy & Others. He further noted that the said payment was duly reflected in the original cash flow statement of Mr. Rao Subba Rao. With these observations, he noted that hence, the contention of the assessee may be considered on merit.
16.4 Later during hearing of appeal before the CIT(A), while clarifying on the above issue, the AR submitted that on 16.02.2001 Rs. 20,00,000 was transferred from the bank account No. 1022, Canara Bank, Kundan Bagh Branch, standing in the name of M/s. Gautami Constructions. This amount was transferred to SBI, SP Road Branch and FD was made directly for Rs. 20,00,000/- in the name of the assessee. This FD matured on 17.03.2001 for Rs. 20,09,041/- which was credited in the bank account No. 01190005223. It was stated that wrongly in the second cash flow statement filed by the assessee, this was mentioned as cancellation of FD, whereas the same is encashment of FD as would be apparent from the bank account. Furnishing copies of those bank accounts of M/s. Gautami Constructions, and of the assessee, it was stated that from the same, it may be noticed that there was inter account transfer of such amount. It was further submitted in the original cash flow statement filed before DDIT(Inv.), an amount of Rs. 20,00,000/- has been shown from M/s. Gautami Constructions. Enclosing a copy of that cash flow statement filed before DDIT(lnv.), it was submitted that while filing return of income in response to notice u/s. 153A, the interest of Rs. 9,041/- has not been shown. It was further stated that the addition of Rs, 41,507/- towards interest on bank, which 20 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== has been accepted by the assessee, includes such amount of Rs. 9,041/-. However, stating that since the break-up of such interest is not possible, the above amount of Rs. 9,041/- may be added. Clarifying on the balance amount of Rs. 5,00,000/-, It was further submitted that on 31.03.2001, cash of Rs. 5,00,000/- was deposited in bank account in SBI, SP Road Branch, (A/c. No. 10161692414).
16.5 However, vide further written submissions made on 25.10.2010 by the assessee before the CIT(A), explaining about the balance amount of Rs. 5,00,000/-, clarified that there is another entry representing encashment of fixed deposit made on 15.07.2000 for an amount of Rs. 5,32,239/-. That amount includes interest of Rs. 32,239/-. Enclosing a photocopy of that bank statement with State Bank of India, reflecting such credit entry on that date, he submitted that, now he is not in a position to provide any further information and proof of the sources for making such fixed deposit of Rs. 5,00,000/-.
16.6 Being so, the CIT(A) sustained addition of Rs. 5 lakhs and deleted the addition of Rs. 20 lakhs observing that there are two FDS (1) for Rs. 20 lakhs made by transfer of fund from bank account of M/s. Gautami Constructions. However, regarding the other FD for an amount of Rs. 5 lakhs, he observed that the assessee failed to explain the same. Against this finding of the CIT(A), the assessee is in appeal before us.
16.7 The learned AR submitted before us that the entire amount of Rs. 25 lakhs was deposited by Rao Subba Rao in the bank account of the assessee for making payment on his behalf to Mr. D.N. Chenoy and others. The same amount has been reflected in Rao Subba Rao's Cash Flow Statement 21 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== filed before the DDIT (Inv.) and no addition is warranted in the hands of the assessee.
16.8 The DR submitted that only Rs. 20 lakhs has been reflected in Cash Flow Statement and accordingly the CIT(A) deleted Rs. 20 lakhs and no further deletion is warranted.
16.9 We have heard both the parties and perused the material on record. The assessee made a categorical statement that the amount was duly reflected in the Cash Flow Statement filed by Rao Subba Rao before the DDIT (Inv.). If it is so disclosed, the addition is not warranted in the hands of the assessee. Accordingly, we remit this issue to the file of the Assessing Officer for fresh consideration. This ground is partly allowed for statistical purposes.
17. The next ground in ITA No. 152/Hyd/2011 is with regard to addition of Rs. 1,41,000 as unexplained rental deposit without considering the documentary evidence filed showing that the amount was received by way of security deposit from Blue Dart Express Ltd., and reflected in the lease agreement filed before the lower authorities. At the state of remand proceedings the Assessing Officer has recommended that the transaction is genuine and calls for no addition on this count.
17.1 We have heard both the parties on this issue. We have already discussed similar issue in the case of Rao Ravi Kumar and deleted the addition in ITA No. 1594/ Hyd/2010 for A.Y. 2002-03 in earlier paras of this order. On similar lines this addition is deleted.
18. The next ground in ITA No. 155 and 156/Hyd/2011 is with regard to sustaining addition made towards rent from 22 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== flat Nos. G8, Sai Darshan Apartments, without making any enquiry regarding occupation of the flat as at the time the property was vacant and the Assessing Officer has accepted the same in his Remand Report that that the claim of the assessee is genuine.
18.1 Facts of the issue are that the said flat was acquired by the assessee from one Syed Naseer Hussain on 14.10.2004 for Rs. 5,30,699 and sold to Smt. G. Kalavati and G. Chandra Mouli on 4.1.2007 for Rs. 6,50,000. It was stated that the flat was not let out till the date of sale and kept vacant as the assessee wanted to use the same for his office.
18.2 The learned AR submitted that the claim of the assessee is to be allowed as it is kept vacant. On the other hand, the learned DR submitted that the assessee was not able to produce evidence for his self-usage of the flat, specifically the assessee could have produced telephone/electricity bills which were not at all produced.
18.3 We have heard both the parties on this issue and perused the material on record. The assessee is not able to produce any positive material to show that the flat was kept vacant during this period or it was occupied. Being so, we are inclined to confirm the order of the CIT(A) on this issue. This ground is dismissed.
19. The next ground in ITA No. 155/Hyd/2011 is with regard to receipt of chit amount of Rs. 1,54,232 from Durga Chits though the fund was routed through bank account confirmed by the Assessing Officer in his remand report.
23 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 19.1 The learned AR submitted that this amount was received from Durga Chits credited in Canara Bank, Kundan Bagh Branch, Account No. 9787 and also he drew our attention to the copy of the bank account placed at page No. 194 of the Paper Book No. 2. The DR strongly opposed the argument of the assessee's counsel and relied on para 7.3 of the CIT(A) order stating that no evidence has been produced as it is received from Durga Chits, Rajahmundry.
19.2 We have heard both the parties and perused the material on record. We have gone through the statement of account produced by the assessee from Durga Finance Corporation, HO 3-76-2, Main road, Kothapet Branch office at 36-5-11 Innespet, Rajahmundry-1. Also carefully gone through the other relevant supporting materials on this issue. In our opinion, the Assessing Officer examined the same and observed in his Remand Report that assessee's claim is genuine. Being so, sustaining of addition the CIT(A) is not warranted. The addition is deleted.
20. The next ground in ITA No. 155/Hyd/2011 is with regard to addition of Rs. 2,50,000 on account of advances received from customers though the fund is routed through bank account.
20.1 The learned AR submitted that this amount is received from Bolla Uma towards advance for sale of the flat at Thokatta and the same was evidenced by seized document A/RSR/6 vide page Nos. 49-53 and the same was credit to SBI SP Branch at 13.8.2004.
20.2 The DR relied on the order of the CIT(A).
24 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 20.3 We have heard both the parties and perused the material on record. On this issue the Assessing Officer made addition of Rs. 5 lakhs. The assessee during remand proceedings furnished the evidence in the form of agreement entered with Bolla Uma on 11 th August, 2004 which evidenced the receipt of Rs. 2,50,000. However, there is no evidence for receipt of total amount of Rs. 5 lakhs. Being so, the CIT(A) deleted Rs. 2,50,000 and confirmed Rs. 2,50,000 out of Rs. 5 lakhs. Even before us the assessee was not able to lead any evidence for the receipt of Rs. 5 lakhs from Bolla Uma. Being so, we are inclined to confirm the addition of Rs. 2,50,000. This ground in ITA No. 155/Hyd/2001 is dismissed.
21. The next ground in ITA Nos. 155 and 156/Hyd/2011 is with regard to treating the amount received on sale of agricultural land as business income though it is exempted asset which is not liable to capital gain.
21.1 In assessment year 2005-06, the assessee sold 49 acres 39 guntas of agricultural land located at Mansanpally along with his father Rao Subba Rao, his uncle Raja Kumar and Gautami Constructions to M/s. Chalapati Estates Pvt. Ltd. The total consideration is Rs. 2.65 crores. The assessee received consideration of Rs. 50,08,500 for 9.18 acres. The purchase cost per acre is Rs. 18,000 and total cost of purchase is Rs. 1,70,100. Thus, the balance Rs. 48,38,400 considered as income of the assessee for A.Y. 2005-06. Similarly for A.Y. 2006-07 Rs. 78,20,800 on the sale of 15.11 acres of land to M/s. Chalapati Estates Pvt. Ltd. Herein the cost of land is at Rs. 18,000 per acre and the total is worked out at Rs. 2,74,950 towards purchase 25 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== cost and the balance amount of Rs. 80,95,750 worked out at Rs. 78,20,800 as undisclosed income of the assessee.
21.2 The contention of the AR is that such amount represents sale proceeds of 49 acres 39 guntas of agricultural land, located at Mansanapally owned by the assessee, his father Sri Rao Subba Rao, his father's brother Rao Raj Kumar and Gautami Constructions to M/s. Chalapathi Estates Pvt. Ltd.,. Furnishing break-up of consideration for an amount of Rs. 2,65,00,000/- received in case of different persons including the assessee, it was submitted that although the agreement for sale was made for sale of 85 acres of land, the assessee and family members possessed only 49.39 acres of land which was subject matter of transfer as per sale deed executed on different dates. It was submitted that from such sale, the assessee has received consideration of Rs. 50,08,500/- for sale of 9 acres 18 guntas in the assessment 2005- 06 and Rs. 62,93,750/- for sale of 11 acres 35 guntas in Asst. Year 2006-07. It was submitted that the AO worked out the area sold in the hands of the assessee at 24 acres 29 guntas for consideration of Rs. 1,31,04,250/- for both the assessment years. It was further submitted that the entire sale proceeds of Rs. 2,55,00,000/- for 49 acres 39 guntas were credited to the bank account of Sri Rao Subba Rao in his IDBI Bank and Rs. 10,00,000/- was credited in the account of M/s. Gautami Constructions. Referring to various amounts from sale of such land considered in the hands of different persons, it was submitted that as against gross receipts of Rs. 2,65,00,000/-, the Assessing Officer has adopted gross receipts of Rs. 4,03,10,500/- and reduced the cost of land at Rs. 10,11,845/- and the same has resulted in addition in multiple hands. Stating that the real owners of said land are Sri Rao Subba Rao, Sri Rao Shiva Kumar, Sri Rao Ravi Kumar and Gautami Constructions. It was 26 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== submitted that the taxability or otherwise of the amount would arise only in the hands of various entities who owned the land.
21.3 It was further submitted that no income was offered on account of sale of land in the case of the assessee, as he held such land as investment but not as stock-in-trade. The land is agricultural land located outside the municipal limits i.e., beyond 8 km. Thus, the said land was not a capital asset exigible to tax under the head 'Capital Gains'. It was further submitted that the profit arising out of such land transaction cannot be taxed as adventure in the nature of trade under the head 'Business'. Referring to various judgements of Hon'ble Supreme Court in this regard, it was submitted that in the case of the assessee the lands were acquired by him and reflected in the returns as investments, but not as stock-in-trade. Although, there was profit on such land transactions, the same cannot be characterized as adventure in nature of trade. It was stated that the onus lies on the department to prove that the transaction was in the nature of trade. It was further stated that the said receipts on sale of land in the hands of the assessee, cannot be taxed either under capital gain or under the head business.
21.4 With reference to the above submissions, the Assessing Officer in his remand report before the CIT(A) submitted that the assessee, his brother and his father are actively engaged in the business of real estate. The purchase and sale of immovable properties like lands and buildings are to be assessed only under the head 'Profit or Gain from Business or Profession' and not under any other head. Hence, the question of treating the entire receipt as capital receipt and assessing the same under the head Capital Gain does not arise in the present case. The case laws relied upon by the assessee are not relevant to the facts and circumstances of the business transactions carried out by the 27 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== assessee. Stating that, hence, the claim of the assessee is devoid of merit and the same should be rejected, the Assessing Officer submitted that the said addition should be confirmed.
21.5 The Id. AR submitted that the assessee never carried on any business of purchase and sale of agricultural land. The agricultural land acquired by him was shown as investment. It is with the intention of realizing the investment by better price that the said land was sold by him. Further, the same being an agricultural land, the same is not liable to capital gain and the entire receipt is in the nature of capital receipt, not liable to tax. It was further submitted that before sale of the said land the assessee did not carry on any activity of plotting, laying down roads etc., so as to draw any conclusion that the same was stock- in-trade in the hands of the assessee. It was stated that such land was purchased for carrying on agricultural operation but not for trading. Referring to the observation of the Assessing Officer in the remand report that the assessee and his father are in the business of real estate, it was submitted that he never carried on any real estate business. Such transaction in his case cannot partake the character of an adventure in the nature of trade. With these submissions, it was requested that the said addition made in the assessment may be deleted.
21.6 The DR submitted that the assessee and his family members own only 49.39 acres of land which were sold during different years, it was submitted that consideration of gross receipt by the Assessing Officer from sale of such land at Rs. 4,03,10,500/-, has resulted in addition in multiple hands. In this context, it is stated here that so far, the CIT(A) disposed off the appeals involving such issue only in the case of M/s. Gautami Constructions and in that case the CIT(A) has given his findings with reference to factual observations made by the Assessing 28 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Officer in different assessment years. Further, such findings have been given, after considering the submissions of the assessee made in that case.
21.7 Now, coming to the present case of the assessee, the AR submitted that the assessee has received sale consideration of Rs. 50,08,500/- from sale of acre 9 acres 18 guntas of land during the previous year. This fact is not disputed by the assessee. Further, the assessee admitted that taxability or otherwise of the amount would arise only in the hands of the entity who own the land, it has to be considered whether such receipts in the hands of the assessee, as mentioned by the AO, during the year, is taxable or not for the Asst. Year 2005-06. The assessee has submitted that the said land purchased by him, was an investment and same was not his stock in trade. He has further stated that he was not in the business of real estate and hence the profit arising from such transaction cannot be taxed under the head business income. He has further stated that such land being agricultural land, such transaction of sale of that land, is not liable to capital gain tax. However, the assessee, in fact, has purchased such lands with the sole intention of selling the same subsequently at a much higher price, to earn profit. It was not his intention to cultivate the same. The assessee is a partner in M/s. Gautami Constructions which was in real estate business. It should be noted that the assessee has not sold a small piece of land. He has sold 9 acres 18 guntas of land during the previous year to M/s. Chalapathi Estate Pvt. Ltd. The assessee has acquired huge land and has sold the same subsequently with the sole intention of earning profit from such transaction. Such transaction of sale was not confined only to this year. The same has continued in the succeeding year relevant to Asst. Year 2006-07. According to DR since the assessee has purchased the said land with the sole intention of earning profit from subsequent sale of the same, the profit earned from sale of 29 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== the said land during the previous year has to be taxed under the head 'Income from Business' in case of capital assets. In this regard, reliance is placed on the decision of Hon'ble Bombay High Court in the case of DCIT vs. Gopal Ramnaryan Kasat (2010) 328 ITR 556, wherein, after referring to the decision of Hon'ble Supreme Court in G. Venkataswami Naidu & Co., vs. CIT (1959) 35 ITR 594, and the facts of that case, the Hon'ble High Court upheld taxing the profit as business income, rejecting the contention of the assessee that the land was acquired as a capital asset and the same being agricultural lands, there is no liability for capital gain tax. According to the DR, the CIT(A) is justified in treating the profit earned from sale of land as business income in the hands of the assessee.
21.8 As the assessee is carrying on the business in buying and selling of agricultural land, it is an adventure in the nature of trade. According to the DR the intention of the assessee is to be seen at the time of buying the land and the assessee has no intention to carry on any agricultural operation in the said land. According to the DR the case is covered against the assessee by the following judgements:
(a) Smt. Parvathi Devi & Ors. v. CIT (164 ITR 675) (AP)
(b) CIT v. M. Krishna Rao (120 ITR 101) (AP)
(c) CIT v. B. Narasimha Reddy (150 ITR 347) (Karn) 21.9 In the rejoinder, the learned AR relied on the order of the Tribunal in the case of ITO vs. Chandar (HUF) (Chen) 47 SOT 17 wherein it was held that when the land neither subjected to adventure in the nature of trade nor it was "capital asset", profits arising from sale therefrom cannot be treated as capital gain.30 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
======================== 21.10 We have heard both the parties and perused the material on record. In the present case there were sale of 49 acres 39 guntas of property. Bifurcation is as follows:
Land sold Name Amount (Rs.) Acres Guntas Rao Subba Rao 10 33 57,37,250 Rao Shiva Kumar 10 13 1,13,02,250 Rao Raj Kumar 13 30 72,87,500 M/s. Gautami Constructions 4 03 21,59,750 Total 49 39 2,64,86,750 21.11 The property sold by the assessee relating to A.Y. 2005-06 is 9.18 acres for Rs. 50,08,500, for A.Y. 2006-07 is 11.35 acres for Rs. 62,93,750 totalling to 21.13 acres of land at Rs. 1,13,02,250. It is also an admitted fact that the assessee and the assessee's family members are in the real estate business. They are regularly buying and selling properties in and around Hyderabad. Sometime they register the property in their names and on the other hand on some occasions they enter into agreement of sale and thereafter they will search the prospective buyers and sell the property. This is regular business carried on by them.
It is quite well settled principle that if the owner of an ordinary investment chooses to realise it and obtain a greater price for it that is acquired at, the enhanced price is profit assessable to tax as income from capital gain. This is merely realisation of investment and not carrying on business. On the other hand, if the assessee's intention is to acquire the property for the purpose of resale at a later stage, the income derived from such act is income from business. In other words, the profit realised by sale of land may be capital if the assessee is an ordinary investor, but it may be income if trades in such property regularly. The only way it would fall within the income from business is by intention to hold the property as stock-in-trade by 31 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== dealing in the property in continuous manner by recurring transfer. The dominant or if the sole intention to resale is a relevant factor and raises a strong presumption though it is not a conclusive proof of trade. The intention to resale would, in conjunction with the conduct of the assessee and the prevailing circumstances point to the business character of the transaction. The profit made by the sale of land may not amount to capital gain if the land were part of trade assets of the assessee. If such the case, the gain may amount to trading income of such an assessee. In the present case, as seen from the orders of the lower authorities, as discussed in the facts of the case, the assessee's intention to trade in land property where no agricultural activities were carried on in the impugned property, no return of income from the said property, the assessee made an investment in landed property for resale purpose. The transaction carried on by the assessee is in the nature of adventure in trade as a part of organised business activity which is normally carried on by the assessee and the income from such kind of activities like those carried on by the assessee and his family members cannot be construed as investment activity.
21.12 The income derived is from the operation of business carried on by the assessee in ordinary line of real estate business and being so the income derived from such transaction is to be considered as income from business only. To that extent we are agreeing with the orders of the lower authorities. But the entire sale consideration minus purchase cost of the land cannot be considered as income derived from business activity of the assessee. The assessee has been carrying on regular business in landed property and it is an organised business of the assessee. The 32 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== assessee has to incur various expenses, both direct and indirect, like establishment expenditure, salary to staff, phone charges, travelling and conveyance, staff welfare, advertisement and marketing charges, brokerage, interest etc., in addition to purchase cost of land. The assessee has not maintained regular book of account. As the assessee not maintained regular book of account, the income of the assessee has to be estimated. For the purpose of estimating the profit various factors such as profit ratio of the assessee in earlier years, profit ratio of similar business in the same locality, demand for the land, supply of the land, price fluctuation of the land, time gap available between purchase and sale of land which have to be considered. Therefore, in our opinion, the past history is the best basis for determining the income of the assessee for this assessment year from buying and selling of land. In the present case, we are not in possession of the earlier year data of the assessee. Being so, comparable cases have to be considered. We came across an order of the Tribunal in the case of M/s. Rajapushpa Properties & Ors. in ITA Nos. 1760, 1761, 1772 and 1773/Hyd/2011 & Ors., for A.Ys. 2008-09 and 2009-10 & Ors. The Tribunal vide order dated 18 th May, 2012 by placing reliance on the order of the Tribunal in the case of K.C.K.A. Gupta vs. ACIT (90 TTJ 555) (Hyd) held that estimation of income on sale of land is to be considered at 25% of the undisclosed turnover being the net profit out of sale of land. In conformity with the above findings, we are of the opinion that the sale of land is to be treated as business activity of the assessee and income on this transaction is to be estimated at 25% of the turnover. This ground of the assessee is partly allowed.
33 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
========================
22. The next ground in ITA No. 156/Hyd/2011 is with regard to addition of Rs. 2,74,300 on account of amount received from Durga Chits though the funds are routed through bank account of the assessee and the Assessing Officer accepted the genuineness of the transaction in his Remand Report.
22.1 After hearing both the parties, we are of the opinion that the same issue came for consideration for A.Y. 2005-06 in ITA No. 155/Hyd/2011 wherein we have decided the issue in favour of the assessee in earlier paras of this order. On similar lines, we are inclined to decide the issue in favour of the assessee. This ground is allowed.
23. The next ground in ITA No. 156/Hyd/2011 for A.Y. 2006-07 is with regard to addition of Rs. 9,88,766 towards undisclosed investment in purchase of plot at Tirumalagheri. Brief facts of the issue are that the Assessing Officer made addition of Rs. 10 lakhs on the basis of seized material A/RSR/28 pages 7 to 8 on account of purchase cost of Rs. 501.83 sq. yards. It was submitted by the assessee before the lower authorities that this is relating to property at Gandhinagar purchased from Chandrakala Deshpande and others. It was stated that a portion of that property was purchased by the assessee's father. The total consideration was Rs. 60,12,360. The entire payment was made by the assessee's father Sri Rao Subba Rao and the same was reflected in Cash Flow Statement as follows:
A.Y. 2004-05 Rs. 14,89,924
A.Y. 2005-06 Rs. 35,33,670
The balance amount of Rs. 5,15,000 was paid by the assessee.
34 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 23.1 Later this amount was reflected in the hands of HUF. The Assessing Officer in his Remand Report stated that except Rs. 9,88,766 the remaining amount out of Rs. 60,12,360 was explained. Further before the CIT(A) assessee accepted the addition of Rs. 9,88,766. Being so, the CIT(A) dismissed the ground.
23.2 We have heard both the parties on this issue. Before us, the learned AR fairly conceded that this issue is not pressed before us as the assessee offered the said amount for taxation before the CIT(A). Accordingly this ground is dismissed as not pressed.
ITA Nos. 240 & 241/Hyd/2011 - (By Revenue)
24. Now let us take ITA No. 240/Hyd/2011 for A.Y. 2001-
02. The first ground in this appeal is with regard to deletion of addition made towards unexplained cash deposits into bank account. The Assessing Officer made addition of Rs. 37,04,100 on account of cash deposit in bank account. Out of this, Rs. 26,04,100 is relating to deposit into Canara Bank account and Rs. 11,00,000 into SBI account. According to the Assessing Officer there was no explanation regarding source of this cash deposit.
24.1 The learned AR submitted that the addition was made without any proper verification. He submitted that the above addition has been made on the basis of second cash flow statement filed with the return u/s. 153A. During the year, there is total cash deposit of Rs. 26,04,100 in the bank account No. 9787 maintained with Canara Bank, Kundann Bagh Branch, on various dates and Rs. 11,00,000 in SBI, SP Road Branch (A/c. NO. 10161692414). It was stated that 35 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== the Assessing Officer has added these amounts without properly appreciating the sources of deposits.
24.2 It was submitted that during the year the assessee has withdrawn Rs. 1,78,300 from Canara Bank and Rs. 7,80,466 from SBI, RP Road Branch. Further, he had regular income from house rent amounting to Rs. 3,88,889, agricultural income Rs. 1,40,000. During this year, the assessee had received Rs. 25,00,000 from Sri Rao Subba Rao. That amount is duly reflected in the account of Mr. Rao Subba Rao. It was stated, thus the total receipt was Rs. 39,87,655. It was further submitted that income from all those sources along with the withdrawals from the bank account, was sufficient to explain the deposit of Rs. 37,04,100 in the bank accounts and, therefore, no addition should have been made. It was further submitted that on the basis of the original cash flow statement filed before DDIT (Inv.), all the incomings and outgoings were properly explained being supported by books.
24.3 The DR relied on the order of the Assessing Officer.
24.4 We have heard both the parties and perused the material. The CIT(A) deleted the addition on the basis of Remand Report submitted by the Assessing Officer dated 1.6.2010 wherein he has stated that the explanation offered by the assessee vide letter dated 21.5.2010 was considered and found that deposits into these two banks have been explained and are genuine. In view of this, the CIT(A) observed that there was sufficient opening cash balance available in the hands of the assessee on different dates to make these deposits into these two bank accounts viz., Canara Bank and SBI Bank on various dates and the 36 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== assessee shown the receipt of Rs. 25 lakhs from Sri Rao Subba Rao on 28.8.2000 and Rs. 12 lakhs on 22.11.2000. The Cash Flow Statement also reflects the receipt of Rs. 40.50 lakhs from Sri Rao Subba Rao under "inflow side" of that statement. These are reflected in the original Cash Flow Statement filed by the assessee before the DDIT (Inv.). Being so, it was found by the CIT(A) that the amount of Rs. 37,04,100 is duly explained and deleted the same. The deletion of Rs. 37,04,100 is on valid basis and the deletion of addition by CIT(A) is confirmed.
25. The next ground in ITA No. 240/Hyd/2011 is with regard to addition on account of receipts allegedly received from Rao Subba Rao HUF. Before the CIT(A) it was submitted by the assessee that the amount of Rs. 40-.50 lakhs was actually received from Rao Subba Rao (individual) and the same was reflected in the cash flow statement filed before the DDIT (Inv.). Further an amount of Rs. 52,500 represents the receipt on account of adjustment of account. The CIT(A) observed that the AO made an addition of Rs. 41,02,500 on account of receipt from HUF. The addition was made by the AO on account of improper explanation by the assessee. The CIT(A) was of the opinion that it has been reflected in the Cash Flow Statement filed by the assessee before the DDIT (Inv.) and it is a genuine transaction and deleted the same. Being so, we do not find any infirmity in the order of the CIT(A) and the same is confirmed on this issue. This ground is dismissed.
25.1 The Department is also having a grievance relating to deletion of addition of Rs. 20 lakhs deposited into bank account. This ground becomes infructuous in view of confirming the deletion of addition of Rs. 20 lakhs out of Rs.
37 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 25 lakhs made by the CIT(A) towards deposits made in Canara Bank Kundan Bagh Branch as we have observed in the assessee's appeal that the issue related to Rs. 5 lakhs is to be re-examined by the Assessing Officer. In the result, Department appeal in ITA No. 240/Hyd/2011 is dismissed.
26. Now coming to Department appeal in ITA No. 241/ Hyd/2011 for A.Y. 2004-05. The first ground in this appeal is with regard to deletion of unexplained investment in purchase of residential flat. Brief facts of the issue are that the Assessing Officer made an addition of Rs. 18 lakhs towards purchase of flat No. 201B, Block-C, RK Towers, Hyderabad. This property was purchased jointly with Rao Subba Rao and reflected in the seized material. The contention of the assessee is that this is reflected in the Cash Flow Statement of Rao Subba Rao. Further it was submitted that the flat was sold to one Mr. Anand Rakesh on 27.2.2004 vide sale deed dated No. 329/04 for an amount of Rs. 18 lakhs and there was a loss on sale of this flat as the cost of acquisition of the flat was Rs. 19,08,100. According to the assessee the transaction was duly reflected in the Cash Flow Statement of Rao Subba Rao. The Assessing Officer in the remand proceedings stated that this transaction is duly reflected in the Cash Flow Statement. On the basis of Remand Report the CIT(A) deleted the addition. Against this, the Revenue is in appeal before us.
26.1 We have heard both the parties on this issue. It is an admitted fact that the flat is owned by the present assessee i.e., Rao Shiva Kumar. The total investment, sale consideration, loss arising out of the transaction was duly reflected in the Cash Flow Statement filed before the DDIT (Inv.) in the hands of Rao Subba Rao. This fact was 38 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== confirmed by the Assessing Officer in his Remand Report. After considering this fact as this was reflected in the Cash Flow Statement of Rao Subba Rao who is father of the assessee, the addition is deleted. Being so, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. This ground of Revenue is dismissed.
27. The next ground in ITA No. 241/Hyd/2011 is with regard to deletion of addition of Rs. 13 lakhs as unexplained advance given to Smt. Satyamma and others. Brief facts of the issue are that as seen from the assessment order, the AO noted that consequent to entering into agreement dated 16.01.2004, the assessee has paid another sum of Rs. 13,00,000 to Smt. Satyamma. In this regard, he referred to some notings on page 19 of the seized document A/RSR/1. In this context, he further referred to the statement given by one Sri A.V.S.S. Prasad, accountant of the assessee, given before the DDIT (Inv) on 24.08.2005. He referred to a part of such statement given by the said person, at page-4 of the assessment order. Referring to such statement and stating that the assessee has paid Rs. 13,00,000, after payment of Rs. 10,00,000 made on 16.01.2004 and holding that the same was made out of undisclosed income, he added the said amount to the income of the assessee.
27.1 With reference to the above, the AR submitted that the assessee was acting as a mediator for clearing pending disputes in respect of a land at Bowenpally, belonging to Mrs. Satyamma and others. It was agreed that on final settlement, Sri Shiva Kumar would get some land (around acre 1.37). For that purpose, the assessee paid Rs. 10,00,000 as advance, as evidenced in the agreement of sale dated 16.01.2004. It was stated that no further amount was paid as the pending litigation could not be cleared by the assessee. It was further submitted that the fact was 39 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== investigated by the DDIT(Inv) and the matter was clarified. The owner of the plot Mrs. Satyamma was summoned and examined. She also confirmed the above fact of having received only Rs. 10,00,000 from the assessee. It was further stated that the AO has made such addition ignoring the factual position emerging out of enquiry. It was further submitted, the said noting in page-19, cannot be taken as authentic as there is no date indicating actual payment. Such notings are not in the hand writing of the assessee, and the same does not bear any date confirming factum of payment. It was stated that the AO ought to have ignored those notings and gone by the evidence collected by the department.
27.2 On appeal, this addition was deleted by the CIT(A) on the reason that this addition was made on the basis of unsubstantiated loose slips in page No. 19 of the seized document marked as A/RSR/1 and on the basis of statement of one Mr. AVSS Prasad, the accountant of the assessee. It was noticed by the CIT(A) that nowhere the said person has stated that such amount was paid by the assessee. Further the addition cannot be made in the hands of the assessee on the basis of statement of Sri AVSS Prasad. More so, in the document there was no mention of any date. Uncorroborated loose sheet cannot be the basis for addition. The addition shall be based on cogent material. Being so, the CIT(A) deleted the same which is justified. Accordingly, deletion of addition is confirmed. This ground in Revenue appeal is dismissed.
27.3 In the result,
ITA No. Result
150/Hyd/2011 Allowed
151/Hyd/2011 Partly allowed for statistical purposes
152/Hyd/2011 Allowed
153/Hyd/2011 Allowed
154/Hyd/2011 Allowed
155/Hyd/2011 Partly allowed
40 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
========================
156/Hyd/2011 Partly allowed
240/Hyd/2011 Dismissed
241/Hyd/2011 Dismissed
Rao Satya Kumar
S. Assessee's Appeal S. Revenue Appeal
A.Y.
No. ITA No. No. ITA No.
1. 6/Hyd/2011 2000-01 1. 39/Hyd/2011
2. 7/Hyd/2011 2001-02 2. 40/Hyd/2011
3. 8/Hyd/2011 2002-03 3. 41/Hyd/2011
4. 9/Hyd/2011 2003-04
5. 10/Hyd/2011 2004-05
6. 11/Hyd/2011 2005-06
7. 12/Hyd/2011 2006-07 4. 42/Hyd/2011
28. The first common ground in assessee's appeals in ITA Nos. 6 and 7/Hyd/2011 is with regard to disallowance of interest on drawings and treating the same as income of the assessee.
28.1 This issue came for consideration in ITA Nos. 150, 151 and 156/Hyd/2011 in the case of Rao Shiva Kumar wherein we have held in the earlier paras that interest received and interest paid by a partner has to be netted off. Accordingly as held in earlier part of this order, the issue is decided in favour of the assessee.
29. The next common ground is with regard to disallowance of agricultural income. This ground is common in all the assessee's appeals for A.Ys. 2000-01 to 2006-07. In these cases the Assessing Officer treated Rs. 50,000 as agricultural income and the balance amount declared by the assessee as agricultural income was treated by the Assessing Officer as income from 'income from other sources'. This issue was considered in earlier paras in ITA Nos. 150 to 156/Hyd/2011 in the case of Rao Shiva Kumar wherein we held that the income declared by the assessee as agricultural income is to be treated as agricultural income as the holding of agricultural land is not doubted and also the Department is not in possession of any positive material to show that the assessee earned income from any other source other than 41 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== agriculture. Accordingly, this ground of the assessee is allowed on similar lines.
30. The next ground in ITA No. 8/Hyd/2011 for A.Y. 2002-03 is with regard to addition of Rs. 1,41,000 as unexplained rental deposit without considering documentary evidence filed by the assessee to show that the same has been received as security deposit from Blue Dart Express Ltd., as evident from the lease agreement.
30.1 This issue also came for consideration in the case of Rao Shiva Kumar in ITA No. 152/Hyd/2011 for A.Y. 2002-03 wherein we held that on the basis of document, the assessee has received the rental deposit of Rs. 1,41,000 from Blue Dart Express Ltd. Similarly, if the lease agreement reflects the receipt, the same is to be considered as explained the source of Rs. 1,41,000. This ground is allowed.
31. In the result, assessee's appeals in ITA Nos. 6 to 12/Hyd/2011 (7 appeals) are allowed.
32. Coming to the Department appeals in ITA Nos. 39, 40, 41 and 42/Hyd/2011, the first common ground in ITA No. 39 to 41/Hyd/2011 is with regard to deletion of addition towards rental income from house property though the said property was self- occupied by the assessee. The Assessing Officer made addition towards estimated rental income from flat No. C-501, RK Towers, Begumpet for A.Ys. 2000-01, 2001-02 and 2002-03. The same was deleted by the CIT(A) on the basis of affidavit filed by the assessee wherein it was stated that the assessee is in USA and the property was used by the assessee's father, brother and also by the assessee whenever he visits India. The CIT(A) also gone through the bank account of the assessee with SBI, SP Road Branch, Hyderabad wherein no rental income was credited. The 42 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== CIT(A) also considered the Remand Report submitted by the Assessing Officer wherein it was submitted that the property was self occupied and considering all these facts, we are of the opinion that deletion of addition on account of notional rental income from house property is justified. This ground is dismissed.
33. The next ground in ITA No. 39/Hyd/2011 is with regard to deletion of addition of Rs. 8,50,000 on account of addition made towards unexplained investment in Victoria Castle. We have heard both the parties on this issue. The addition was made on the basis of seized material marked A/RSR/P01-5 as per which the assessee paid Rs. 30 lakhs in the previous year. According to the Assessing Officer, the assessee accounted only Rs. 4.5 lakhs and the balance of Rs. 8.5 lakhs was not accounted towards investment in Victoria Castle. Before the CIT(A) the AR taken a plea that the same was reflected in Cash Flow Statement filed before the DDIT (Inv.) and it was properly explained. Further, it was stated that the amount was received by the assessee from Sri Rao Subba Rao and the receipt of money also reflected in Cash Flow Statement of Rao Subba Rao also. The CIT(A) called for Remand Report from the Assessing Officer. The Assessing Officer in his Remand Report stated that the outflow was duly reflected in the Cash Flow Statement and the deficit in the cash balance shown in the Cash Flow Statement of Rao Subba Rao was duly offered for taxation. Considering this, the CIT(A) deleted the addition.
33.1 We have heard both the parties and perused the material on record. As seen from the above, deletion of addition by the CIT(A) is justified as it is based upon the Remand Report as the transaction was duly reflected in the Cash Flow Statements of both Rao Satya Kumar as well as Rao Subba Rao. The deficit in Cash Flow Statement of Rao Subba Rao was offered to tax. Being 43 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== so, the deletion of addition made by the CIT(A) is justified and we confirm the same.
34. The next ground in ITA No. 41/Hyd/2011 is with regard to deletion of addition of Rs. 9,20,000 towards unexplained cash deposit in the bank account. Brief facts of the issue are that there was a cash deposit in the bank account as follows:
Opening balance in the Cash Flow Statement Rs. 1,79,171 Received from Rao Subba Rao Rs. 6,00,000 Received from Rao Ravi Kumar Rs. 1,40,000 Balance out of withdrawals from bank Rs. 1,000 34.1 It was stated before the CIT(A) that the above transactions were duly reflected in the Cash Flow Statement filed before the DDIT (Inv.) and if there is any deficit balance in the Cash Flow Statement the same was offered to tax in the respective hands.
The CIT(A) also called for Remand Report from Assessing Officer. The Assessing Officer mentioned in the Remand Report that it was duly verified and found to be correct. The CIT(A) considered all the aspects and recorded findings in para 15.3 of his order that the addition cannot be sustained. We have carefully gone through the findings of the CIT(A) on this issue. In our opinion, the assessee has duly explained the source of deposit in the Cash Flow Statement. The Assessing Officer also examined the same. Being so, there is no merit in the ground of appeal by the Revenue. This ground is dismissed.
35. The next ground in ITA No. 41/Hyd/2011 is with regard to deletion of Rs. 3 lakhs on account of repayment of loan. Brief facts of the issue are that the Assessing Officer made an addition of Rs. 3 lakhs towards repayment of loan as it was not properly explained. It was stated by the assessee that the assessee received Rs.1.60 lakhs from Rao Ravi Kumar (brother) on 26.4.2001 by cheque and balance Rs. 1,40,000 from Rao Shiva Kumar (brother). These transactions were duly reflected in their respective Cash 44 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Flow Statement. The CIT(A) after calling for Remand Report from the Assessing Officer deleted the same. Against this, the revenue is in appeal before us.
35.1 We have heard both the parties on this issue. We find no merit in the DR argument that it is unexplained. As seen from the facts of the case, the transaction is duly reflected in the hands of Rao Shiva Kumar and Rao Ravi Kumar as it is received from them. Accordingly, this ground is dismissed.
36. The next ground in ITA No. 41/Hyd/2011 is with regard to deletion of addition of Rs. 2,31,075 on account of unexplained NRI receipt. We have heard both the parties on this issue. It was stated by the assessee before the lower authorities that the assessee remitted Rs. 2,31,075 from his foreign earnings and deposited into SBI SP Road Branch account on 12.4.2001. This fact was confirmed by the Assessing Officer in his Remand Report and deleted by the CIT(A). The assessee filed affidavit confirming the fact that it was remitted from foreign earnings to his account in SBI SP Road Branch. Being so, deletion of addition by the CIT(A) is justified and we confirm the same. This ground is rejected.
37. The next ground in ITA No. 41/Hyd/2011 is with regard to deletion of addition of Rs. 11 lakhs towards unexplained source as received from S.J. Chenoy. Brief facts of the issue are that the assessee has taken a DD from his bank account in the name of Sona J. Chenoy towards advance for a property at No. 198, Tadbun, Secunderabad. As the transaction was not materialised the DD was cancelled and the amount was re deposited in the bank account with SBI SP Road Branch. The CIT(A) called for Remand Report from the Assessing Officer who has confirmed that the DD was drawn on 26.4.2001 and the same was re deposited by 45 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== cancelling the DD on 7.5.2011. After going through the Remand Report, the CIT(A) deleted the addition.
37.1 We have heard both the parties on this issue. the CIT(A) deleted the addition on the basis of Remand Report that the DD was purchased by the assessee on 26.4.2001 and the same was cancelled on 7.5.2001 and re-deposited in the bank account though the Assessing Officer stated in the Remand Report that to sustain Rs. 2,15,000 the CIT(A) deleted the entire edition on the reason that this was subject to tax as taxable capital gain vide sale of flat no. C-501, RK Towers, Begumpet at a total consideration of Rs. 11.5 lakhs and this was reflected in the return filed for these assessment year on 29.12.2006 wherein capital gain was considered at Rs. 5,15,021, though in regular return capital gain was reflected at Rs. 1,06,277. Being so, there is no question of sustaining any addition on this count. Accordingly, we confirm deletion of addition by the CIT(A). This ground is rejected.
38. The next ground in ITA No. 42/Hyd/2011 is with regard to deletion of Rs. 1,54,000 on account of deposit into bank account in the A.Y. 2006-07. The Assessing Officer made addition of Rs. 13.54 lakhs towards cash deposit into bank account. The CIT(A) confirmed the addition of Rs. 12 lakhs on the reason that the assessee in order to buy peace agreed for the addition of Rs. 12 lakhs. However, the CIT(A) deleted Rs. 1.54 lakhs on the reason that the Assessing Officer in his Remand Report stated that only Rs. 12 lakhs is to be sustained and Rs. 1.54 lakhs was duly explained in the Cash Flow Statement filed before the DDIT (Inv.).
38.1 We have heard both the parties and perused the material on record. The addition was made on the basis of second Cash Flow Statement filed by the assessee. However, on the basis of original Cash Flow Statement filed before the DDIT (Inv.) the income was 46 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== offered to tax. Being so, further addition of Rs. 1.54 lakhs is not justified. The transaction which cannot be explained by the assessee was offered to tax on which the Assessing Officer agreed that only Rs. 12 lakhs is to be sustained. Now the department cannot make fresh claim when the CIT(A) deleted the addition on the basis of Remand Report. This ground is rejected.
39. The next ground is with regard to deletion of addition of Rs. 3 lakhs made towards undisclosed rental income. Brief facts of the issue are that the Assessing Officer made an addition of Rs. 3 lakhs on the basis that office space was given to rent to M/s. Vamsi Span Collective Homes for Rs. 6 lakhs in the assessment year 2005-06. For the assessment year 2006-07 the assessee offered only Rs. 3 lakhs towards rental income. The difference was added. The CIT(A) deleted the same on the basis of Assessing Officer Remand Report that the property was let out to 123 Signup between 19.5.2005 to 31.3.2006 and the rent received from this party is Rs. 3 lakhs. Against this, the revenue is in appeal.
39.1 We have heard both the parties on this issue. The CIT(A) deleted the addition on the basis of the rental agreement produced before him. The Assessing Officer also agreed with the contention of the assessee and sent the remand report that the rent receivable is only Rs. 3 lakhs for that period. Being so, when the property let out for a part period i.e., from 19.5.2005 to 31.3.2006, the rent considered by the CIT(A) is at Rs. 3 lakhs as against Rs. 6 lakhs in earlier year which is for full year at Rs. 6 lakhs, is justified. This ground is rejected.
40. In the result (Department appeals) 39, 40, 41 and 42/Hyd/2011 are dismissed.
47 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
========================
GAUTAMI CONSTRUCTIONS
S. Assessee's Appeal S. Revenue Appeal
A.Y.
No. ITA No. No. ITA No.
2000-01 1. 170/Hyd/2011
1. 144/Hyd/2011 2001-02 2. 171/Hyd/2011
2. 145/Hyd/2011 2002-03
3. 146/Hyd/2011 2003-04 3. 173/Hyd/2011
4. 147/Hyd/2011 2004-05
5. 148/Hyd/2011 2005-06 4. 172/Hyd/2011
6. 149/Hyd/2011 2006-07
41. The first ground in ITA No. 144, 145, 146 and 148/Hyd/ 2011 is with regard to treatment of part of agricultural income as non agricultural income. This issue came for our consideration in the case of other assessees herein above in earlier paras of this order wherein we have held that the income declared by the assessee as agricultural income has to be considered as agricultural income only. Similarly, this ground in the above appeals is allowed on similar lines.
42. The next ground in ITA No. 145, 146, 147 & 149/Hyd/2011 is with regard to treatment of income derived from sale of landed property as income from business though it is sale of agricultural land which is exempt from Income-tax. This issue came for our consideration in the case of other assessees viz., Rao Shiva Kumar in ITA No. 155 and 156/Hyd/2011 herein above wherein held that sale of landed property by the respective assessees is to be treated as income from business and we direct the Assessing Officer to adopt the income rate at 25% of gross receipt on sale of land. Accordingly, in this case also, we give similar direction to the Assessing Officer to decide the issue afresh.
43. The next ground in ITA No. 148/Hyd/2011 is with regard to sustaining addition of Rs. 11 lakhs on the basis of documents which are not acted upon ignoring the evidence produced and in the absence of anything adverse in the Remand Report.
48 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 43.1 Brief facts of the issue are that as noted by the AO, as per seized document in annexure A/RSR/27, page-45, the assessee has entered into agreement of sale on 07.06.2004 in respect of land of 315 Sq. Yds situated at H. No. 1-10-119 to 125/6, Mayur Marg, Begumpet for Rs. 29,92,500/-. He further noted, in this transaction, the assessee has paid advance of Rs. 12,00,000/- as per receipt dated 07.06.2004 at page-42 of the said annexure A/RSR/27. Stating that this transaction is not reflected by the assessee in its return of income, the AO held that the said amount of Rs. 29,92,500/- shall be added to the income of the assessee, treating as unexplained investment in such plot of land. As such, he added the said amount to the income of the assessee.
43.2 With reference to the above addition, the AR submitted that the assessee has been acting as a mediator in purchase of properties. It intended to mediate in respect of said land 315 sq. yds., situated in that location at Mayur Marg, Begumpet, as one of the customers approached the assessee for purchase of the said land. The owners of that property were Sri Ashok Kumar and Smt. Padmavathi. It was submitted that the assessee has himself prepared an agreement of sale, as if entered into with the landlords and made the signatures of the landlord (not actual signatures) to convince the intending buyers that it is the owner. The said agreement is fictitious and actually no monetary transaction has taken place. Referring to clause-2 of the said agreement and the receipt attached there to, as per which Rs. 1,00,000/- was paid by cheque 021398 dated 07.06.2004 and Rs. 11,00,000/- by cash, it was submitted that as may be seen from the bank account of the assessee maintained in the Canara Bank, Kundan Bagh Branch, (A/c. No. 1022), that cheque represented a cash withdrawal of Rs. 2,25,000/- on 04.06.2004. He drew our attention to the copy of the said bank account and stating that no 49 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== cheque for Rs. 1,00,000/- was issued, it was stated that such document is dummy one. It was further stated that the signature of the executants in that dummy document are not correct as would be evident from comparison of signatures in that document and the document through which the property was eventually sold. In this regard the AR furnished the copies of some sale deeds as per page 6 to 22, vide annexure-4 of that paper book which was filed before the CIT(A). Lastly, stating that finally the said property was sold in January, 2006 to Smt. Gita and Lata and referring to the sale deed executed by Sri Ashok Kumar in that regard, the assessee contended that under the circumstances, no addition is called for in their hands.
43.3 With reference to the above submissions of the assessee, the AO in his remand report submitted that such submissions have been gone through by him. He noted that Sri Ashok Kumar and Smt. Padmavathi only sold the said property to Smt. A.R Lata and A.R. Gita in January, 2006. He further submitted that in the same bundle of seized documents, there is another agreement entered into between land owners Sri Ashok Kumar and Smt. Padmavathi with Smt. A. R. Gita and Smt. A.R. Lata, placed at page No. 108 to
110. Stating that the land belongs to Sri Ashok Kumar and Smt. Padmavathi, he submitted that the other contentions raised by the assessee may be considered on merit.
43.4 The AR contended that no addition is called for in the hands of the assessee.
43.5 The DR submitted that the CIT(A) has carefully considered the submissions of the assessee and the above remand report of the AO. He has also perused the said agreement of sale dated 07.06.2004 entered into by the assessee with Sri Ashok Kumar and Smt. Padmavathi, on basis of which such addition has been 50 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== made by the AO in the assessment. He has also seen the said bank statement of the assessee in Canara Bank, Kundan Bagh Branch and those sale deeds vide which the said property was sold by Sri Ashok Kumar in favour of Smt. A.R. Gita and Smt. A.R. Lata. It has been submitted that the said agreement, contained in that seized documents bundle, on basis of which such addition has been made, is a dummy document and the same should not be acted upon. In this regard, it has been submitted that though in the said agreement and also in the money receipt enclosed to that agreement, there is a reference to payment of Rs. 1,00,000/- vide cheque No. 021398 of Canara Bank, Kundan Bagh branch dated 07.06.2004, vide that cheque cash withdrawal of Rs. 2,25,000/- was made on 04.06.2004. Referring to this discrepancy and stating that the signatures contained in the said money receipt dated 07.06.2004 were not of the actual owners of the land and further stating that the said land was finally sold to Smt. A.R. Lata and Smt. A.R. Gita, the assessee has stated that no addition is called for in the hands of the assessee. Though, the CIT(A) agreed that the said land measuring 315 sq. yds., was finally sold to the above two persons, he observed that it has not been explained as to why such an agreement was executed by the assessee on 07.06.2004. In the said money receipt, in which there is signature of two persons, there is affixture of revenue stamps. Later, further agreement of sale in respect of the said land was executed on 20.09.2004 by Sri Ashok Kumar and Smt. Padmavathi with Smt. A.R. Gita and Smt. A.R. Lata, before final sale of that land made in January, 2006. Since, the said agreement on basis of which the AO has made such addition is a signed one, the CIT(A) opined that the assessee initially has approached the said owners in June, 2004, for purchasing the said land and has made such part payment of Rs. 12,00,000/-. Since a sum of Rs. 1,00,000/- out of that amount, is referred to 51 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== vide that cheque No. 021398 of Canara Bank and the assessee has actually withdrawn an amount of Rs. 2,25,000 vide such cheque three days earlier on 04.06.2004, the source of the said amount stands explained. Further, since the said agreement, the CIT(A) held, cannot be brushed aside and the source of the balance payment of Rs. 11,00,000/- remains unexplained, under the circumstance, the CIT(A) observed, having regard to such seized documents, an addition of Rs. 11,00,000/- is called for in the hands of the assessee. Therefore, out of the said addition of Rs. 29,92,500/- made in the assessment, the CIT(A) confirmed the addition to the extent of Rs. 11,00,000/- and he deleted the balance amount of Rs. 18,92,500. The DR submitted that the addition is to be sustained.
43.6 We have heard both the parties and perused the material on record. The CIT(A) sustained the addition of Rs. 11 lakhs out of Rs. 29,92,500. The contention the assessee is that the assessee is a mediator in purchase and sale of property, provided a fictitious agreement and shown Rs. 1 lakh paid by Check No. 021398 dated 7.6.2004 and Rs. 11 lakhs cash. The AR also drew our attention to Cheque No. 021398 which represents the withdrawal of Rs. 2,25,000 on 4.6.2004 from Canara Bank, Kundan Bagh Branch, Account No. 01022 and also stated that the document is a dummy document and is not acted upon. He also produced a copy of document entered with Smt. Geeta and Smt. Lata in January, 2006 with reference to the property mentioned in the seized material. Being so, in our opinion, the addition cannot be made on the basis of un-acted document. The addition is deleted.
43.7 In the result ITA No. 144 and 148 are allowed, 145,146,147 and 149/Hyd/2011 are partly allowed.
52 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== Gautami Constructions: Department Appeals ITA Nos. 170, 171, 172 and 173/Hyd/2011 - 4 Revenue appeals
44. The first common ground in ITA No. 170 and 171/Hyd/ 2011 is with regard to deletion of Rs. 20 lakhs and Rs. 15 lakhs towards unexplained investment in A.Ys. 2000-01 to 2001-02, respectively.
44.1 Brief facts of the issue are that as per the seized material marked as A/RSR/2011 page No. 21, the assessee entered into an agreement with M/s. Sri Sri Bhajan Brahmachari Sevashram and Smt. Geeta Karan w/o. Sri Uma Karan, principal, Geetanjali School, Begumpet. As per the said agreement , that Ashram is having land in survey No. 182/7 and 182/9 Begumpet and leased 2500 sq. yds to Geetanjali School and the assessee firm has entered into an agreement of sale for development with the said ashram on 27.12.1990. There was a supplementary agreement dated 30.03.1993. The Assessing Officer noted that the said ashram entered into agreement of sale for Rs. 70,00,000/- with Smt. Geeta Karan and as per clause (c) of such agreement, Smt. Geeta Karan shall pay a sum of Rs. 5,00,000/- to Sri Sri Bhajan Brahmachari Sevashram and a sum of Rs. 20,00,000/- to M/s. Gautami Constructions on or before 30.06.1999 and as per clause
(d) Smt. Geeta Karan shall pay a sum of Rs. 15,00,000/- to M/s. Gautami constructions on or before 30.06.2000 provided that OP No. 496 of 1994 pending in the file of the Chief Judge, City Civil Court, Hyderabad is withdrawn unconditionally. Referring to notings of different amounts, as mentioned at page-24 of that seized document, in para-3 of the assessment order, the Assessing Officer concluded that the assessee has received Rs. 20,00,000/- on 30.06.1999 from Smt. Geeta Karan. Further, on basis of such notings, he held that the assessee has received Rs. 15,00,000/- during the F.Y 2000-01, relevant to the Asst. Year 2001-02. However, stating that those transactions have not been disclosed 53 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== by the assessee in its returns of income filed for the Asst. Years 2000-01 and 2001-02, he added those amounts to the income of the assessee for the respective assessment year.
44.2 On the above basis, there was an addition of Rs. 20 lakhs for A.Y. 2000-01 and Rs. 15 lakhs for A.Y. 2001-02.
44.3 On appeal the CIT(A) called for Remand Report from the Assessing Officer wherein the Assessing Officer stated that the claim of the assessee as genuine. It was also observed by the CIT(A) that as per Encumbrance Certificate (EC) the said property is still held by M/s. Sri Sri Bhajan Brahmachari Sevashram. The said agreement was not signed by respective parties and it cannot be presumed that such transaction was carried out. It is also observed that the civil suit mentioned in the said draft agreement says about the suit filed for the secretary post in M/s. Sri Sri Bhajan Brahmachari Sevashram between the parties Muthayam Agaiah Goud and Rao Subba Rao vide OP No. 496/1994. Later these parties entered into a compromise agreement and accordingly compromise petition was filed. Considering all these facts, the CIT(A) deleted the addition for these two assessment years. Against this deletion, Department is in appeal before us.
44.4 We have heard both the parties on the issue. The addition is made only on the basis of unsigned document having no dates. In our opinion, unsigned documents have no legs to stand. It is not supported by any corroborative materials to substantiate the payment mentioned in the impugned document. More so, the Remand Report sent by the Assessing Officer also stated that the claim of the assessee is genuine. Being so, the only possible view is to delete the addition. Accordingly, we do not find any infirmity in the order of the CIT(A). The deletion of addition is confirmed.
54 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== This ground in both the appeals in ITA Nos. 170 and 171/Hyd/2011 is rejected.
45. The next ground in ITA No. 173/Hyd/2011 is with regard to deletion of addition of Rs. 23.5 lakhs, payment made to M/s. Rithika Constructions as unexplained payment.
45.1 Brief facts of the issue are that the assessee entered into an agreement of sale on 24.1.2003. As mentioned by the AO, the assessee has entered into an agreement of sale on 24.01.2003 with the said firm represented by its proprietor Sri Kulwant Singh Makkan. As per the same, M/s. Rithika Constructions entered into development agreement on 20.10.2000 with landlords Gopal Reddy and others in respect of plot Nos. 6, 6A, 47 measuring 1330 square yards at Tokatta Village, Bowenpally, Secunderabad, for construction of 30 flats on that land. Due to some financial problems, the said firm was unable to complete the construction and the owners of that building offered the same to the assessee firm i.e., M/s. Gautami Constructions. As noted by him, the assessee offered to pay @ 175 per sq. ft. amounting to Rs. 52,50,000/- to M/s. Rithika Constructions towards settlement of the said complex works already done by them. With regard to payment terms, the assessee transferred 8 acres of land @ Rs. 6 lakhs per acre at Mansanapally village, R.R. District, belonging to it and offered to make cash payment of Rs. 7,50,000/-. The property of 8 acres was transferred vide registered document No. 3032/02 dated 13.12.2002 in Sy. No. 141 and document No. 225/02 dated 02.09.2002 in Sy. No. 164. The AO further mentioned that as per page-143 of the said annexure, there was an unsigned receipt for Rs. 55,50,000/- which shows the transfer of land and also cash payment. The said land was purchased by the assessee and got registered as per the evidence available as per annexure A/RSR/21 pages 17 to 23, wherein the assessee 55 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== made payments by cheques and also cash to the tune of Rs. 12,00,000/- to one, Sri K. Ranga Reddy to the extent of 6.30 acres in respect of document No. 3032/2002 dated 13.12.2002. He further noted, this land was offered by the assessee to M/s. Rithika Constructions along with another 2 acres in Sy. No. 164 whose value was Rs. 4 lakhs. Though the registered value is Rs. 12 lakhs as per the above agreement, the assessee has transferred the same along with 2 acres in Sy. No. 164 for Rs. 55,50,000/-. After stating that the assessee has not reflected the above transactions in its return of income, the amount of Rs. 16,00,000 (Rs. 12,00,000 + Rs. 4,00,000) as above, and also the cash payment of Rs. 7,50,000/-, aggregating to Rs. 23,50,000/-, having been paid out of books of accounts, the AO held that, the same shall be added to the total income of the assessee. Accordingly, he added the said amount to the income of the assessee.
45.2 On appeal, the CIT(A) deleted the addition after calling Remand Report from Assessing Officer wherein the Assessing Officer stated that the agreement was not acted upon and the property was subsequently sold to M/s. Chalapati and reflected in the regular return of income. It is also observed that it is only a draft agreement which cannot be given any credit. Against this, the Revenue is in appeal before us.
45.3 We have heard both the parties and perused the material on record. We have gone through the contention of the Assessing Officer in the Remand Report furnished before the CIT(A). The AO in his remand report submitted that the same has been gone through and the relevant seized material was also examined. He noted, it is a fact that the said land of 8 acres was not transferred to M/s. Rithika Constructions. The same was sold subsequently to M/s. Chalapathi Estates. The land was purchased on 03.09.2002 vide DC. No. 5522/2002 for a consideration of Rs. 46,000/- (acres 56 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== 2.22 guntas) and on 13.12.2002 vide DC. No. 3032/2002 for a consideration of Rs. 1,25,500/- (6 acres 30 guntas). The investment of purchase was duly reflected in the regular return of income. Hence, the addition of Rs. 16,00,000/- on account of undisclosed investment is apparently not correct. Further, as the assessee did not make any cash payment and the relevant seized material was an unsigned agreement, the contention of the assessee may be considered on merit. In his further report vide letter dated 01.06.2010, submitted to the Addl. CIT, Central Range-l, Hyderabad, when directed by the later for making further enquiries into the above matter, the AO informed that he has issued a show cause notice to the assessee, in response to which they have filed further clarification on 15.04.2010. Those submissions made by the assessee vide such reply filed on 15.04.2010, referred to in the said report, are reproduced as under:
"M/s. Rithika Constructions was a builder who has constructed some flats at Bowenpally. In this regard we wish to mention here that the intention of the department is that the builder has constructed the flats out of their own funds is wrong. In fact it has received the consideration in the form of advances from the customers as evidenced from the agreement dated 24.12.2002 (seized material RSR/PO-1/1 page number 76-78 coy enclosed). In this transaction the assessee is not having any role initially. It was the matter between Rithika construction and the flat owners. Since M/s Rithika Construction failed to honour the commitment it had to abandon the project and various flat owners have approached the Gowthami Construction to complete the unfinished work. In this scenario the assessee paying amount to Rithika Construction does not arise as the original builder left the unfinished work constructed with the funds made available by the flat owners in the form of advances. Further in course of search no evidence was found to indicate that the assessee has paid any compensation to give the work. Further the whereabouts of M/s. Rithika Construction is not known and hence it is not possible to locate them. "
45.4 From the above the CIT(A) taken a clue that the agreement is not acted upon and it is only a draft agreement and deleted the addition. In the said finding of the CIT(A), we do not find any 57 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== infirmity and the deletion is justified as the agreement was not acted upon. We confirm the action of the CIT(A). This ground in ITA No. 173/Hyd/2011 is dismissed.
46. The next ground is in ITA No. 172/Hyd/2011 for A.Y. 2005-
06. This is with regard to deletion of Rs. 18,92,500 out of Rs. 29,92,500 made on account of unexplained investment as advance to landlord. Brief facts of the issue are that as noted by the AO, as per seized document in annexure A/RSR/27, page-45, the assessee has entered into agreement of sale on 07.06.2004 in respect of land of 31.5 Sq. Yds situated at H. No.1-10-119 to 125/6, Mayur Marg, Begumpet for Rs. 29,92,500/-. He further noted, in this transaction, the assessee has paid advance of Rs. 12,00,000/- as per receipt dated 07.06.2004 at page-42 of the said annexure A/RSR/27. Stating that this transaction is not reflected by the assessee in its return of income, the AO held that the said amount of Rs. 29,92,500/- shall be added to the income of the assessee, treating as unexplained investment in such plot of land. As such, he added the said amount to the income of the assessee.
46.1 On appeal, the CIT(A) deleted Rs. 18,92,500 and sustained Rs. 11 lakhs out of the total addition of Rs. 29,92,500. Against this, the Revenue is in appeal 46.2 We have heard both the parties and perused the material on record. The CIT(A) called for Remand Report from the Assessing Officer. The Assessing Officer in his Remand Report stated that Sri Ashok Kumar and Smt. Padmavathi sold the said property to Smt. A.R. Geeta in June, 2006. He also submitted that in the seized document, there is another agreement entered into between the land owner Sri Ashok Kumar and Smt. Padmavathi with Smt. A.R. Geeta and Smt. A.R. Lata. The agreement was entered by Sri Ashok Kumar in favour of Smt. A.R. Geeta and Smt. A.R. Lata is a 58 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== dummy document which is not acted upon. As discussed in assessee's appeal in ITA No. 148/Hyd/2011 in earlier paras of this order, the payment reference at Rs. 1 lakh vide cheque No. 021398 drawn on Canara Bank, Kundan Bagh Branch dated 7.6.2004 otherwise represents the cash withdrawal of Rs. 2,25,000 made on 4.26.2004. This discrepancy was noticed by the CIT(A) and accordingly, he sustained addition of Rs. 11,00,000 out of Rs. 29,92,500 and deleted Rs. 18,92,500. As we have deleted Rs. 11 lakhs which was sustained by the CIT(A) in assessee's appeal in ITA No. 148/Hyd/2011, this ground of the Revenue becomes infructuous and needs no adjudication. This ground in ITA No. 172/Hyd/2011 is rejected.
47. In the result, Department appeals ITA Nos. 170, 171, 173 and 172/Hyd/2011 are dismissed.
Rao Subba Rao
S. Assessee's Appeal S. Revenue Appeal
A.Y.
No. ITA No. No. ITA No.
1. 638/Hyd/2011 2000-01
2. 639/Hyd/2011 2001-02
3. 640/Hyd/2011 2002-03
4. 641/Hyd/2011 2003-04 1. 826/Hyd/2011
5. 642/Hyd/2011 2004-05 2. 827/Hyd/2011
6. 643/Hyd/2011 2005-06 3. 828/Hyd/2011
7. 644/Hyd/2011 2006-07 4. 829/Hyd/2011
48. Now we will take up assessee's appeals. The first common ground in all the assessee's appeals (638 to 644/Hyd/2011) is with regard to treatment of agricultural income declared by the assessee as non-agricultural income. In these assessment years the assessee declared agricultural income as follows:
Agricultural A.Y. income (Rs.) 2000-01 40,000 2001-02 50,000 2002-03 50,000 2003-04 50,000 59 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
========================
2004-05 60,000
2005-06 60,000
2006-07 75,000
48.1 The same was treated as non-agricultural income.
According to the Assessing Officer there is no basis for agricultural income. The assessee tried to convert his other income as agricultural income by adopting the theory of taking land on lease from his sons in the status of HUF. Being so, the lower authorities rejected the claim of the assessee. Against this, the assessee is in appeal before us.
48.2 We have heard both the parties on this issue. In these cases, the assessee taken a plea that he has taken land belonging to M/s. Gautami Constructions on lease and derived agricultural income. However, it was found that the assessee has not paid any lease rent for the A.Y. 2000-01. Being so, the claim was rejected.
Even before us the assessee has not filed any evidence to show that the assessee taken the land belonging to M/s. Gautami Constructions on lease and derived agricultural income. Further in the absence of positive evidence to support the earning of agricultural income, we reject this ground for A.Y. 2000-01.
48.3 For the A.Y. 2001-02 to 2006-07, the assessee taken a plea that he has taken the land on lease from Gautami Constructions for carrying on agricultural activities and also the assessee has carried on agricultural activities in his own land situated at Doskal. In these assessment years the lease rental income received from the assessee was offered to tax by M/s. Gautami Constructions. This fact was confirmed by the Assessing Officer in his Remand Report. Being so, when the Department accepted offer of lease rental income by M/s. Gautami Constructions it cannot reject claim of the assessee deriving agricultural income from the said land. Being so, considering the totality of the facts 60 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== of the case for A.Ys. 2001-02 to 2006-07, we allow this ground of the assessee in ITA No. 639 to 644/Hyd/2011.
49. The next common ground in ITA Nos. 638 to 644/Hyd/ 2011 is with regard to sustaining of addition towards low withdrawals, as follows:
Agricultural A.Y. income (Rs.) 2000-01 1,00,000 2001-02 1,00,000 2002-03 1,50,000 2003-04 2,00,000 2004-05 2,00,000 2005-06 2,50,000 2006-07 2,75,000 49.1 We have heard both the parties and perused the material on record. The contention of the assessee is that the addition was made by the lower authorities on the basis of the lifestyle of the assessee. According to the assessee the lower authorities derived support of taking plot No. 119, Road No. 10, Jubilee Hills, Hyderabad, where the assessee was staying on a rent of Rs.
25,000 per month from 2.7.2001. The AR contended that this payment of rent by the assessee cannot be the basis of estimating the drawings for A.Y. 2000-01 as the agreement starts from 2000-
01. In our opinion, the argument of the assessee's counsel is devoid of merit. The assessee shown very meagre drawings in these assessment years. Considering the lifestyle of the assessee and social status, it is very low. For example, the assessee shown Rs. 64,920 drawing for A.Y. 2000-01, Rs. 1,85,592 for A.Y. 2001- 02, out of this the amount available for household expenses is Rs. 45,000 and the balance of Rs. 1,37,592 is for other purposes. For A.Y. 2002-03, the drawings were shown at Rs. 1,71,313, out of this Rs. 1,00,000 was incurred towards rent. For A.Y. 2003-04 though the withdrawal was shown at Rs. 4,41,230, actual amount available for household expenses is only Rs. 91,593. For A.Y. 61 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== 2004-05, though the withdrawals were shown at Rs. 3,96,172, the amount available for household expenses is only Rs. 89,000. For A.Y. 2005-06, the withdrawal is shown at Rs. 6,20,868, the household expenses are considered at Rs. 1,20,000 by the assessee. For A.Y. 2006-07, withdrawals were shown at Rs. 7,11,033, out of this only Rs. 60,000 was household expenses. Being so, considering all these facts, the household expenses estimated by the lower authorities are to be sustained. Accordingly, we reject the ground. In the result, the ground relating to addition towards low withdrawals in assessee's appeals in ITA Nos. 638 to 644 is dismissed.
50. The next ground in ITA No. 639/Hyd/2011 is with regard to sustaining addition of Rs. 2 crores on the basis of seized document A/RSR/PO-1/4/page 5, which is an agreement of sale dated 30.12.2000 executed by the assessee as per which the assessee paid Rs. 2 crores for purchase of bungalow bearing No. 198, at Akber road, Tadbun, Thokatta village.
50.1 Brief facts of the issue are that there was a seized document, A/RSR/PO-l/4/page 5, is an agreement of sale dated 30.12.2000 executed by the assessee, as per which he had paid advance of Rs. 2 crores for purchase of bungalow No. 198 spread over an extent of 3 acres of land near Bowenpally, Secunderabad, to the owners Sona J. Chenoy and Saroj J. Chenoy. Vide his questionnaire dated 07.12.2007, he has asked the assessee to explain whether the same has been accounted for by him in the return of income filed for this assessment year. In response to this, the assessee in his reply filed before the Assessing Officer on 28.12.2007, has submitted that the said transaction could not be materialized as the owners of that plot have created a trust on that property for the benefit of their family members. The assessee further stated that he has purchased a demand draft for Rs. 11,00,000/- in 62 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== favour of Mrs. Sona J. Chenoy with an intention to execute the agreement of sale entered. However, due to non-agreement of trustees for sale of that plot, their demand draft was returned to them bearing B.C. No. 342060 and the same was cancelled and credited in the hands of Sri Rao Satya Kumar en 07.05.2001, by depositing in his bank account in State Bank of India, PBB. It was stated that the entire transaction was recorded in the hands of Sri Rao Subba Rao HUF.
50.2 However, the AO did not accept such submission of the assessee. He noted that the assessee has not replied to the specific query relating to the payment of Rs. 2 crores to both the above persons. He noted that both the persons have admitted receipt of Rs. 2 crores on a stamped agreement in the presence of witnesses. He further noted, the assessee ought to have recorded such payment of Rs. 11,00,000 in his individual case. Stating that the assessee has not recorded such payment amounting to Rs. 2 crores and further sum of Rs. 11,00,000/- and holding that the same were made out of his undisclosed income, the AO added the said amounts to the returned income of the assessee.
50.3 With reference to above addition, the AR submitted that the assessee was negotiating for purchase of a property located at bungalow No. 198, Tadbun, Secunderabad. The said bungalow and the adjoining land belong to Mrs. Sona J. Chenoy and Mr. Saroj J. Chenoy. It was stated, before the deal could materialize, the assessee convinced the owners to enter into an agreement for sale with him, so that the same can be shown to various persons for mobilization of funds for any future development of property. It was stated that for the purpose, the assessee entered into a dummy agreement with the owners without making any payment. It was contended that no payment for Rs. 2 crores was ever made by the assessee by cheques towards advance as mentioned in the 63 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== said agreement. Stating that the name of the bank and details of cheque are left blank, it was submitted that the same proves that the contents of the document are not correct. It was further stated that for the proposed transactions a banker's cheque for Rs. 11,00,000/- was purchased. The same was purchased from the account of Sri Rao Satya Kumar, but the same was not handed over to the vendor. Since the deal did not materialize, the DD (BC) was cancelled and the amount was deposited in the same bank account of Sri Rao Satya Kumar. It was further submitted that the said agreement was not acted upon. Stating that no amount was paid by the assessee either by cash or by cheques as mentioned in the said document, it was contended that the AO was not justified in making such addition. It was further submitted that the above issue was investigated by the DDI during post-search investigation and the matter was explained in detail. Further, drawing attention to the confirmation letter stated to be obtained from Mr. Saroj J. Chenoy, the AR requested that the said addition may be deleted.
50.4 With reference to above submissions, the DR submitted that as per the provisions of sec. 132( 4A) of the Act, the AO shall presume that the document found during the search and the contents appearing in the said document are true and no other inference can be drawn. The same has been reiterated in the provisions of sec. 292C of the Act. He further stated, the said agreement was found and seized from the premises of the assessee during the course of search. The said agreement was duly signed. The AO has made the addition on the basis of the said provisions. He further mentioned that in the said agreement at clause-2, at page No. 2, it is clearly mentioned that an amount of Rs. 2 crore was paid as advance by way of cheque. The assessee has cleverly omitted the details of cheque. He stated that under these circumstances, the submissions made by the assessee denying such payment is an afterthought. He further mentioned that, it is 64 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== common that no buyer will admit the receipt of on-money. Stating that the said confirmation letter filed by Mr. Saroj J. Chenoy, cannot be considered being devoid of any merit, he submitted that such claim of the assessee cannot be accepted and thus suggested that the said addition should be confirmed.
50.5 We have heard both the parties and perused the material on record. This addition is with regard to the alleged purchase of property bearing No. 198, Tadbun, Secunderabad. As per this seized document marked A/RSR/PO-1/4/page 5, the assessee paid Rs. 2 crores to the landlords Sona J. Chenoy and Saroj J. Chenoy. According to the assessee this agreement was not acted upon. Though there was a demand draft for Rs. 11 lakhs in favour of Sona J. Chenoy with an intention to execute the agreement, the same DD was cancelled and credited in the hands of P. Satya Kumar on 7.5.2001 in his bank account with SBI PB Branch. The addition was sustained by the CIT(A) on the basis of this agreement only. Admittedly, this agreement is a xerox copy. As per the xerox copy of the agreement the total consideration the assessee has to pay for purchase of the above property is Rs. 5 crores. The assessee has to pay Rs. 2 crores by cheque as per clause (2) of the agreement. Further the assessee has to pay as per clause (6) as follows:
(a) Rs. 50 lakhs on or before 10.4.2001
(b) Rs. 15 lakhs on or before 30.12.2001
(c) Rs. 75 lakhs on or before 30.7.2002
(d) Rs. 50 lakhs on or before 30.12.2002
(e) Rs.110 lakhs on or before the time of registration.
------------------
Rs. 300 lakhs =========== 50.6 However, the contention of the assessee is that the transfer has not taken place. Regarding this, the assessee furnished a copy of letter from the vendor Saroj J. Chenoy which reads as follows:
65 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== "To WHOMSOEVER IT MAY CONCERN This is to certify that Sri Rao Subba Rao, a real estate broker, was in the process of negotiating on behalf of others for sale of a property bearing Bungalow No. 198, Tadbun, Secunderabad belonging to Mrs. Sona J. Chenoy. After the demise of my mother, Mrs. Sona J. Chenoy, I became the legal heir of the said land. This is to further certify that the deal was terminated because we could not obtain necessary clearance from Ministry of Defence for disposal of this land. We are still in the occupation of the house. We have not received any payment from Sri Rao Subba Rao on account of the proposed deal.
Sd/- 05.03.09 (Saroj J. Chenoy)"
50.7 The CIT(A) was not ready to accept this letter as the transaction has not taken place. However, the fact is that had there been a payment of Rs. 2 crores on the date of signing the agreement on 30th December, 2002, it shall be by way of cheque. The Department must have traced the bank account. In the present case, the Department has not brought on record the payment of Rs. 2 crores by way of cheque. More so, the Department also not brought on record the original copy of the agreement of sale. It was held in the case of Moosa S. Madha & Azam S. Madha vs. CIT (89 ITR 65) (SC) that xerox copy of the document cannot be a basis for addition and it has to be annulled. It is settled law that xerox copy of any document cannot be considered as an evidence in the absence of original and supporting evidence either oral or documented. The department not brought on record any corroborative material to show that the impugned agreement between the parties has actually culminated in sale transaction. The lower authorities only harping on the zerox copy of the document and presumption u/s. 132(4A) and 292C of the Act. The presumption under these sections are rebuttable. The assessee placed confirmation letter from the prospective vendor that the transaction was not acted upon. At 66 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== this stage, the burden shifted from the assessee to the Department. If the Department disbelieves the explanation offered by the assessee, it is incumbent upon the Department to bring cogent material against the assessee. Without doing so, the Department only relying upon the zerox copy of the agreement though not traced the payment reflected in the agreement through cheque. Further, the assessee placed before the lower authorities copy of the bank account, affidavit and required the Department to cause further enquiry. The Department has not caused any enquiry. Even the search action was not able to unearth any material against the assessee. Also, it is a fact that the DD purchased for Rs.11 lakhs in favour of Sona J. Chenoy and subsequently cancelled and re deposited in Sri Rao Subba Rao account with SBI PB Branch. It is also a fact that the property was continuously occupied by the vendor. It was stated by the assessee in the affidavit that the Department may cause further enquiry on this issue. The Department kept silent and confined to the addition. As held by the Supreme Court in the case of Mehta Parekh & Co. Vs. CIT (30 ITR 181) unless the contents of the affidavit are disproved by the Assessing Officer, the same should be accepted. In our opinion,, the addition made by the Revenue authorities is without sufficient material cannot be sustained.
50.8 We also place reliance on the judgement of Supreme Court in the case of Dakeshwari Cotton Mills Ltd. v. CIT (26 ITR 775) and Uma Charan shah & Bros. Vs. CIT (37 ITR 271) wherein held that whatever the strong suspicion that itself cannot be a basis for addition. Further the Tribunal in IT(SS)A No. 22/Hyd/2008 dated 18.2.2010 in the case of Sri Gyankumar Agarwal, Hyderabad, held that suspicion, however, strong cannot take place of material in support of the findings of the Assessing Officer. The Assessing Officer should act in a judicious manner, proceed with judicious spirit and should come to judicious conclusion. The Assessing 67 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Officer is required to act fairly as a reasonable person and not arbitrarily and capriciously. Assessment made should have adequate material and it should stand on its own legs. No addition can be made in the absence of corroborative material. Accordingly, we delete the addition and allow the ground taken by the assessee.
51. The next ground in ITA No. 639/Hyd/2011 is with regard to the addition of Rs. 2 lakhs being the payment to one Mr. M.F. Peter.
51.1 Brief facts of the issue are that there was seized document marked as A/RSR/20/page 42 which represents the cheque bearing No. 084727 dated 18.1.2001 in favour of Mr. M.F. Peter issued by Sri Krishna Earth and Minerals drawn on Andhra Bank Hyderabad-9. On the backside of the cheque it is mentioned "cash paid by R.S.R. to M.F. Peter". In view of such entry on the backside of the cheque the addition was made in the hands of the assessee.
51.2 We have heard both the parties and perused the material on record. The addition was made on the basis of entry on the backside of the impugned cheque wherein it was mentioned that "cash paid by R.S.R. to M.F. Peter". In the course of remand proceedings, the managing partner of Sri Krishna Earth and Minerals appeared before the Assessing Officer on 24.8.2009. However, he could not produce any books of account or return of income or any other document to verify such claim. However, since it was written on the backside of the cheque "cash paid by R.S.R. to M.F. Peter, we have to sustain the addition.
51.3 The contention of the AR before us is that the assessee filed confirmation letter from M/s. Sri Krishna Earth and Minerals Ltd., wherein they confirmed that the assessee has no connection with 68 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== the company. But the fact is that the cheque was found in the possession of the assessee and on the backside of the cheque it was mentioned that Rao Subba Rao paid cash to M.F. Peter. So the presumption u/s. 132(4A) goes against the assessee as the assessee unable to rebut the writing in the backside of the cheque. Accordingly, the addition is confirmed. This ground in ITA No. 639/Hyd/2011 is dismissed.
52. The next ground in ITA No. 639/Hyd/2011 is with regard to sustaining addition of Rs. 35 lakhs representing the amount received from Uma Karan. This is additional ground raised by the assessee. The assessee filed a petition for admitting the additional ground and submitted that this ground is emanating from the order of the CIT(A). Considering the plea of the assessee, we are inclined to admit this additional ground.
52.1 Brief facts of the issue are that as per the seized material vide annexure No. A, the Assessing Officer made an addition of Rs. 62.46 lakhs on the basis of seized material A/RSR/1/page No. 31, 32, 33 which reflects the payment made to the following persons towards purchase of property at No. 119, Tadbun, Secunderabad.:
A.Y. Party name Amount (Rs.)
2001-02 D.N. Chenoy 31,25,000
2001-02 Avan Gopal Rao 10,41,000
2001-02 Bapuji Edulji Chenoy 10,40,000
2001-02 Batsy Sohrab Dittia 10,40,000
Total 62,46,000
52.2 The assessee pleaded before the lower authorities that out of the above, Rs. 30 lakhs was received from Sri Uma Karan on 22.2.2008. During the investigation Sri Uma Karan was summoned and examined u/s. 131 of the Act. He was asked to explain the same. He could not substantiate the payment of Rs. 35 lakhs to Rao Subba Rao. Being so, it was confirmed. Against this, the assessee is in appeal before us.
69 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 52.3 We have heard both the parties and perused the material on record. The assessee taken a plea before us that the assessee filed affidavit which was not examined. Without examining the same addition was made. According to him without examination of the affidavit addition cannot be sustained. Placing reliance on the judgement of supreme Court in the case of Mehta Parekh & Co. Vs. CIT (30 ITR 181), we are inclined to remit the issue back to the file of the Assessing Officer to cause necessary enquiry and decide thereupon in accordance with law.
53. The next ground for our consideration in ITA No. 640/ Hyd/2011 is with regard to sustaining addition of Rs. 1,49,270 being the payment to Sri Sri Bhajan Brahmachari Sevasarm as the represented a liability as on 31.3.2002.
53.1 Brief facts of the issue are that the seized document A/RSR/21 page 47 wherein the assessee has shown creditor in the books of Sri Sri Bhajan Brahmachari Sevasarm as on 31.3.2002 for an amount of Rs. 1,49,270. The Assessing Officer called for explanation regarding this. The assessee not furnished any explanation and the same is treated as income of the assessee. On appeal the CIT(A) confirmed the same.
53.2 Before us the AR submitted that this represents the liability in unaudited/draft Balance Sheet prepared by the trust. However, in the seized material the audited Balance Sheet of the trust is available. This audited Balance Sheet does not reflect this liability. According to the AR instead of unaudited Balance Sheet the Department shall consider the audited Balance sheet which is correct Balance Sheet. Further, he submitted that there is no mentioning of assessment year to which year this liability belongs in the seized material. Being so, it cannot be considered for addition.
70 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 53.3 The DR submitted that it is reflected in the draft Balance sheet which forms part of the seized material. The assessee has not offered valid explanation. The addition has to be sustained.
53.4 We have heard both the parties on this issue. This amount of Rs. 1,49,270 is not reflected in the audited Balance Sheet which was found during the course of search and there was entry only in the unaudited Balance Sheet. In our opinion,, as it is not reflected in the audited Balance Sheet, the addition cannot be sustained. This ground is allowed.
54. The next ground in ITA No. 640/Hyd/2011 is with regard to addition of Rs. 54,13,335 towards purchase of land as per seized material A/RSR/PO-1/7/page 1 and 9. The assessee has purchased several pieces of land from different persons.
54.1 The AR submitted that the actual transaction is only Rs. 6 lakhs which was paid on 6.3.2002 at Rs. 3,50,000 and Rs. 2,50,000 on 9.3.2002. The transaction of Rs. 6,31,000 relates to lands purchased by Sri Rao Raj Kumar. The only transaction in page No. 1 of seized material is paid on 13.2.2002. According to the AR there is no basis for addition of Rs. 50,49,500.
54.2 The DR submitted that the total investment in Mansanpally land in the name of the assessee and his brother Rao Raj Kumar is at Rs. 54,13,335. Even in the remand proceedings the assessee failed to explain the investment. He relied on the order of the CIT(A).
54.3 We have heard both the parties and perused the material on record. The authorities below accepted the claim of the assessee that the total investment was at Rs. 54,13,335 and investment was not only made by the assessee himself but also made by other 71 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== two persons Sri Rao Raj Kumar and M/s. Gautami Constructions. Being so, it is appropriate to see the exact investment by each party and consider the same in the respective hands accordingly. Hence, we remit this issue back to the file of the Assessing Officer with a direction to reconsider this issue afresh and decide accordingly. This ground is partly allowed for statistical purposes.
55. The next ground in ITA No. 641/Hyd/2011 is with regard to addition of Rs. 5 lakhs being the payment made to D. Sudhakara Varma.
55.1 Brief facts of the issue are that there was a payment of Rs. 14.5 lakhs towards Victoria Castle building. The investment includes Rs. 5 lakhs given to D. Sudhakara Rao as per the seized document A/RSR/8 & 9. The CIT(A) called for Remand Report from the Assessing Officer. The assessee was asked to produce D. Sudhakara Varma. Mr. D. Sudhakara Varma appeared before the Assessing Officer on 24.8.2009. He was not maintaining any books of account. He has not filed any return of income. The claim of the assessee is not verifiable. Being so, the CIT(A) was of the opinion that the investment of Rs. 5 lakhs out of Rs. 14.50 lakhs is not verifiable and accordingly confirmed the addition.
55.2 Before us the learned AR submitted that Mr. D. Sudhakara Varma was produced and examined. He has confirmed the transaction and the amount was returned back to the assessee and reflected in the Cash Flow Statement filed before the authorities. The statement of Mr. D. Sudhakara Varma was disbelieved by the Department on the sole reason that he was not assessed to tax and not maintained books of account. The AR submitted that when the person is identifiable and has confirmed the transaction, there is no question of further addition.
72 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== According to the AR the burden cast upon the assessee is discharged and no addition is to be made.
55.3 We have heard both the parties and perused the material on record. The entire payment of Rs. 14.5 lakhs is reflected in the Cash Flow Statement and whatever deficit in the Cash Flow Statement was offered to tax. Once again making addition for individual items amounts to double addition which is not possible. Accordingly, we delete the same. This ground is allowed.
56. The next ground in ITA No. 642/Hyd/2011 is with regard to sustaining addition of Rs. 6,50,000 being purchase of 626 sq. yards of land at Tirumalagheri though no transaction has taken place.
56.1 Brief facts of the issue are that as per seized document A/RSR/6/page-60, the assessee has paid an amount of Rs. 18,00,000/- for purchase of flat No. 201, C-Block, R.K. Towers, Begumpet and a sum of Rs. 6,50,000/- for purchase of 696 sq. yds of land. Vide query No. 3 of the said questionnaire dated 07.12.2007, he has asked the assessee to explain as to how such payments were accounted for by him. However, stating that the assessee has not filed any reply in response to such query, he has added the said amounts, aggregating to Rs. 24,50,000/- to the income of the assessee.
56.2 The learned AR submitted that the assessee has negotiated for purchase of the said flat from Smt. Pushpalatha Reddy, mother of Sri Sunil Reddy. For that purpose he had paid Rs. 10,00,000/- on various dates, and the same is reflected in page No. 22 of A/RSR/l. The final settlement was made for a consideration of Rs. 18,00,000/- and the assessee has purchased that property vide sale deed dated 24.12.2003. The said transaction was duly reflected in the cash flow statement filed before the DDIT(Inv). It 73 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== was stated, since the resultant deficit amount is basis of such statement was offered to tax, no separate addition is called for on above account. Furnishing a confirmation letter for such sale consideration, it was submitted that at different points of time the assessee was preparing accounts in respect of that flat and was noting the transactions in different sheets of paper. It was stated that the AO instead of taking into account the multiple / overlapping entries in respect of the same transaction, has added the amount thrice. He drew our attention to the photocopies of page No. 22 of A/RSR/l, page No. 60 of A/RSR/6 and page 52 & 56 of A/RSR/11(sale deed) and it was reiterated that the AO has added the amounts thrice including the document value. Stating that such original cash flow statement filed before the DDIT(Inv), reflecting said investment should be considered for assessment, it was requested that no adverse inference may be drawn.
56.3 The learned DR submitted that the AO in his remand' report submitted that as per the seized material the flat cost was Rs. 18,00,000/-. Out of that Rs. 15,00,000/- was paid and Rs. 3,00,000/- was shown outstanding. The amount of Rs. 6,50,000/- was relating to another property, a vacant plot. This entry and the said entry of Rs. 3,00,000/- aggregating to Rs. 9,50,000/-, was shown as payable / outstanding. With these submissions, he stated that such claim of the assessee may not be considered. He further stated that the actual cost of Rs. 18,00,000/- was reflected in the original cash flow statement. Later, the Assessing Officer in his further report furnished vide letter dated 01.06.2010, on query raised by the Addl. CIT for making further verification, the AO submitted that there are multiple / overlapping entries found in the seized material at page No. 22 of A/RSR/l, page No. 60 of A/RSR/6 and page No. 52 & 56 of A/RSR/l1. The assessee has submitted that the property was purchased for total consideration of Rs. 18,00,000/- vide sale deed dated 24.12.2003. He further 74 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== noted that the assessee further stated that the total payment of Rs. 19,08,100/- was reflected in the cash flow statement which includes the registration charges. In that report, he further mentioned that the AO made such addition without appreciating the entire fact. Later, during the rejoinder, the AR reiterating the same submissions and stating that the investment of Rs. 18,00,000/- made in the said flat has been duly reflected in the cash flow statement filed before the DDIT (Inv) and since the deficit arising out of said cash flow statement amounting to Rs. 6,57,217/- has been offered to tax, the assessee contended that no separate addition is called for in this case.
56.4 We have heard both the parties and perused the material on record. According to the assessee's counsel this amount is already reflected in the Cash Flow Statement and deficit in the Cash Flow Statement was already offered to tax. This fact was confirmed by the Assessing Officer in his Remand Report. He specifically pointed out that a deficit of Rs. 6,57,217 in the Cash Flow Statement was offered to tax for the assessment year under consideration. He submitted that sustaining of addition of Rs. 6,50,000 leads to making the addition three times for a single lapse. According to him, once unaccounted payment of Rs. 10 lakhs to Sri Sunil Reddy was added, secondly unaccounted payment of Rs. 24.5 lakhs was considered for addition and thirdly, unaccounted payment for purchase of flat at Rs. 9 lakhs was considered. According to him, the total investment is only Rs. 18 lakhs and it was duly reflected in the Cash Flow Statement. The fact of Rs. 18 lakhs payment to Sri Sunil Reddy was also confirmed by him. Being so, there cannot be any addition on this count once again. We examined this fact with reference to the Remand Report. The Remand Report is clear that total investment on this count is only Rs. 18 lakhs which was duly reflected in the Cash Flow Statement. Being so, there cannot be any further 75 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== addition. Thereafter, registration cost if Rs. 1,08,100. Being so, when the vendor confirmed the payment of Rs. 18 lakhs it should be relied upon and cannot be rejected without any contrary evidence. Accordingly, we delete the addition as the assessee has offered excess of expenditure over receipt in the Cash Flow Statement in the assessment year under consideration at Rs. 6,50,000. This ground is allowed.
57. The next ground in this appeal is with regard to sustaining addition of Rs. 4 lakhs relating to purchase of flat by Sri Govinda Rao in which the assessee acted as a mediator having financial involvement of Rs. 1 lakhs which was collected from prospective buyers and paid to the transferor.
57.1 Brief facts of the issue are that before the CIT(A), the assessee has objected to the addition of Rs. 4,00,000/- made in the assessment. As noted by the Assessing Officer, as per seized document A/RSR/PO(1)/3 page-103, there was payment of Rs. 4,00,000/- made by the assessee towards certain transaction. Vide query No. 8 of his said questionnaire dated 07.12.2007, he has asked the assessee to explain regarding such payment and further clarify how the same was recorded by him. However, stating that the assessee has not filed any reply to such query, he has added the said amount to the income of the assessee.
57.2 The AR submitted that the addition relates to transfer of flat no.l06, Airlines Apartment, Begumpet, by one Sri Govind Rao. That flat belonged to him i.e. Govind Rao. In that transaction, the assessee acted as a mediator. In the first instance, Rs. 1,00,000/- was paid to the flat owner, after the same was collected from one Sri Sadashiv Bhatt, the prospective buyer. It was stated that the balance amount was not paid as is apparent from that seized document. The same only represented a commitment. Stating that 76 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== he acted as a mediator and has no connection with that transaction, it was submitted that no addition should be made in this case. In this regard, the assessee filed a confirmation letter, stated to be obtained from the said Sri Sadashiv Bhatt.
57.3 The DR submitted that the confirmation letter stated to be given by Sri Sadashlv Bhatt. Though in the said confirmation letter, the said person has stated that the balance amount of Rs. 4,00,000/- in respect of that flat was not paid, in absence of his address and the dates etc. mentioned in that letter, no sanctity can be attached to the same. Under the circumstance, and having regard to such remand report of the present Assessing Officer, the addition of the said amount of Rs. 4,00,000/- made in the assessment in this case, is justified.
57.4 We have heard both the parties and perused the material on record. During the course of first appellate proceedings, Remand Report was called from the Assessing Officer. The Assessing Officer stated that as per the seized material, there was a receipt given by Sri Govinda Rao for Rs. 1 lakh to Sri Rao Subba Rao on 12.3.20004. As per confirmation letter from Mr. Bhatt, Rs. 1 lakhs was paid by Sri Rao Subba Rao. The assessee taken a plea before the Assessing Officer that he was only a mediator between Sri Govinda Rao and Sri Sadashiv Bhatt. However, the assessee not furnished the details whether actually Mr. Sadashiv Bhat has purchased this property flat No. 106, Airlines Apartments, Begumpet. Being so, we feel it appropriate to remit the issue back to the Assessing Officer with a direction to the assessee to furnish full details of the transaction. This ground in ITA No. 242/Hyd/ 2011 is partly allowed for statistical purposes.
77 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
========================
58. The next ground in ITA No. 643/Hyd/2011 is with regard to addition of Rs. 6,06,080 towards market value of the property on the basis of seized material A/RSR/PO-1/1 pages 34 and 35.
58.1 The ld. AR has objected to the addition of Rs. 6,06,080/- made in the assessment. Referring to the said agreement of sale dated 30.03.2005 as per that seized document vide A/RSR/PO-l/l page 34 & 35, the Assessing Officer noted that as per the same, the assessee has sold 56.88 sq. yds of land to one Sri G.B. Shivnarayan vide document No. 30/2005 dated 10.01.2005 and 106.66 sq. yds of land to Sri S.T. Parameshwaran, vide document No. 75/2005 dated 20.01.2005. He further noted that the sale price offered to his son Sri R. Shiva Kumar is about Rs. 6000 per sq. yd. At that rate the price of those pieces of lands measuring 56.88 sq. yds and 106.66 sq. yds, works out to Rs. 9,81,240/- He further noted that as per seized document vide Annexure A/RSR/PO-l/l page-71, the assessee has obtained sale agreement- cum- general power of attorney from Sri Parameshwarn on 30.11.2004 in respect of said land for an amount of Rs. 16,00,000/- i.e., at an average rate of Rs. 2,294 per sq. yd. Referring to those seized documents, vide query No. 4 of his said questionnaire, he has asked the assessee to explain as to why the profit arising from sale of such lands measuring 163.54 sq. yds, should not be taxed in his hands. However, stating that the assessee has not filed any reply to such query, he has added an amount of Rs. 6,06,080/- towards profit on account of sale of such lands in the hands of the assessee .
58.2 The learned AR submitted that such addition has been made based on the notings in the seized document A/RSR/P0-1/2 page No. 40 to 46 and page 18 to 24. It was submitted that the assessee purchased the land admeasuring 697 sq. yds situated at Gandhinagar, Tirmulghery, Hyderabad, from Sri P. 78 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Parameshwaran on the basis of agreement of sale cum GPA for Rs. 16,OO,000/- and incurred registration expenses of Rs. 1,12,070/- during the F.Y 2004-05. The total cost works out to Rs. 17,12,070/-. It was stated that Mr. Parameshwaran's brother, Sri S.T. Pararneshwaran approached the assessee to register a small piece of land to serve as a passage to his land, which is located on back side of the main plot. Accordingly, two registrations were made for the purpose of passage area - one with S.T. Parameshwaran for Rs. 2,61,500/- and the other with Sri G.B. Shivnarayana for Rs. 65,000/-. The total amount received is Rs. 3,26,500/- for 163.54 sq. yds of land. With these submissions, the AR objected to such addition made by the AO in the assessment. It was stated that he adopted the market value of the land as consideration received for transfer of the impugned land which is not justified. No evidence for payment of any on-money was found to support such addition. There cannot be any addition u/s. 69 of any notional consideration. It was further stated that no addition can be made on this account as the amount represented a receipt from a bona-fide source but not a revenue out go or investment. It was further submitted, even otherwise the transaction is revenue neutral as the cost of 163.54 sq. yds of land is Rs. 4,01,654/- and the sale consideration received is Rs. 3,26,500/-. Thus, there is a loss of Rs. 75,154/- on that account. It was further submitted that in the cash flow statement field before the DDIT(Inv), the said sale consideration of Rs. 2,61,500/- has been inadvertently omitted. Stating that the receipt is from a genuine and from a bona-fide source evidenced by a sale deed, it was submitted that the receipt on that account may be allowed to be adjusted against deficit.
58.3 On the other hand, the learned DR submitted that in A.Y. 2004-05, the assessee has purchased the said property for Rs. 16 lakhs and incurred registration expenditure of Rs. 1,12,070.
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======================== Subsequently, a small portion of passage area was sold for Rs. 3,26,500. The area sold was 163.54 sq. yards. Accordingly, the Assessing Officer has adopted the value as per the seized material of an unsigned agreement. The market value was adopted for working out profit as per the unsigned agreement. Accordingly, he relied on the orders of the lower authorities.
58.4 We have heard both the parties and perused the material on record. The contention of the assessee's counsel is that adoption of fair market value (FMV) of 163.54 sq. yards at Rs. 6,06,080 is not correct and there is no enabling provision to adopt a notional value for working out the profit. According to him if we adopt the cost of proportionate area of land to work out the profit or loss relating to the property sold, it results in loss only. Being so, there cannot be any addition on this account. We find merit in the argument of the assessee's counsel. The Assessing Officer adopted the value for determining the gain on the basis of value mentioned in the unsigned agreement. In our opinion, as held in earlier paras unsigned document cannot be a basis for determining the addition. Accordingly, we are inclined to delete the addition as the impugned addition is not based on any signed document. This ground is allowed.
59. The next ground in ITA No. 643/Hyd/2011 is with regard to sustaining addition of Rs. 89.99 lakhs being sale proceeds of agricultural land which is not capital asset. This issue is already considered by us in earlier paras of this order in the case of Rao Shiva Kumar in ITA Nos. 155 and 156/Hyd/2011 wherein we have held that in case of sale of land, the gross receipt of 25% is to be considered as income of the assessee. Accordingly, this ground is partly allowed.
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========================
60. The next ground in ITA No. 643/Hyd/2011 is with regard to sustaining addition of Rs. 20 lakhs from loan taken from Badam Finance.
60.1 Brief facts of the issue are that the Assessing Officer noted that as per seized document A/RSR/7/pg. 9, which is an account copy of the SB account No. 2145, there were certain deposits made on 29.4.2004. Vide query No. 8 of the said questionnaire, he has asked the assessee to explain the nature of those deposits in that account. However, stating that, the assessee has not filed any reply, he added an amount of Rs. 7,31,500 to the income of the assessee.
60.2 The CIT(A) observed that the assessee has failed to explain the alleged loan of Rs. 22.5 lakhs (Rs. 20 lakhs + Rs. 2.5 lakhs) as there are two deposits in the bank account. Since the Assessing Officer already made addition of Rs. 7,31,500 the CIT(A) direct to make further addition of Rs. 15,18,500. Against this the assessee is in appeal before us.
60.3 The AR submitted that the addition relates to receipt of a loan of Rs. 20 lakhs from M/s. Badam Finance & Leasing, Lakdikapool, Hyderabad. The Assessing Officer in his Remand Report stated that since the assessee failed to produce confirmation letter, the loan is not genuine and liable for addition. It is submitted that the loan was incurred by pay order No. 173389, Andhra Bank, Khairatabad Branch, Hyderabad which was deposited in Canara Bank, Kundan Bagh branch account No. 2145. The same was repaid on 28.12.2005 vide cheque No. 366591 IDBI Bank. The bank account of the assessee was filed as additional evidence under rule 46A. The receipt acknowledging interest on the above loan was available in the seized records and form part of the additional evidence. In view of the above 81 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== documentary evidences the Assessing Officer should not have insisted upon a confirmation letter by the payer which could not be obtained by the assessee because of strained relationship. In such circumstances when all other corroborative evidences are available forming part of seized record also, the Assessing Officer should not have taken an adverse view.
60.4 The AR further submitted that the Assessing Officer could have enforced collection of necessary evidence regarding the loan transaction from the payer by invoking of the provisions of section 131 of the IT Act. In fact on the face of evidences filed by the assessee this was the only course available to the Assessing Officer before making any adverse comment. The addition is, therefore, liable for deletion.
60.5 The DR submitted that the assessee failed to submit any confirmation letter in respect of the alleged loan of Rs. 20 lakhs and the addition has to be sustained.
60.6 We have heard both the parties and perused the material on record. During the course of assessment proceedings the Assessing Officer required the assessee to furnish the confirmation letter from M/s. Badam Finance & Leasing. However, the assessee failed to produce the confirmation letter. Being so, in our opinion in the interest of justice, it is appropriate to remit the matter to the file of the Assessing Officer with the direction to the assessee to produce the confirmation from M/s. Badam Finance & leasing to prove the genuineness of the transaction. Accordingly, the issue is remitted back to the file of the Assessing Officer for fresh consideration. The assessee shall cooperate with the Department and produce necessary evidence. This ground is partly allowed for statistical purposes.
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========================
Assessee's Appeal
A.Y. Result
ITA No.
638/Hyd/2011 2000-01 Dismissed
639/Hyd/2011 2001-02 Partly allowed
640/Hyd/2011 2002-03 Partly allowed for statistical purposes
641/Hyd/2011 2003-04 Partly allowed
642/Hyd/2011 2004-05 Partly allowed for statistical purposes
643/Hyd/2011 2005-06 Partly allowed for statistical purposes
644/Hyd/2011 2006-07 Partly allowed
Department appeals - Rao Subba Rao
Revenue Appeal
A.Y.
ITA No.
826/Hyd/2011 2003-04
827/Hyd/2011 2004-05
828/Hyd/2011 2005-06
829/Hyd/2011 2006-07
61. The first ground in ITA No. 286/Hyd/2011 is with regard to deletion of Rs. 56.5 lakhs, payment made to Sri D.N. Chenoy towards unaccounted payment.' 61.1 Brief facts of the issue are that as per the seized document A/RSR/l page-31, 32 & 33, the assessee has made payment of Rs. 56.50 lakhs during the year relevant to the A.Y. 2003-04, to four different persons including Sri D.N. Chenoy. During the assessment proceedings, vide his questionnaire dated 07.12.2007, he has asked the assessee to explain whether such payments have been reflected by him in his return of income. However, stating that the assessee has not filed any reply in response to such query, he added the said amount to the income of the assessee, treating the same as undisclosed income for this assessment year.
61.2 The AR submitted that in the course of negotiation for the deal in respect of the said property, bungalow No. 199, Tadbun, Secunderabad, the assessee has paid Rs. 143.96 lakhs to Sri D.N. Chenoy and others towards advance, spread over four financial years from F.Y 2000-01 to 2003-04. It was stated that the AO has made such addition of Rs. 56,50,000 as advance paid by the 83 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== assessee, not accounted for in the cash flow statement, on account of purchase of said property at Tadbun, Secunderabad. It was submitted that such amount was added since the assessee has declared the investment in the original cash flow statement filed before the DDIT(Inv), but subsequently retracted from such stand in the return filed by him for this assessment year in response to notice 153A of the Act. Stating that the entire payment of Rs. 143.96 lakhs, comprising of Rs. 49.97 lakhs paid during F.Y 2000- 01, Rs. 17.49 lakhs paid during F.Y 2001-02, Rs. 56.50 lakhs paid during F.Y 2002-03 and of Rs. 20 lakhs paid during F.Y 2003-04, has been taken into account in the cash flow statements filed before the DDIT(Inv) for different financial years and consequential deficit has been offered to tax in respective years, it was submitted that no addition should be made on above account in this case. Referring to the cash flow statement pertaining to the F.Y 2002-03 filed before DDIT(Inv), wherein such investment in the above property has been reflected and the resultant cash deficit has been offered to tax, the assessee requested that accepting such statement, the present addition made on that account may be deleted.
61.3 The DR relied on the order of the Assessing Officer.
61.4 We have heard both the parties and perused the material on record. The Assessing Officer in the Remand Report submitted to the CIT(A) stated that the above payment was duly reflected in the Cash Flow Statement filed before the DDIT (Inv.). On the basis of the Remand Report the CIT(A) deleted the addition as this investment is duly reflected in the Cash Flow Statement. More so, whatever, the deficit in the Cash Flow Statement was duly offered to tax. Being so, there is no question of sustaining this addition. Considering the facts and circumstances of the case, the CIT(A) is 84 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== justified in deleting the addition and we confirm the findings of the CIT(A) in para 8.4 of his order. This ground is rejected.
62. The next ground in ITA No. 826/Hyd/2011 is with regard to deletion of addition of Rs. 3.2 lakhs, initially admitted as the loan given to Dwaraka Prasad as unaccounted payment.
62.1 Brief facts of the issue are that the assessee admitted an unaccounted loan of Rs. 3.2 lakhs given by him to one Mr. Dwaraka Prasad during the year. On appeal, the CIT(A) deleted it on the basis of Remand Report sent by the Assessing Officer that the payment was reflected in the original Cash Flow Statement filed before the DDIT (Inv.). Against this the Revenue is in appeal before us.
62.2 We have heard both the parties on this issue. The addition was deleted on the basis of reflection of the transaction in the original Cash Flow Statement filed by the assessee before the DDIT (Inv.). Being so, we confirm the order of the CIT(A) in para 12.3 of his order. This ground is rejected.
63. The next ground in ITA No. 827/Hyd/2011 is with regard to deletion of Rs. 20 lakhs which was initially admitted as the payment made to Mr. D.N. Chenoy as unaccounted payment.
63.1 Brief facts of the issue are that as per the seized document vide Annexure A/RSR/1/page-31, 32 & 33, the assessee has made payment of Rs. 20,00,000 to four different persons, including Sri D.N. Chenoy during the previous year relevant to the A.Y. 2004- 05, for purchase of the property, bungalow NO. 119, Tadbun, Secunderabad. Vide query No. 1 of his questionnaire dated 7.12.2007, he has asked the assessee to explain the source of such payment and to clarify as to how the same are reflected in his return of income. However, stating that the assessee has not 85 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== filed any reply to such query, he added the said amount to the income of the assessee, treating the same as undisclosed income for this assessment year.
63.2 The DR relied on the order of the Assessing Officer.
63.3 The AR submitted that in the course of negotiation for the deal in respect of the said property, bungalow No. 199, Tadbun, Secunderabad, the assessee has paid Rs. 143.96 lakhs to Sri D.N. Chenoy and others towards advance, spread over four financial years from F.Ys. 2000-01 to 2003-04. It was stated that the AO has made such addition of Rs. 20,00,000/- as advance paid by the assessee, not accounted for in the cash flow statement, on account of purchase of said property at Tadbun, Secunderabad. He submitted that such amount was added since the assessee has declared that investment in the original cash flow statement filed before the DDIT (Inv), but subsequently, retracted from such stand in the return of income filed by him for this assessment year in response to notice 153A of the Act. Stating that the entire payment of Rs. 143.96 lakhs, comprising of sum of Rs. 49.97 lakhs paid during F.Y 2000-01, Rs. 17.49 lakhs paid during F.Y 2001-02, Rs. 56.50 lakhs paid during F.Y 2002-03 and of Rs. 20 lakhs paid during F.Y 2003-04, has been taken into account in the cash flow statements filed before the DDIT(Inv) for different financial years and consequential cash deficit has been offered to tax in respective years, he submitted that no addition should be made on above account in this case. Referring to the cash flow statement for the F.Y 2003-04 filed before DDIT(Inv), wherein such investment of Rs. 20,00,000/- in the above property has been reflected and stating that the resultant cash deficit has been offered to tax, the AR requested that accepting such statement, the present addition made on that account in this case may be deleted.
86 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 63.4 We have heard both the parties and perused the material on record. As discussed earlier, the addition was deleted by the CIT(A) on the basis of reflection of this transaction in the Cash Flow Statement filed before the DDIT (Inv.). Being so, the deletion is confirmed. We confirm the order of the CIT(A) in para 9.4 and this ground is rejected.
64. The next ground in ITA No. 827/Hyd/2011 is with regard to deletion of addition of Rs. 10 lakhs as the loan given to Mr. Sunil Reddy.
64.1 Brief facts of the issue are that as per seized document A/RSR/1/page-22, the assessee has paid a sum of Rs. 10,00,000 till 12.2.2004 to one Mr. Sunil Reddy. Vide query No. 2 of his said questionnaire, he has asked the assessee to explain as to how such payment was accounted for by him. However, stating that the assessee has not filed any reply to that query, the Assessing Officer added the said amount to the returned income of the assessee.
64.2 The DR relied on the order of the Assessing Officer.
64.3 The AR submitted that the assessee negotiated for purchase of flat No. 201 in RK Towers from Smt. Pushpa Latha Reddy, mother of Sri Sunil Reddy. For the said purpose he has paid Rs. 10,00,000 on various dates. Finally the property was registered in the name of the assessee and his son for a consideration of Rs. 18,00,000 vide sale deed dated 24.12.2003. The AR submitted that the sale consideration paid of Rs. 18,00,000 is duly reflected in the Cash Flow Statement filed before the DDIT (Inv.) and the resultant cash deficit on the basis of such statement was offered to tax. Stating that the assessee has offered income for taxation on the basis of such original Cash Flow Statement filed before the 87 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== DDIT (Inv.), the AR submitted that no adverse inference on the above account may be drawn.
64.4 We have heard both the parties and perused the material on record. The addition made by the Assessing Officer comprises (i) cost of flat No. 201, RK Towers purchased from mother of Sunil Reddy is Rs. 18,00,000, (ii) amount for purchase of a plot is Rs. 6,50,000. In this regard the AR submitted that the cost of the flat is Rs. 18,00,000 and this statement has been reflected in the Cash Flow Statement filed before the DDIT (Inv.) and the same has been confirmed by the Assessing Officer in the Remand Report. Since the deficit arising out of the Cash Flow Statement amount to Rs. 6,57,217 has been offered to tax no separate addition is called for on account of investment in the flat. This amount was added thrice, once under the head unaccounted payment of Rs 10,00,000 to Sunil Reddy, for the second time including in the unaccounted payment or Rs. 24,50,000 to Sunil Reddy and for the third time unaccounted payment for purchase of flat of Rs. 9,00,000. Therefore, no addition should be made repeatedly. Further, since the investment is only Rs. 18,00,000 which has been reflected in the cash flow statement, no further addition is to be made. It may be relevant to mention here that Mr. Sunil Reddy has confirmed that he has only received Rs. 18 lakhs on account of the sale of flat. This confirmation letter was filed along with the additional evidence. As regards Rs. 6,50,000, this relates to a proposal to purchase a plot at Tirumalaghery. This proposal did not materialise and therefore, no addition should be made in this regard. No further evidence was found that the assessee had paid Rs. 6,50,000 in this regard. This is duly confirmed by Mr. Sunil Reddy in his confirmation letter.
64.5 Being so, in our opinion, this amount was reflected in the Cash Flow Statement and deficit was offered to tax. Once again 88 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== addition is not possible and deletion is justified. This ground is dismissed.
65. The next ground in ITA No. 828/Hyd/2011 is with regard to deletion of addition of Rs. 13.25 lakhs towards unexplained investment in purchase of land at Tirumalgheri.
65.1 Brief facts of the issue are that the addition of Rs. 13,25,000 relates to purchase of land at Gandhinagar, Tirumalghery. This amount was added by the Assessing Officer for the reason that the amount had not been disclosed in the second Cash Flow Statement filed along with the return of income consequent to search.
65.2 The DR submitted that the assessee has not disclosed this investment in his return of income and the same is to be confirmed.
65.3 The AR submitted that it may be pertinent to mention here that the investment has been duly accounted for in the original Cash Flow Statement of the assessee filed before the DDIT (Inv.) and the resultant deficit has been offered to tax. The total investment in the land amounting to Rs. 14,89,925 has been reflected in the Cash Flow Statement filed before the DDIT (Inv.). However, in the second Cash Flow Statement the investment was shifted to HUF. Since the assessee does not press for the HUF status as opined by the Assessing Officer, the amount has been duly declared in the Cash Flow Statement filed before the DDIT (Inv.), no addition on this account is called for.
65.4 We have heard both the parties and perused material on record. The Assessing Officer in his Remand Report stated that this amount is reflected in the Cash Flow Statement filed before the DDIT (Inv.). It is also an admitted fact that the deficit in Cash 89 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Flow Statement at Rs. 12,38,318 is relating to this assessment year was offered to tax. Being so, there is no question of adding individual items separately. The addition deleted by the CIT(A) is justified. This ground is dismissed.
66. The next ground in ITA No. 828/Hyd/2011 is with regard to deletion of Rs. 14.89 lakhs, the payment made towards purchase of land at Tirumalagheri.
66.1 Brief facts of the issue are that this amount was added by the Assessing Officer on the basis of statement of the assessee recorded in the course of search. The amount represented an advance paid to different persons for purchase of 3006 sq. yards of land at Tirumalghery. This amount of Rs. 14,89,925 has been taken into account in the original Cash Flow Statement filed before DDIT (Inv.) and the resultant deficit has been offered to tax. This was shifted to HUF account in the second Cash Flow Statement filed in response to notice under section 153A. Since the assessee do not wish to press for the claim of HUF, the original Cash Flow Statement may be taken as the basis for working out the undisclosed income in such an event no addition is called for. This is a double addition. An amount of Rs. 13,25,000 was already added as explained.
66.2 We have heard both the parties and perused the material on record. This addition was deleted on the basis of Remand Report furnished by the Assessing Officer during the first appellate proceedings that this transaction was reflected in the original Cash Flow Statement furnished before the DDIT (Inv.). Being so, the deletion is confirmed. This ground is rejected.
67. The next ground in ITA No. 828/Hyd/2011 is with regard to deletion of Rs. 2.60 lakhs towards purchase of land at Rayadurga.
90 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 67.1 Brief facts of the issue are that this addition was made on the basis of the statement of the assessee recorded at the time of search. The investment of Rs. 2,60,000 was duly reflected in the Cash Flow Statement filed by the assessee before DDIT (Inv.) and the resultant income was offered to tax. Hence this item cannot be separately considered to work out undisclosed income. It may be pertinent to mention here in the original Cash Flow Statement the payment was considered in the individual hand but later shifted to HUF hand. Since the assessee does not press for the claim of HUF, and the amount is duly reflected in the Cash Flow Statement in individual and no separate addition is called for on this account.
67.2 We have heard both the parties and perused the material on record. The deletion is based on reflection of this transaction in the Cash Flow Statement filed before the DDIT and offering of deficit in the Cash Flow Statement at Rs. 12,38,317 for taxation. Being so, the deletion is justified and we confirm the order of the CIT(A) on this issue.
68. The last ground in ITA No. 828/Hyd/2011 is with regard to deletion of Rs. 9.15 lakhs, payment made to A. Usha Swamy.
68.1 Brief facts of the issue are that this amount was added since the assessee failed to furnish explanation due to paucity of time. This amount represents a repayment of loan to Sri A. Usha Swamy. The loan was incurred prior to 1.4.1999. The same was repaid during the year by cheque drawn on Canara Bank, Kundan Bagh Branch, Hyderabad and is duly reflected in the cash flow statement filed before the DDIT (Inv.). The Assessing Officer had added this amount for the reason that the same is not reflected in the Cash Flow Statement filed along with the return in response to notice u/s. 153A. However, since the amount was repaid by 91 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== cheque out of known sources of income and the same has been duly accounted for in the Cash Flow Statement filed before the DDIT (Inv.), the addition is liable for deletion.
68.2 We have heard both the parties and perused the material on record. This payment was made by cheque which was duly reflected in the Cash Flow Statement filed before the DDIT (Inv.) and offering of deficit in the Cash Flow Statement at Rs. 12,38,317 for taxation. This is confirmed by the Assessing Officer in the Remand Report. Being so, the deletion is justified and we confirm the order of the CIT(A) on this issue. This ground of the Revenue is dismissed.
69. The first ground in ITA No. 829/Hyd/2011 is with regard to deletion of Rs. 1,84,000 though it is explained by the assessee.
69.1 We have heard both the parties on this issue. This addition was made without any discussion by the Assessing Officer. In the Remand Report by the Assessing Officer he stated that he has examined the Cash Flow Statement filed before the DDIT (Inv.) and as per the Cash Flow Statement there was availability of cash of Rs. 10,00,683. Being so, it is to be believed that the seized cash of Rs. 1,84,000 is out of the cash reflected in the Cash Flow Statement. Accordingly, deletion of addition is justified. This ground is dismissed.
70. The next ground is with regard to deletion of addition of Rs. 4,45,916 towards unexplained jewellery seized during the course of the search action.
70.1 The DR relied on the order of the Assessing Officer.
70.2 The AR submitted that gold ornaments weighing 608.08 grams valued at Rs. 4,45,916 were found in course of search. It 92 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== was explained that the same belonged to the assessee, his wife and three daughters-in-law. The authorised officer was satisfied about the extent of jewellery found in the course of search. After being satisfied the jewellery was not seized keeping in view Board's Instruction. In this regard, it is submitted that as a point of law that once the jewellery is not seized in course of search after the authorised officer is satisfied about the source of the same, the same cannot be treated as unexplained in course of assessment. This is for the reason that in course of a search once any asset is found to be unexplained, the authorised officer has no option but to seize the same. The very fact that the ornaments were not seized establishes that the same is explained. Hence, the value of gold ornaments should not have been added as the income of the assessee as unexplained without assigning cogent reasons. The same, therefore, liable to be deleted.
70.3 We have heard both the parties and perused the material on record. In the Remand Report submitted by the Assessing Officer during the first appellate proceedings he has not opined anything against the assessee. This is a small quantum of jewellery of 608.08 grams. Considering the age of the assessee and his status no addition can be sustained on this issue. The deletion of the addition by the CIT(A) is justified. This ground is rejected.
71. The next ground is with regard to deletion of addition of Rs. 20,000.
71.1 We have heard both the parties and perused the material on record. This amount was added without much discussion in the assessment order and this was towards investment made in the Victoria Castle. The CIT(A) deleted the same on the basis of reflection of this amount in the original Cash Flow Statement filed 93 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== before the DDIT (Inv.). Accordingly, we confirm the deletion of addition. This ground is rejected.
72. The next ground is with regard to deletion of Rs. 11.06 lakhs towards investment in Tirumalagheri property.
72.1 This amount was added without any discussion. The Assessing Officer has made this addition for the reason that the amount was declared in the original Cash Flow Statement filed before the DDIT (Inv.) but was omitted in the revised Cash Flow Statement filed in response to notice u/s. 153A. This amount was shifted and reflected in the Cash Flow Statement of the HUF. However, since the amount is reflected in the original Cash Flow Statement on which both the Department and the assessee relied, no addition is called for on this account.
72.2 We have heard both the parties on this issue. As discussed in the earlier para, this amount was deleted on the basis of reflection of this amount in the Cash Flow Statement filed before the DDIT (Inv.). Accordingly, deletion is justified. This ground is rejected.
73. The next ground is with regard to deletion of Rs. 10 lakhs.
73.1 As regards this addition of Rs. 10,00,000 the same relates to investment in the rented building as per the observation of the Assessing Officer. In this regard detailed explanation is filed in the submission for assessment year 2002-03 as the same amount was also added as unexplained expenditure in the assessment for assessment year 2002-03. Hence the question of further addition does not arise.
73.2 We have heard both the parties and perused the material on record. This addition was deleted on the basis of Remand Report 94 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== that this amount is already added in A.Y. 2002-03 and sustaining the addition will amount to double addition. Accordingly, the deletion is justified. This ground is dismissed.
74. The last ground in ITA No. 829/Hyd/2011 is with regard to deletion of Rs. 15 lakhs advance paid to Rajan Deshpandey.
74.1 As regards the addition of Rs. 15,00,000, the same relates to payment made to Rajan Deshpandey for purchase of Gandhinagar plot at Tirumalaghery during the financial year 2005-06. The assessee has accounted for payment of Rs. 11,06,630 up to the date of search in the Cash Flow Statement filed before the DDIT. The balance amount was paid after date of search and the total amount was shifted to the cash flow statement of the HUF. The amount of Rs. 11,06,630 is already added by the Assessing Officer. Further payments were made after the date of search through IDBI bank. According to the AR, no addition is called for.
74.2 We have heard both the parties on this issue and perused material on record. This addition was relating to purchase of property and payment made to Rajan Deshpande for the plot at Tirumalagheri during the F.Y. 2005-06. The assessee has already invested Rs. 11,06,630 up to the date of search and it was duly reflected in the Cash Flow Statement filed before the DDIT (Inv.). The balance payment was made after the date of search. Being so, deletion of addition is justified and this ground is rejected.
75. In the result, Revenue appeals in ITA No. 826 to 829/Hyd/ 2011 are dismissed.
Rao Subba Rao (HUF)
S. Assessee's Appeal
A.Y.
No. ITA No.
1. 787/Hyd/2011 2000-01
2. 788/Hyd/2011 2001-02
95 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
========================
3. 789/Hyd/2011 2002-03
4. 790/Hyd/2011 2003-04
5. 791/Hyd/2011 2004-05
6. 792/Hyd/2011 2005-06
7. 793/Hyd/2011 2006-07
76. All the above appeals are relating to Rao Subba Rao HUF. In ITA No. 787/Hyd/2011 for A.Y. 2000-01, facts are that the assessee is an HUF. In this case, Sri Rao Subba Rao as the Karta of the HUF has filed the return of income for the A.Y. 2000-01 on 29.12.2006. As noted by the AO, earlier search and seizure operation u/s. 132(1) of the Act, were conducted in the residential- cum-business premises of Sri Rao Subba Rao, at plot No. 119, Road No. 10, Jubilee Hills, Hyderabad, on 24.08.2005. After the search operation, he has filed such return in the status of HUF for this assessment year on 29.12.2006. In response to notice u/s. 153C of the Act issued by the AO on 4.10.2007, vide letter filed on 26.12.2007 the assessee has requested the Assessing Officer that the said return filed in the status of HUF on 29.12.2006 may be considered as return filed in response of such notice.
76.1 In the said return filed in the status of HUF, the assessee has shown agricultural income of Rs. 7,54,000/-. In the receipt and payment account for the year ending 31.03.2000, filed with the said return, the assessee has shown opening balance at Rs. 37,30,000/- and the said amount towards agricultural income. However, during the assessment proceedings, referring to the said search carried out in the case of Sri Rao Subba Rao on 29.12.2006, the AO noted that such return filed in the status of HUF is nothing but an after-thought with the intention to defraud the department by evasion of taxes. However, he further noted that without prejudice to the same, the agricultural income claimed by the assessee in the hands of the HUF is bogus and fictitious in nature. He mentioned that there was no trace of any evidence during search to suggest generation of agricultural income in the 96 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== hands of HUF. With these observations and after discussing the facts of the case in detail, he held that the claim of the assessee regarding taking land on lease and generation of income there from is false. He thus rejected the claim of the assessee for deriving agricultural income and taxed the said amount shown at Rs. 7,54,000/-, treating the same as income from other sources. Further, as regards, the claim of the assessee regarding opening balance shown at Rs. 37,30,000 is concerned, since during the assessment proceedings the assessee felled to substantiate the same with supporting evidences, the AO rejected such claim and held that the said amount represents unexplained cash credits during the previous year and thus added the said amount to the income of the assessee for this assessment year. With both the additions, the AO completed the assessment in case of the assessee HUF Vide order dated 28.12.2007 passed u/s. 143(3) r.w.s 153C of the Act, determining total income at Rs. 44,84,000.
76.2 On appeal the CIT(A) confirmed the addition. Against sustaining of the addition, the assessee is in appeal before us.
77. In ITA Nos. 788 to 793/Hyd/2011 for A.Ys. 2001-02 to 2006-07 the facts are as follows. The assessee is an HUF. In this case, Sri Rao Subba Rao as the Karta of the HUF has filed the returns of income for the above A.Ys. 2001-02 to 2006-07 on 29.12.2006. As noted by the AO, earlier search and seizure operation u/s. 132(1) of the Act, were conducted in the residential- cum-business premises of Sri Rao Subba Rao, at plot No. 119, Road No. 10, Jubilee Hills, Hyderabad, on 24.08.2005. After the search operation, he has filed such returns in the status of HUF for the above assessment years on 29.12.2006. In response to notice u/s. 153C of the Act issued by the AO on 04.10.2007, the assessee vide letter filed on 26.12.2007, has requested that the said returns filed for the Asst. Years 2001-02 to 2005-06 in the 97 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== status of HUF on 29.12.2006 may be considered as returns filed in response of such notice. Simultaneously, the AO selected the return filed by the assessee for the Asst. Year 2006-07 for scrutiny assessment.
77.1 In the above returns of income filed by the assessee in the status of HUF, for the Asst. Years 2001-02, 2002-03, 2003-04, 2005-06 and 2006-07, he has shown agricultural income of Rs. 10,40,000/-, Rs. 10,30,000/-, Rs. 11,50,000/-, Rs. 11,50,000/-, Rs. 10,20,000/- and Rs. 15,00,000/- respectively. However, since during the assessment proceedings, he failed to produce any evidence to substantiate such income during those years, the AO rejected such claim regarding agricultural income and taxed the said amounts shown by the assessee, treating the same as income from other sources for the respective assessment year. Further, in the receipt and payment account filed with the return for the Asst. Year 2001-02, the assessee has shown receipt of Rs. 1,16,500/- as advance from Gautami Constructions. He has shown further credits of Rs. 1,00,000, Rs. 25,000/-, Rs, 2,00,000 and Rs. 6,00,000 in the names of K. Srilakshmi, P. Someshwar Rao, R. Ravi Kumar and R. Shiva Kumar respectively. However, as during the assessment proceedings the assessee failed to produce any evidence in support of such credits, the AO added the said amounts, aggregating to Rs. 10,41,500/-, to the income of the assessee treating the same as unexplained cash credits. With these two additions he completed the assessment for the Asst. Year 2001-02 on a total income of Rs. 20,81,500/-.
77.2 Further, for the Asst. Year 2002-03, in the receipts and payments account the assessee has shown various amounts shown as received from different persons and other sources. Those six amounts received from four different persons and towards advance against certain properties, are referred to by the AO in 98 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== para-4 of the assessment order. However, during the assessment proceedings, the assessee failed to establish genuineness of such transactions, The AO added the said amounts, aggregating to Rs. 54,33,251/-, treating the same as unexplained credits for this assessment year. He thus completed the assessment for this assessment year determining total income at Rs. 64,63,250/-
77.3 Further, in the return filed for the Asst. Year 2003-04, the assessee has shown receipts of various amounts in the receipts and payments account filed with the return. Those eleven amounts received from different persons and various sources are referred to by the AO at para 4 of the assessment order. However, since during the assessment proceedings the assessee failed to establish genuineness of such transactions, the AO added the said amounts aggregating to Rs. 51,96,722/-, treating the same as unexplained cash credits. Since the assessee has shown returned income at Rs. 42,75,000/-, with the two additions of Rs. 11,50,000/- and of Rs. 51,96,722/-, the AO completed the assessment for the Asst. Year 2003-04 on a total income of Rs. 1,06,21,720/-.
77.4 Further, in the return filed for Asst. Year 2004-05, the assessee has shown receipts of various amounts in the receipts and payments account filed with the return. Those eight amounts shown as received from different persons and various sources are referred to by the AO at para 4 of the assessment order. However, since during the assessment proceedings the assessee failed to establish genuineness of such transactions, the AO added the said amounts aggregating to Rs. 55,19,788/- to income of the assessee, treating the same as unexplained cash credits. Since in the return the assessee has shown income at Rs. 15,00,000/-, with the two additions of Rs. 11,50,000/- and of Rs. 51,19,788/-, the AO completed the assessment for the Asst. Year 2004-05 determining total income at Rs. 77,69,790/-.
99 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== 77.5 Further, in the return filed for Asst. Year 2005-06, the assessee has shown receipts of various amounts in the receipts and payments account filed with the return. Those seven amounts received from different persons and various sources are referred to by the AO at para 4 of the assessment order. However, since during the assessment proceedings the assessee failed to establish genuineness of such transactions, the AO added the said amounts aggregating to Rs. 43,27,000/-, treating the same as unexplained cash credits. With the two additions of Rs. 10,20,000/- and of Rs. 43,27,000/- the AO completed tile assessment for the Asst. Year 2005-06 on a total income of Rs. 53,4 7,000/-.
77.6 Further, in the return filed for Asst. Year 2006-07, the assessee has shown receipts of various amounts in the receipts and payments account filed with the return. Those thirteen amounts received from different persons and various sources are referred to by the AO at para 4 of the assessment order. However, since during the assessment proceedings the assessee failed to establish genuineness of such transactions, the AO added the said amounts aggregating to Rs. 1,38,17,700/-, to the income of the assessee, treating the same as unexplained cash credits. Further, as noted by the AO during the previous year 2005-06 the assessee has carried on real estate business. He further noted that assessee has sold certain lands to Chalapati Estates Pvt. Ltd. As regards, expenses claimed by the assessee are concerned, the AO noted that since he could not furnish any evidence for the same, such claim cannot be allowed. Accordingly, he disallowed the claim of the expenditure. He further mentioned that, as per the evidence collected, the purchase cost of such land is Rs. 18,000/- per acre. He thus rejected the claim of the assessee made at Rs. 69,92,593/-. Taking cost of the land sold of 26.36 acres at Rs. 4,74,545/- and deducting the same from total income from real 100 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== estate business amounting to Rs. 1,49,60,000/- (4,50,000 + 1,45,00,00 + 10,000) and further deducting Rs. 23,70,854/- towards income already disclosed, he determined the profit from sale of land at Rs. 1,21,14,601/-. Since, in the return filed for this assessment year, the assessee has shown income of Rs. 23,70,854/-, with the three additions of Rs. 15,00,000/-, Rs. 1,38,17,700/- and Rs. 1,21,14,601/-, the AO completed the assessment for the Asst. Year 2006-07 determining total income at Rs. 2,98,03,160/-.
77.7 The CIT(A) dismissed all these appeals. Against this the assessee is in appeal before us.
77.8 In the course of the hearing before us the assessee filed additional grounds and filed a petition for admission of the additional grounds in ITA Nos. 787 to 793/Hyd/2011 which read as follows:
(1) Assumption of jurisdiction by the Assessing Officer suo moto, without the case of the appellant-HUF being centralised with him under section 127 of the IT Act, is bad in law and, therefore, the assessment order in the case of HUF is a nullity for want of jurisdiction and liable to be quashed.
(2) Regularising the returns filed voluntarily by the appellant HUF by issuing notice under section 153C has no legal sanction when recording of satisfaction is a condition precedent before issuing notice under the said section for assuming jurisdiction and particularly when no incriminating material was found in course of search as admitted by the AO in the assessment order.
(3) Filing of returns under on patently wrong advice of the tax expert not supported by any legal or factual evidence, cannot fasten a liability on the appellant in view of the long line of decisions rendered by the Apex Court.101 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
======================== 77.9 The petition was filed for admission of the additional grounds reads as under:
"Sub: Filing of additional ground - assessment year 2000-01 - regarding.
Appellant is in appeal before the Hon'ble ITAT. The case is pending for adjudication. There are certain legal points which go the root of the matter in deciding the case. This necessitates filing of additional ground in deciding the appeal. The powers for entertaining additional ground by the Hon'ble ITAT get support from the decision of the Apex Court in the case of Jute Corporation of India Ltd. v. CIT 187 ITR 688 SC, CIT v. Nirbheram Deluram 224 ITR 611 SC and National Thermal Power Corporation v. CIT 229 ITR 383 SC. It is humbly requested that the additional ground filed by the appellant may kindly be admitted for adjudication of the appeal."
77.10 The DR has not opposed for admission of additional grounds.
77.11 Considering the legal issue involved and the plea of the assessee that the assessee is prevented by sufficient cause in not raising these additional grounds before the lower authorities and the ground being legal ground, we are inclined to admit the same to decide it on merit. Further during the course of argument, the learned AR not pressed the first additional ground with regard to assumption of jurisdiction by the Assessing Officer suo moto without the case of the assessee being centralised with him u/s. 127 of the Act. This ground is dismissed as not pressed.
77.12 Regarding the issue of notice u/s. 153C of the Act without recording satisfaction which is condition precedent for issuing notice before assumption of jurisdiction, the learned AR submitted that the CIT(A) should have appreciated that no incriminating evidence regarding existence of HUF or earning of agriculture income and other income was found in course of search.CIT(A) should have perused the seized materials which would have shown 102 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== that even in the deeds and documents, there was no mention of HUF. The claim of the assessee-HUF that the funds emanated out of leased agricultural land taken from his sons should have been examined in the light of evidences available in the records of the assessee-Ind. All these documentary evidences available in the file would have given the actual picture to CIT(A) that the claim made by the assessee under the advice of CA was not correct to initiate and go ahead with the proceeding under section 153C.
77.13 The AR submitted that the CIT(A), while accepting the cash flow statement filed before DDIT in his individual capacity, as the base for the purpose of his order, should not have reached any adverse conclusion against assessee-HUF in the absence of any incriminating evidence found in course of search and merely because a HUF return was filed on advice of the auditor.
77.14 He submitted that in all fairness, the returns filed in the hands of HUF should have been ignored on the basis of AO's findings in income tax and wealth tax orders as extracted in his order and all the additions in the HUF hands should have been deleted. The CIT(A) should have considered specific findings of AO that the HUF was created by the assessee by showing bogus and fictitious agricultural income. There was no question of assessing the HUF as an entity merely because, a return was filed on the incorrect advice of the tax expert.
77.15 It is submitted that the income shown in HUF hand and additions made in the order out of the cash flow statement filed in the hands of HUF have no leg to stand in as much as these are only notional and circular entries. That the transactions shown in the HUF cash flow statement are mere circular entries out of nonexistent source, should have been appreciated by the CIT(A), from the fact that no such evidence was found in the seized 103 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== document. Therefore, the CIT(A) should have considered all the facts in the correct perspective and deleted the additions in the HUF hands.
77.16 The AR submitted that the CIT(A) should have appreciated that all the incriminating evidences available in the seized documents were considered by the DDIT in toto in course of post search investigation in the hands of Individual and also by the Assessing officer in course of assessment proceeding and undisclosed income resulting from these seized papers were considered in the assessment of the Individual leaving no room for any further addition in the hands of HUF. There was no claim of HUF either arising out of any oral evidence or documentary evidence found in course of search. In such circumstances there could be no undisclosed income in the hands of any entity, particularly HUF.
77.17 The AR submitted that CIT(A) should have appreciated the salutatory principle that the Income-tax is a levy on income. The substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialise. Where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. ( CIT v Shoorji Vallabdas & Co. 1962, 46 ITR 144, 148 SC). As explained, the shifting of some transactions to HUF hand necessitated creation of notional income from agriculture. This view is supported by the observation of the Assessing officer in the assessment order of the individual wherein he has categorically come to a finding that the agriculture income shown in the status of the HUF is fictitious. In the light of this specific observation and in the absence of any incriminating 104 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== material found in course of search as belonging to HUF, the additions should have been deleted.
77.18 The AR further submitted that AO himself ignored the claim of HUF while assessing the wealth and clubbed the assets shown in the hands of HUF and Individual as he was of the opinion that there was no nucleus of HUF nor it could have acquired any asset out of fictitious agricultural income which constituted the source for nucleus. Assessee did not filed any appeal against the said order. This fact on the records of AO was not considered by the learned CIT(A). In the light of the above, the assessment in the hands of HUF should have been set aside and all the additions deleted.
78. Regarding the legal issues involved in the case, the AR submitted that the opinion of various Courts in the context of filing a return under incorrect advice of the tax experts and without confirming to legal requirements: In the light of the above facts, the assessee submits the following judicial precedents for consideration.
78.1 The first issue relates to filing of return under the wrong impression of law. The AR placed reliance on the judgement CIT v. VMRP Firm (56 ITR 67) wherein held as follows:
"The doctrine of "approbate and reprobate" is only a species of estoppels" it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income."105 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
======================== 78.2 An assessee cannot be tied down to a wrong concession made in the return. In the case of A. Venkataraimaih 57 ITR 185 V, the Hon'ble Supreme Court, affirmed the principle that merely because the assessee himself has returned the sum of Rs.79,494 under the head capital gain leads us to nowhere. " He might have done it under the advice of some 'income-tax expert'. The assessee cannot be tied down to an inadvisably made wrong statement. In the circumstances, we delete the addition. "
78.3 He placed reliance on the judgement in the case of Bharat General RE-Insurance Co. Ltd 81 ITR 303 Delhi, it has been held that:"It is true that the assessee itself had included that dividend income in its return for the year in question but there is no estoppel in the IT Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question it must be taken that it had realized from the position which it had wrongly taken while filing the return."
78.4 According to the AR tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. The Hon'ble Court referred to an unreported decision in case of Vinay Chandulal Satia v. N.D. Parekh, CIT [Spl. Civil Application No. 622 of 1981 dated 20-8- 1981], and referred to the decision of the Apex Court:
"The Supreme Court has observed in numerous decisions, including Ramlal v. Rewa Coalfields Ltd. AIR 1962 SC 361, State of West Bengal v. Administrator, Howrah Municipality AIR 1972 SC 749 and Babutmal Raichand Oswal v. Laxmibai R. Tarte AIR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt 106 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== the attitude which private litigants might adopt." ( S.R. Koshti v. CIT 193 CTR 518) (Guj.)."
78.5 The AR submitted that the CBDT Circular 14(XL-35) of 1955, dated 11-4-1955 states that, officers of the Department must not take advantage of the ignorance of an assessee as to its rights. It is settled law that CBDT Circulars are binding on Revenue authorities. This circular of the Board is in consonance with the constitutional provision that no tax can be levied without the authority of law. This also accords with the principles enunciated by the Courts.
78.6 The AR further submitted that the assessee out of ignorance included exempted income as taxable in the return. It approached the Court to direct the AO to exclude said amount from assessable income. Plea of the revenue was that department could not be faulted for accepting returns filed by assessee where he himself had offered for tax sum received from superannuation fund. The plea of the department was not accepted in the case of SDS Mongia v. CBDT (160 Taxman 101), 78.7 In the case of Narayanan vs. Gopal AIR 1960 SC 235, the Hon'ble Supreme Court held that an admission in the return is not conclusive and it would be decisive only if not subsequently withdrawn or proved to be erroneous. It is well established that the object of an assessment is to determine the correct income and consequently the correct tax liability. In the light of above well settled principles, factual position of the case and AO's own observation return filed in the status of HUF should have been ignored.
78.8 Regarding regularisation of return by the AO filed voluntarily under section 153C, the AR submitted that this is another 107 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== infirmity in the assessment order. This renders the order void. In this regard the following facts may be considered.
i) As stated above the assessee filed return in the status of HUF voluntarily for assessment years 2000-01 to 2006- 07 on 29-12-2006. These returns were regularized by the Assessing officer by issuing notice under section 153C on 04- 10-2007.
ii) It is submitted that for assumption of jurisdiction under section 153C, the condition precedent is recording of satisfaction regarding the belongingness of money, bullion jewellery or documents seized in course of search of another assessee. This is the threshold requirement for issuance of a notice. In the case of the assessee, the only document available with the Assessing officer on the date of issuance of notice under section 153C is the return voluntarily filed. This return cannot be treated as a document belonging to the assessee found in course of search in the premises of Rao Suba Rao (Ind). That recording of satisfaction is primary requirement for invoking provisions of 153C is no more res integra. This view supported by the following decisions:
a) SSP Aviation Ltd v DCIT (207 Taxman 260) (Delhi)
b) ACIT v MN Rajaraman (5 ITR (Trib) 261) (Chennai)
c) Vijay Bhai N Chandrani v ACIT (333 ITR 436) (Guj)
d) ACIT v. Gambhir Silk Mills 6 ITR (Trib) 376 (Ahd)
e) Sinhgad Technical Educational Society v ACIT (16 Taxmann.com 101) (Pune)
f) P Sathyanarayanan v. ACIT (50 SOT 168) (Chennai) 78.9 The AR submitted that in the case of Manish Maheshwari (289 ITR 341) (SC), it was held that satisfaction by the Assessing officer that money, bullion, jewellery etc belong to the party other than the searched party is a precondition to initiate proceeding under section 158BD. The same principle holds good in case of 108 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== initiation of proceeding under section 153C. If the satisfaction does not meet the requirements of section 153C, the assumption of jurisdiction would be wrong and would invalidate the proceedings. It may be mentioned here that the assessment records of the assessee were inspected. But no satisfaction was found to have been recorded. He drew our attention to the order sheet entries.
78.10 He submitted that the cases were not centralized with the AO under section 127 of the IT Act. He has neither got them centralized with him under section 127 nor handed over the seized document with his satisfaction to the jurisdictional Assessing officer for initiating appropriate proceedings.
78.11 The AR submitted that no incriminating document was found in course of search of the premises of Rao Suba Rao (Ind) belonging to HUF, a fact borne out on record because of the observation of the AO that no document was found in course of search pertaining to HUF which was created with bogus income. Further on the same analogy, the AO proceeded to club all the assets in the hands of assessee-individual. According to the AR the Assessing Officer cannot frame the assessment without recording the satisfaction for initiating proceeding under section 153C.
78.12 The AR submitted that one cannot protect another by filing a return showing some income. It is submitted that one cannot file return to assist another assessee. It was observed in the case of Tara Devi Agarwal v. CIT (88 ITR 323) (SC), that even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. Although decided in the 109 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== context of exercise of revisional power of CIT, the principle is applicable in the case of the assessee.
78.13 The AR submitted that assessment order in the hands of HUF is a nullity and liable to be quashed. Even otherwise, on merits all the additions are liable to be deleted for the simple reason that all the incriminating materials were considered and assessed in individual hands leaving no room for further addition in the light of AO's own observation that the HUF was created and agricultural income shown were bogus. The AR relied on the following judgements:
a) SSP Aviation Ltd v DCIT (346 ITR 177) (Delhi)
b) CIT v. Late J. Chandrasekar (HUF) 338 ITR 61 (Mad.)
c) ACIT v. M.N. Rajaraman (5 ITR (Trib) 261) (Chennai) 78.14 Thus, the learned AR submitted that recording of satisfaction is a pre-requisite to issue notice u/s. 153C of the Act which is not done in this case. Being so, the assessment is bad in law.
78.15 On the other hand, the DR submitted that the return of income filed by the assessee voluntarily after the issue of notice u/s. 153C. Filing of return of income voluntarily by the assessee itself constitutes as recording of satisfaction u/s. 153C of the Act. According to him, the ratio of judgement in the case of SSP Aviation Ltd. v. DCIT (supra) is not applicable. He relied on the judgement of Supreme Court in the case of CIT v. Shelly Products & Anr. (261 ITR 367) (SC).
78.16 We have heard both the parties and perused the material on record. The assessee counsel's main contention is regarding non-recording of satisfaction before issuing the notice to frame assessment u/s. 153C of the Act. Section 153C of the Act provides for the assessment of income of any person other than the person who is searched u/s. 132 of the Act. Further before 110 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== framing assessment u/s. 153C of the Act, the Assessing Officer has to be firstly satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized in the course of search belong to a person other than the person who was searched, then such assets or books of account or documents shall be handed over by him to the Assessing Officer having jurisdiction over such other person. Thereafter, the Assessing Officer having jurisdiction over the other person has to proceed against him and issue notice to that person in order to assess or reassess the income of such other person in the manner contemplated by the provisions of Section 153A. Now a question may arise as to the applicability of the second proviso to Section 153A in the case of the other person, in order to examine the question of pending proceedings which have to abate. In the case of the searched person, the date with reference to which the proceedings for assessment or reassessment of any assessment year within the period of the six assessment years shall abate, is the date of initiation of the search under Section 132 or the requisition under Section 132A. For instance, in the present case, with reference to the Rao Subba Rao Group search had taken place on 24.8.2005. However, in the case of the other person, which in the present case is the assessee herein, such date will be the date of receiving the books of account or documents or assets seized or requisition by the Assessing Officer having jurisdiction over such other person. In the case of the other person, the question of pendency and abatement of the proceedings of assessment or reassessment to the six assessment years will be examined with reference to such date.
78.17 It needs to be appreciated that the satisfaction that is required to be reached by the Assessing Officer having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person 111 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== other than the searched person. There is no requirement in Section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to show to conclusively reflect or disclose any undisclosed income.
78.18 Further section 153A enables the Revenue authorities to investigate into the contents of the document seized which belong to a person other than the person searched so that it can be ascertained that whether the transaction or income embedded in the seized document has been accounted for in the case of the assessee other than the searched party. It is aimed at ensuring that income does not escape assessment in the hands of any other person merely because he has not been searched u/s. 132 of the Act. The Assessing Officer on reaching satisfaction that the document relate to a person other than the searched person forward the document to the Assessing Officer having jurisdiction over the other person and thereafter it is for the Assessing Officer having jurisdiction over the other person to follow the procedure prescribed by section 153A and to see whether the income reflected in the seized material has been accounted by such other person. If he is so satisfied, the proceedings will have to be closed. If the return filed by the other person who was not searched for the period of six years does not show that the income reflected in the document has been accounted for, addition will be accordingly made after following the procedure prescribed by law.
78.19 A reference to Section 158BD of the Act, which falls under the Chapter XIV-B, may be of some use. This section provided for assessment of the undisclosed income by any person other than the person searched under Section 132. It applies to search conducted prior to 31.05.2003. It provided as follows:
112 ITA No. 1595/Hyd/2010 &Ors.Sri Rao Ravi Kumar & Ors.
======================== "Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly."
78.20 It will be seen that whereas Section 158BD refers to the satisfaction of the Assessing Officer that any "undisclosed income"
belongs to any person other than the searched person, Section 153C(1) in contrast refers merely to the satisfaction of the Assessing Officer that the valuable article or books of account or document "belongs" to a person other than the searched person. The latter provision does not refer to any undisclosed income at all. The machinery provided in Sections 153C read with 153A merely facilitates an enquiry regarding the existence or otherwise of undisclosed income in the hands of the person other than the searched person.
78.21 Being so, the condition precedent for invoking the provisions of section 153C are required to be satisfied before the provisions are to be applied in relation to a person other than the person whose premises had been searched or whose document or other assets had been requisitioned u/s. 132 of the Act. For this purpose, we place reliance on the judgement of Supreme Court in the case of Manish Maheshwari vs. ACIT (289 ITR 341) wherein held that conditions precedent for invoking the provisions of section 158BD, thus, are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under section 132A of the Act.113 ITA No. 1595/Hyd/2010 &Ors.
Sri Rao Ravi Kumar & Ors.
======================== 78.22 In the present case, the assessee filed returns of income for all the assessment years on 29.12.2006 before issue of notice and the Assessing Officer never recorded satisfaction before issuing the notice. Notice u/s. 153C was issued on 4.10.2007. Nothing was brought on record to show that the Assessing Officer recorded satisfaction before issuing notice u/s. 153C of the Act. The only plea of the DR is that the assessee itself filed returns voluntarily and filed an affidavit on 28.12.2007 in support of HUF status and also filed a letter on 26.12.2007 stating that the returns filed on 29.12.2006 are to be treated as returns filed in response to the notice u/s. 153C of the Act. In our opinion, there is clear non- fulfilment of conditions laid down in section 153C of the Act as there is no recording of satisfaction by the Assessing Officer that undisclosed income belongs to any person other than the person who was searched which is a condition precedent. The principles applicable to section 153C is to be discharged by the Revenue so as to show that the necessary ingredients of provisions of section 153C have been complied with and there is material to show that the Assessing Officer in the case of person searched was satisfied that money, bullion or other valuable articles or things or books of account or documents seized or requisitioned belongs to somebody else. There is nothing brought on record by the Department to show that such satisfaction was recorded by the Assessing Officer. Recording satisfaction by the Assessing Officer is neither procedural nor administrative defect but it relates to the jurisdiction defect. Accordingly, the assessment framed in this case u/s. 153C is bad in law and to be quashed. Our view is fortified by the judgements relied on by the assessee's counsel. Accordingly, we quash all the assessments framed in respect of HUF in all these assessment years. As we have quashed the assessment orders itself, we refrain from going into the other grounds raised by the assessee HUF. However, whatever the 114 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== admitted tax paid by the assessee in all these assessment years is forfeited in view of the judgement of the Supreme Court in the case of CIT vs. Shelly Products & Anr. (261 ITR 367) (SC). In the result all the assessee appeals in ITA Nos. 787 to 793/Hyd/2011 are allowed.
79. In the result, Rao Ravi Kumar - Assessee appeals
1. 1595/Hyd/2010 Allowed
2. 1593/Hyd/2010 Allowed
3. 1594/Hyd/2010 Partly allowed for statistical purposes
4. 1598/Hyd/2010 Allowed
5. 1596/Hyd/2010 Allowed
6.. 1597/Hyd/2010 Allowed
7.. 1599/Hyd/2010 Allowed Rao Ravi Kumar - Revenue appeal
8. 1563/Hyd/2010 Partly allowed Rao Shiva Kumar - Assessee appeals
9. 150/Hyd/2011 Allowed
10. 151/Hyd/2011 Partly allowed for statistical purposes
11. 152/Hyd/2011 Allowed
12. 153/Hyd/2011 Allowed
13. 154/Hyd/2011 Allowed
14. 155/Hyd/2011 Partly allowed
15. 156/Hyd/2011 Partly allowed Rao Shiva Kumar - Revenue appeals
16. 240/Hyd/2011 Dismissed
17. 241/Hyd/2011 Dismissed Rao Satya Kumar - Assessee appeals
18. 6/Hyd/2011 Allowed
19. 7/Hyd/2011 Allowed
20. 8/Hyd/2011 Allowed
21. 9/Hyd/2011 Allowed
22. 10/Hyd/2011 Allowed
23. 11/Hyd/2011 Allowed
24. 12/Hyd/2011 Allowed 115 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
======================== Rao Satya Kumar - Revenue appeals
25. 39/Hyd/2011 Dismissed
26. 40/Hyd/2011 Dismissed
27. 41/Hyd/2011 Dismissed
28. 42/Hyd/2011 Dismissed M/s. Gautami Constructions - Assessee appeals
29. 144/Hyd/2011 Allowed
30. 145/Hyd/2011 Partly allowed
31. 146/Hyd/2011 Partly allowed
32. 147/Hyd/2011 Partly allowed
33. 148/Hyd/2011 Allowed
34. 149/Hyd/2011 Partly allowed M/s. Gautami Constructions - Revenue appeals
35. 170/Hyd/2011 Dismissed
36. 171/Hyd/2011 Dismissed
37. 173/Hyd/2011 Dismissed
38. 172/Hyd/2011 Dismissed Rao Subba Rao (Ind) - Assessee appeals
39. 638/Hyd/2011 Dismissed
40. 639/Hyd/2011 Partly allowed
41. 640/Hyd/2011 Partly allowed
42. 641/Hyd/2011 Partly allowed
43. 642/Hyd/2011 Partly allowed for statistical purposes
44. 643/Hyd/2011 Partly allowed for statistical purposes
45. 644/Hyd/2011 Partly allowed Rao Subba Rao (Ind) - Revenue appeals
46. 826/Hyd/2011 Dismissed
47. 827/Hyd/2011 Dismissed
48. 828/Hyd/2011 Dismissed
49. 829/Hyd/2011 Dismissed Rao Subba Rao (HUF) -Assessee appeals
50. 787/Hyd/2011 Allowed
51. 788/Hyd/2011 Allowed
52. 789/Hyd/2011 Allowed
53. 790/Hyd/2011 Allowed
54. 791/Hyd/2011 Allowed
55. 792/Hyd/2011 Allowed
56. 793/Hyd/2011 Allowed 116 ITA No. 1595/Hyd/2010 &Ors. Sri Rao Ravi Kumar & Ors.
========================
80. All the Stay Applications herein above listed become infructuous as we have already disposed the appeals, itself.
Order pronounced in the open court on 31st January, 2013, Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 31 st January, 2013
tprao
Copy forwarded to:
1. Sri Rao Ravi Kumar C/o. M/s. B. Narsing
2. Sri Rao Shiva Kumar Rao & Co., Chartered
3. Sri Rao Satya Kumar Accountants, Plot
4. M/s. Gautami Constructions No. 554, Road No.
5. Sri Rao Subba Rao 92, Jubilee Hills,
6. Sri Rao Subba Rao (HUF) Hyderabad-500 033.
7. The DCIT, Central Circle-2, Hyderabad.
8. The CIT(A)-III, Hyderabad.
9. The CIT (Central), Hyderabad.
10. The DR - A Bench, ITAT, Hyderabad.