Income Tax Appellate Tribunal - Hyderabad
P. Prabhakar Rao, Hyderabad vs Assessee on 29 April, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD 'A' BENCH, HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
And
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA.No.653/Hyd/2012 - Assessment Year 2003-2004
ITA.No.654/Hyd/2012 - Assessment Year 2004-2005
ITA.No.655/Hyd/2012 - Assessment Year 2005-2006
ITA No. 656/Hyd/2012 - Assessment Year 2006-2007
ITA No. 657/Hyd/2012 - Assessment Year 2007-2008
ITA No. 658/Hyd/2012 - Assessment Year 2008-2009
P.Prabhakar Rao DCIT, C.C. 6
Hyderabad. vs Hyderabad
(PAN AGZPP8283F)
Appellant Respondent
Appellant by : Shri S.Rama Rao (AR)
Respondent by : Shri Rajiv Benjwal (DR)
Date of Hearing : 29.04.2013
Date of Pronouncement : 05.2013
ORDER
PER SMT. ASHA VIJAYARAGHAVAN, J.M. :
All these appeals are pertaining to one assessee. The appeals being ITA Nos. 653, 654 & 655/Hyd/12 are preferred by the assessee and are directed against a common order passed by the CIT(A)-I, Hyderabad dated 14.03.2012 for the assessment years 2003-04, 2004-05 and 2005-06. The appeals being ITA No. 256, 257 & 258/Hyd/12 are directed against a common order of CIT(A)-I, Hyderabad dated 14/03/2012 for the assessment years 2006-07, 2007-08 & 2008-09. Since common issues are involved in these appeals, they were clubbed and heard together and a common order is passed for the sake of convenience.
2ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
2. The assessee filed a petition for admission of additional grounds of appeal for assessment years 2003-04, 2004-05 & 2005-06.
"The learned CIT(A) erred in confirming the addition made of Rs. 25,000/- as the Assessing Officer did not base such an addition on any seized material."
3. Relying on the decision of the jurisdictional High Court in the case of DCIT, C.C.2, Hyderabad vs. Ahura Holdings 2012- TIOL-357-HC-AP-IT, we dismiss the additional ground for assessment years 2003-04, 2004-05 & 2005-06.
4. The assessee is an individual. The I.T. Authorities conducted a search and seizure operations under section 132 of the Income Tax Act in the case of Radha Realty Corporation on 17.10.2007, thereafter, issued notice under section 153C to the assessee. The assessee filed returns of income for the A.Y. 2003- 2004, 2004-05 and 2005-06 admitting income as under :
Asst. Year Income returned Agricultural Income (Rs.) (Rs.) 2003-04 81,000 25,000 2004-05 48,000 25,000 2005-06 1,00,700 30,000
5. The assessee furnished details of agricultural lands held by him but the Assessing Officer treated the said amount as other than agriculture on the ground that the assessee did not produce the sale bills of crops or purchase bills of fertilizers etc., Against the Order of AO, the assessee preferred appeal before the CIT(A) for all the three years. The common effective ground for all the three years under consideration is as follows :3
ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao "The Order of the Assessing Officer is erroneous both on fact and in law. The Assessing Officer erred in disbelieving the agriculture income admitted and further erred in adding the same as income of the assessee from other sources. The Assessing Officer erred in charging interest under section 234A and 234B of the Income Tax Act."
6. Before the CIT(A), the assessee's Authorised Representative argued that the assessee is having ancestral property of agriculture land of one acre and has derived the income from the land by cultivation. It was further argued that the Assessing Officer is not correct in rejecting the claim of the assessee without going into the facts of the case. The CIT(A) held that the existence of agriculture land is not followed up by any evidence to the effect that its ancestral property and the learned CIT(A) further held that income derived out of the agriculture activity has not been supported by any material. The CIT(A) sustained the addition made by the Assessing Officer with reference to disallowance of agriculture income claimed for the three years under consideration. Aggrieved, the assessee is in appeal before us.
7. We have gone through the record and we find that the assessee has not produced any evidence with respect to the inheritance of the ancestral property of one acre of agriculture land. In these circumstances, we remit the issue to the file of the Assessing Officer to give one more opportunity to the assessee to substantiate its claim by producing relevant material with respect to the agriculture holdings. The assessee shall also adduce proof of agriculture income in his hands. The Assessing Officer shall decide the issue in accordance with law, after giving a reasonable opportunity of being heard to the assessee. This ground is 4 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao allowed for statistical purposes in all the three years under consideration.
8. The assessee has also challenged the levy of interest charged by the Assessing Officer u/s 234A, 234B and 234C of the IT Act. Since the levy of interest is consequential to the order to be passed by the Assessing Officer on the issue which has been remitted to him, he shall rework the same and determine the consequential interest u/s 234A, 234B and 234C.
9. In the result, the appeals being ITA Nso. 653, 654, & 655/Hyd/12 are partly allowed for statistical purposes.
ITA NO. 656/HYD/12 for AY 2006-07
10. For the assessment years 2006-07, 2007-08 and 2008-09, the CIT(A) had passed a consolidated order as identical issues were involved in the same.
11. The fact in these assessment years are that Search and seizure operation u/s.132 of the I.T. Act was conducted at the residential premises of Radha Realty group of cases on 17-10- 2007. Consequent to search and seizure operations, notice u/s.153C was issued in response to which the assessee filed his returns of income admitting income as under.
5ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
12. During assessment proceedings, the AO noticed that in AY 2007-08 the assessee had shown certain credits in the bank account maintained with Andhra Bank, Kokapet branch. When asked to explain these credits, the assessee had not offered any explanation. Assessee had also shown Rs.20 lakhs as liability in the balance sheet as on 31-3-2007 being the land advance but there was no explanation for this credit 'too, Therefore, the AO treated the peak of credits of Rs.14,52,320/- as part of the liability of RS.20 lakhs and added the amount of RS.20 lakhs to the total income of the assessee. The AO made similar addition of Rs.2,05,O59/- in AY 2006-07 also taking the peak credit of Rs.2,05,059/-, as there was no explanation from the assessee. The AO also disallowed Rs.30,OOO/- in AY 2006-07, claimed by the assessee as agricultural income in the absence of any proof regarding cultivation of lands, crops grown and sale of agricultural produce etc.
13. For AY 2006-07, the assessee preferred against the two additions made by the Assessing Officer, namely, i) on account of agricultural income and ii) entries in the bank account.
14. As regards the addition of Rs. 30,000/- on account of agricultural income is concerned, the CIT(A) observed that the assessee had acquired around 8 acres of agricultural land during the year 06/03/2006 and description of property was detailed as dry land. The AR submitted that the standing crop of maize was on the land. However, the CIT(A) was of the opinion that no particulars were mentioned in the sale deed with respect to standing crop and also while computing stamp duty by the registration authorities consider the standing crop on the property and the crop particulars are absent while 6 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao perusing the sale deed, therefore, it is not possible to allow any relief to the assessee. Hence, the CIT(A) confirmed the addition made by the Assessing Officer.
15. With respect to the addition of Rs. 2,05,059/- represents credit amounts found in assessee's account of Andhra Bank, Kokapet Branch, Hyderabad, it was submitted by the learned AR of the assessee that the assessee is in the business of brokerage and earning commission in real estate and, hence, the credit entries as well as debit entries regularly shown in this account represent received from purchasers and paid to sellers. It was also submitted that the commission earned on business is offered to tax, therefore, separate addition as peak credit is totally uncalled for and accordingly pleaded for deletion from total income. The CIT(A) held that in the present assessment year the assessee disclosed total income of Rs. 1,15,312/- and the assessee should be given relief to the extent of income returned and balance of Rs. 89,747/- is retained as the assessee had no explanation to offer to substantiate the amounts deposited in his bank account during the year. Since explanation with production of proper evidences has not been given by the assessee with respect to entries in the bank account, the CIT(A) sustained the addition to the extent of Rs. 89,747/-.
16. Aggrieved, the assessee is in appeal before us and as also raised additional ground as follows:
"The learned CIT(A) erred in confirming the addition made of 30,000/- as the Assessing Officer did not base such an addition on any seized material."7
ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
17. Relying on the decision of the jurisdictional High Court in the case of DCIT, C.C.2, Hyderabad vs. Ahura Holdings 2012- TIOL-357-HC-AP-IT, we dismiss the additional ground for all the three years under appeal.
18. The learned counsel for the assessee relied upon the submissions made with respect to agricultural income in the earlier assessment years. Besides, it was brought to our notice that the assessee has also acquired 8 acres of land during previous years.
19. We have heard the parties and perused the material on record. Since the property has been classified as dry land and the Registration authorities have not taken into account the crop details while calculating stamp duty, we remit the issue to the file of the Assessing Officer to give one more opportunity to the assessee to prove that agricultural income has been derived from the land by cultivation. On substantiation of the claim by the assessee. The Assessing Officer shall decide as to the justification of claiming agricultural income by the assessee and decide the same in accordance with law.
20. With respect to the addition of Rs. 89,747/- sustained by the CIT(A) in respect of entries in bank account, the learned counsel submitted in this regard that i) he did not maintain the books of account, ii) the amount of Rs. 1,15.312/- represents the net income from job receipts, iii) the gross amount received would be much higher and was available for the assessee to be deposited with the bank and iv) the assessee was also in receipt of agricultural income of Rs. 30,000/-.
8ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
21. We have heard both the parties and perused the record as well as gone through the orders of the authorities below. We find that the assessee derived income from job receipts of Rs. 1,15,312/- and agricultural income of Rs. 30,000/- and the said incomes were admitted in the return of income filed. The Assessing Officer completed the assessment u/s 153C on 18/12/2009 determining the total income at Rs. 3,50,370/- which included agricultural income of Rs. 30,000/- treating the same as income from other sources and he also added Rs. 2,05,059/- being the amount credited in the bank account holding that such credits were not explained. We are of the opinion that the Assessing Officer while making addition of Rs. 2,05,059/- did not consider the fact that the assessee was carrying on business and such receipts were available for depositing in the bank account. The gross amount, therefore, would be much higher and was available for the assessee to be deposited and the assessee also receiving agricultural income of Rs. 30,000/-. Hence, taking into facts of the case, we delete the addition of Rs. 89,747/- as against the addition of Rs. 2,05,059/- made by the Assessing Officer. Accordingly this ground of appeal of the assessee is allowed.
22. As regards the ground No. 4 pertaining to charging of interest u/s 234A, 234B and 234C, charging of interest under these sections consequential in nature, therefore, the Assessing Officer is directed accordingly.
23. In the result, the appeal being 656/Hyd/12 is partly allowed for statistical purposes.
9ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
24. For AY 2007-08, the assessee has raised two substantial grounds, which are as under:
"2. The learned CIT(A) erred in confirming the addition of Rs. 20 lakhs disbelieving the explanation with regard to the amount received from M/s Radha Realty Corporation (India) Pvt. Ltd.
3. The learned CIT(A) erred in confirming the levy of interest charged by the Assessing Officer u/s 234A, 234B and 234C of the IT Act."
25. As regards the addition of Rs. 20 lakhs is concerned, the Assessing Officer noted that on the basis of the details furnished by the assessee, it was noticed that there were certain credits in the bank account of the assessee in Andhra Bank, Kokapet Branch during the year under consideration. The assessee was asked vide letter dated 31/08/2009 to explain the nature of the receipts/credits. The AR of the assessee had not submitted any explanation in this regard. Hence, the peak of credits is Rs. 14,52,320/-. However, the assessee shown land advance of Rs. 20,00,000/- in the balance sheet as liability as on 31/03/2007. The AR of the assessee had not submitted any evidence regarding this liability. Hence, the Assessing Officer treated the peak credit as part of this liability and the amount of Rs. 20,00,000/- was added to the total income of the assessee.
26. On appeal, before the CIT(A) the AR of the assessee submitted that the assessee had purchased land from Smt. A. Renuka for a consideration of Rs. 15 lakhs on 30 th April, 2007 and sold the same to M/s Radha Realty Corporation Pvt. Ltd. on 7 th January, 2009 for a consideration of Rs. 18,15,000/-/. As per the agreement of sale cum GPA with Smt. A. Renuka, the assessee had paid Rs. 15 lakhs in cash on that date itself. Whereas, in the 10 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao sale deed, with M/s Radha Realty Corpn. Pvt. Ltd., it is mentioned that the above concern had paid the entire sale consideration of Rs. 18,15,000/- by cheques to the vendor. The CIT(A) observed that the submission of the assessee to the effect that a sum of Rs. 18,50,000/- received from M/s Radha Reality on various dates requires corroborative evidence and Unless M/s Readha Reality confirms such payments are made to assessee on different dates with proper evidences, the said contention of the assessee cannot be accepted as genuine. The CIT(A) was of the view that without such independent confirmation from the entity who has said to have given the amounts to the assessee, the credit so appearing in the bank account of the assessee remains unexplained and the same cannot be treated as advances towards purchase of land. The CIT(A), therefore, held that the submission of the assessee lacks credibility to the cash received from the above concern on various dates and there is no proper explanation coming forward from the assessee to the above discrepancy. Accordingly, the CIT(A) confirmed the action of the Assessing Officer on the ground that the assessee could not furnish proper explanation along with reasonable evidences.
27. Aggrieved, the assessee is in appeal before us.
28. The learned counsel for the assessee submitted that the amount of Rs. 20 lakhs was received from Radha Realty Corporation India Pvt. Ltd. for acquisition of property in Manchirevula village and to this effect there are clear evidences on record that the amount was received from Radha Realty Corporation India Pvt. Ltd. and also the assessee entered into agreement immediately thereafter. He further submitted that the 11 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao assessee has also registered the said property in favour of Radha Realty Corporation India Pvt. Ltd. acting as GPA agent. He, therefore, submitted that the amount received does not represent the income of the assessee and cannot be added u/s 68 of the Act. It was also submitted that while initiating proceedings u/s 153C the Assessing Officer himself has mentioned that there is a relationship between the assessee and Radha Realty Corporation India Pvt. Ltd. and signed papers relating to the assessee and Radha Realty Corporation India Pvt. Ltd. were found during the course of search and seizure operation. It was further submitted that the Radha Realty Corporation India Pvt. Ltd. is also assessed to tax by the same Assessing Officer, who should have verified the fact of receipt of Rs. 20 lakhs from Radha Realty Corporation India Pvt. Ltd, which he failed to do so. The learned counsel for the assessee relied on the decision of the Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia Vs. ITO, 208 CTR 208/298 ITR 349 wherein it has been held that advances received during the course of business are not covered by the provisions of section 68 of the IT Act. He also relied on the decision of ITAT, Jaipur Bench in the case of ITO Vs. Smt. Geeta Devi Goyal, 120 TTJ 136 wherein it was held that the provisions of section 68 cannot be applied to the trade advances received. The learned counsel also relied on the decision of Hon'ble Delhi High Court in the case of Sona Electric Co. Vs. CIT, 152 ITR 507 wherein it was held that the provisions of section 68 cannot be applied on mere presumptions.
29. The learned DR, on the other hand, relied on the orders of the authorities below.
12ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
30. We have head the arguments of both the parties, perused the record and gone through the orders of the authorities below as well as the decisions cited. We find that the assessee located the property only in April, 2007 i.e. immediately after the end of the previous year. The agreement of sale cum general power of attorney was executed by Smt. A Renuka in favour of the assessee wherein it is mentioned that an amount of Rs. 15 lakhs was paid by the assessee, a copy of which has been filed at pages 88 to 98. It is clear from the above that the assessee paid Rs. 15 lakhs and incurred expenses in acquisition of the property by way of General Power of Attorney. The said property was ultimately transferred in favour of Radha Realters vide sale deed dated 01/01/2009 for a consideration of Rs. 18,15,000/-. Also the expenditure on stamp duty is to be considered, the cost would be more than Rs. 20 lakhs. Therefore, this clearly indicates that the amount of Rs. 20 lakhs received during the previous year is for the acquisition of the property. In our considered opinion, the transaction is genuine as the property was registered in favour of the person, who has advanced the amount. Hence, this issue is decided in favour of the assessee and the addition of Rs. 20 lakhs made on this count is hereby deleted.
31. The next issue raised in this appeal is pertaining to charging of interest u/ss 234A, 234B and 234C. Charging interest under these sections is consequential in nature, therefore, the Assessing Officer is directed accordingly.
32. In the result appeal being ITA No. 657/Hyd/12 for the AY 2007-08 is allowed.
13ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao ITA No. 658/Hyd/2012 for AY 2008-09
33. In AY 2008-09 the AO noticed that the assessee had shown Rs.22 lakhs as liability in the balance sheet as on 31-3-2008 being the advance given for land. The AO had called for the explanation of the assessee regarding this liability but the assessee could not explain. Therefore, the AO treated RS.22 lakhs as unexplained income of the assessee.
34. The AO further observed that for the AY 2008-09, assessee has shown commission earned on sale of lands amounting to RS.4,5O,12,5Ol/- and claimed Rs.3,66,68,2S0/- as payments to various claimants. Most of these payments are in cash. The AO required the assessee to explain the payments and called for the copies of agreements entered into by the assessee with various parties for surrendering of their rights in landed properties situated in Mancherevula and Puppalguda villages and also asked the assessee to show cause as to why these payments should not be disallowed u/s.40A(3). The assessee replied that the commission earned by him is to be assessed under the income 'income from other sources'; and as such the provisions of sec. 4OA(3) are not applicable. It was further stated by the assessee that the payments made are based on oral agreements and there is no documentary evidence to prove the rights of the claimants. To a specific query raised by the AO through notice u/s.142( 1) dated 20- 11-2009 to submit at least the names of the claimants for the amount of Rs.58 lakhs claimed to have been paid, the assessee could not file any information. As there was no proof of any manner, the AO held that the total amount of Rs.3,66,68,250/- claimed by the assessee as payments made 14 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao to various persons is not genuine and disallowed the same and added the same to the income of the assessee.
35. Further, for the AY 2008-09, the AO also disallowed Rs.22 lakhs claimed by the assessee as land payment expenses incurred by him from the receipts for the reason that the assessee could not produce any evidence on this expenditure. With the above disallowances/additions, the AO completed the assessment for the AYs 2006-07, 2007-08 2008-09 and raised the tax demand as mentioned in the preamble at para 11.
36. When the assessee filed appeal before the CIT(A) against the aforesaid additions, the CIT(A) confirmed the addition of Rs. 22,00,000/- being unexplained liabilities found in the balance sheet, reduced the addition of Rs. 3,66,68,250 to Rs. 2,95,50,000/- and confirmed the addition made towards unexplained expenditure on acquisition of the property.
37. Hence, the assessee is in appeal before us.
38. Before us, the learned counsel for the assessee filed written submissions. As regards the addition of Rs. 22,00,000/- on account of unexplained liabilities in the balance sheet, it was stated that the said amount was received from the following persons as an advance for purchase of the properties:
1. Sri K. Ravi Kumar, son of Sri K. 6,00,000 Vishwanath, Allampally, Vikarabad
2. Sri P. Venkataiah, son of Sri 5,00,000 Shankaraiah Tolichowki, 15 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao Hyderabad
3. Sri Ramana, son of Sri Prasad, 6,00,000 Tolichowki, Hyderabad
4. Sri A. Lingaiah, son of Sri A. 4,00,000 Kistaiah, Allampally, Vikarabad
5. Smt. G. Latha, W/o Sri G.V. 1,00,000 Chari, Manchirevulu
39. The learned counsel for the assessee submitted that when there is no material with the authorities to disprove the claim of the assessee, the said amount should not be added and relied on the decision of Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia Vs. ITO, 208 CTR 208, decision of ITAT, Jaipur Bench in the case of ITO Vs. Smt. Geeta Devi Goyal, 120 TTJ 136 and decision of Hon'ble Delhi High Court in the case of Sona Electric Co. Vs. CIT, 152 ITR 507.
40. The learned counsel explained that the amounts were received as advances and not as income, the fact of which is not disputed by the department. The said amounts were returned to the persons concerned, therefore, neither at the time of receipt nor at the time of payment, they represent revenue items.
41. The learned DR, on the other hand relied upon the orders of the revenue authorities.
42. We have heard the arguments of both the parties and perused the record. We find that the assessee filed letters of confirmation which are placed at page Nos. 73 to 77 of the paper book. It is made clear by the above mentioned persons that they paid the amounts for securing a property suitable for them. As no such suitable property could be located, the amounts were 16 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao returned to them. We are of the view that i) the normal principles of cash credits should not be applied to the amounts received as advances in the process of business activity, ii) the amount was received as an agent for the purpose of acquiring a property on their behalf, and iii) the assessee could furnish the letters of confirmation, the names and addresses of the persons, the purpose for which the amount was received and the fact of return of the amount. In this connection, we refer to the decision of the of the Hon'ble AP High Court in the case of R.B. Mittal Vs. CIT, vide ITC No. 79 of 1994, judgment dated 04/08/2000 wherein the Court held as follows:
"Section 68 of the Act gives statutory recognition to the principle that cash credits, which are not satisfactorily explained, may be assessed as income. Section 68 seeks to bring to tax any cash credits appearing in the books of accounts which are not satisfactorily explained as the income of the previous year. Judicial opinion even prior to the enactment of Section 68 for the first time under the Income-Tax Act, 1961 was that in the event of credit entry in the books of account the assessing officer had to make an enquiry and give the assessee an opportunity to explain the credit entry, and if the assessee did not render the satisfactory explanation with regard to the nature and source of the cash received by him, then the assessing officer was entitled to draw the inference that the receipts are of an income nature and subject to charge...Section 68 constitutes a charging provision which applies when the assessee's explanation regarding a cash credit is rejected as being unsatisfactory or when the assessee does not render any explanation. Section 68 provides that the assessing officer may bring to charge a sum as income of the previous year if (i) the sum is found credited in the books of the assessee for any previous year and (ii) the assessee offers no explanation about the nature of source of that sum; or
(iii) the explanation is not in the opinion of the assessing officer satisfactory, whether the sum so credited may be in the assessee's name or in the name of the third party..... It is well established by the decisions of the Supreme Court 17 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao and High Courts that the burden of proving that a cash credit entry appearing in the assessee's account books does not represent income of the assessee is on the assessee.
Where any sum is found credited in the books of the assessee the initial onus is on the assessee to offer an explanation of the nature and source of cash credit. If the explanation is not found satisfactory or reasonable, the assessing officer can treat such money as the assessee's income from undisclosed source. It is not necessary for the assessing officer to locate the exact source of the credits. The assessee can prove the genuineness of the credits, the identity of the creditor and his creditworthiness by establishing some plausible evidence...The assessee's duty to prove that an unexplained entry in his account books does not represent undisclosed income is not discharged by merely showing that the entry appears in the account of third party and that the party in whose name the amount is credited is not a fictitious party but a real party but the assessee also has to prove further that the entry made in the account book is a genuine entry.
It can be said that if the creditors are close relatives of the assessee or his employees the burden of the assessee to prove the creditworthiness of the creditors and genuineness of the transactions will be heavier in relative terms than in a case where the creditors are the outsiders. Therefore, the contention of the learned Counsel for the petitioner that under Section 68 of the Act the assessee is not expected to establish the capacity of the creditors to advance money and genuineness of the transactions is not acceptable to us, and we hold that the assessee is expected to establish proof of identity of his creditors, capacity of his creditors to advance money and genuineness of the transactions in order to discharge the onus imposed on him under Section 68 of the Act."
43. After considering the facts of the case and following the ratio laid down by the Hon'ble AP High Court in the case of RB Mittal (supra) and since the assessee has established identity of his creditors, capacity of his creditors to advance money and genuineness of the transactions in order to discharge the onus imposed on him under Section 68 of the Act, we set aside the 18 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao order of the CIT(A) and delete the addition of Rs. 20 lakhs made towards unexplained liabilities in the balance sheet.
44. As regards the addition of Rs. 2,95,50,000/- sustained by the learned CIT(A), the assessee worked on behalf of Demi Realters and Radha Realters who located the lands for DLF. The assessee received an amount of Rs. 4,50,12,501/- from the said entities as agent for being distributed among various claimants of the property since there was a litigation against the property. Since the assessee acting as an agent on behalf of the said concerns, distributed the amounts so received to the persons concerned. It is submitted that an amount of Rs. 61,44,501/- received by the assessee as commission. The assessee did not treat the amount received as income nor treated the amount paid as expenditure and not recorded in the P&L A/c. The balance of the amount remaining after taking the commission was shown as gross receipt. The Assessing Officer added the entire amount of Rs. 3,66,68,250/- on the ground that the said amount represents expenditure and was not allowable in view of the provisions of section 40A(3) of the IT Act and also on the ground that no information was submitted. The CIT(A) was of the view that the payments made through cheques are allowable as deduction and payment made in cash are not allowable. Hence, the CIT(A) allowed Rs. 71,18,250/- and confirmed the addition of Rs. 2,95,50,000/-.
45. Aggrieved, the assessee is in appeal before us and filed written submissions.
19ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
46. Before us, the learned counsel for the assessee submitted that the assessee did not claim the amount as expenditure, as the assessee is a mere agent and paid the amounts on behalf of DLF, Demi Realtors & Radha Realtors. It is submitted that the Assessing Officer accepted the fact that the assessee received the amount as commission or brokerage on sale of lands form various parties and the fact that such payments were made on behalf of others is also not disputed by the Assessing Officer. Therefore, the payments do not represent expenditure incurred by the assessee. The learned counsel submitted that the CIT(A) accepted the fact that the amount received is commission or brokerage. He invited our attention to para 8.3 of the order of the CIT(A) wherein it was mentioned by the learned CIT(A) that 'it is a fact that the assessee is acting as a commission agent to M/s Radha Realty Ltd and in fact he purchases and sells properties on their behalf for commission. The learned counsel therefore submitted that the payments do not represent the expenditure but represents the payments made on behalf of and for the purpose of acquisition of the property by DLF and others and, therefore, the provisions u/s 40A(3) have no application to the facts of the case. The amounts paid to various persons is on behalf of the principal and not on his own behalf. Each of the receipt as contained from pages 26 to 72 clearly indicate that they have been paid the amount only for clearing the property which was purchased by DLF. The learned counsel, therefore, submitted that the payments do not represent the expenditure but represents the payments made on behalf of and for the purpose of acquisition of the property by DLF. Hence, he submitted that the provisions of section 40A(3) have no application to the facts of the case. The learned counsel 20 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao submitted that the assessee admitted a net income of Rs. 50,94,352/- out of the gross receipts of Rs. 4,50,12,501/- and the rate of net profit works out to more than 11% which is reasonable in real estate business activity and therefore the income admitted should have been accepted by the Assessing Officer. The learned counsel relied on the decision of Hon'ble ITAT, Hyderabad in the case of GA Road Carriers Vs. ITO, 44 SOT 145 and the decision in the case of Forest Transport Company Vs. ITO, 151 Taxman 7. The learned counsel invited our attention to Clarification No. 3 in Press Note Dated 25/03/1969 reported in Taxman, which is extracted below:
"Question 3: Does the requirement apply to payments made by commission agents (arhatias) for goods received by them for sale on commission or on consignment basis.
Answer: No, this is because such a payment is not an expenditure deductible in computing the taxable income of the commission agent (arhatiya). For the same reason, the requirement does not also apply to advance payments made by the commission agent to the party concerned against supply of goods. However, where a commission agent (arhatiya) purchases goods on his own account, and not on commission basis, the requirement will apply in that case."
47. The learned DR on the other hand relied upon the orders of the authorities below.
48. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the revenue authorities. We find that the receipts are available at pages 26 to 72 of the paper book and the said receipts contain the following information:
i) The name and address of the persons
ii) The fact of receipt of the amount from the assessee 21 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao
iii) The reason for receipts of the amount
iv) The details of lands with reference to which such amounts were paid.
49. It is seen that the CIT(A) has not disputed the genuineness of the transaction as the CIT(A) has allowed the payments made by cheque. The only dispute is whether the provisions of section 40A(3) would apply to the assessee's case or not. While filing the return of income for the year under consideration, the assessee offered the income from commission under other sources. We find from the record that the gross income was Rs. 61,44,501/- and from their expenses to the tune of Rs. 10,50,149/- were allowed. The Assessing Officer while completing the assessment accepted the computation made by the assessee. We find from the order of the Assessing Officer that the income admitted is adopted as Rs. 51,49,430/- as arrived at in the computation of total income. Therefore, the Assessing Officer accepted the fact that only the net amount is to be assessed and also accepted the fact that the assessee is a mere agent. In the return of income the assessee did not claim the amount paid as expenditure, as the assessee is a mere agent and paid the amounts on behalf of others, therefore, it cannot be considered for the purpose of disallowance. As submitted by the learned counsel for the assessee the Assessing Officer accepted the fact that the assessee received the amount as commission or brokerage on sale of lands form various parties and the fact that such payments were made on behalf of others is also not disputed by the Assessing Officer. Even, the learned CIT(A) that observed that 'it is a fact that the assessee is acting as a commission agent 22 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao to M/s Radha Realty Ltd and in fact he purchase and sold properties on their behalf for commission.
50. In view of the above discussion, we are of the view that the amounts paid to various persons is on behalf of the principals and not on his own behalf and each of the receipt as contained from pages 26 to 72 clearly indicate that they have been paid the amount only for clearing the property which was purchased by DLF. Therefore, the payments do not represent the expenditure but represents the payments made on behalf of and for the purpose acquisition of the property by DLF and hence, the provisions of u/s 40A(3) have no application to the facts of the case of the assessee. The addition of Rs. 2,95,50,000/- sustained by the CIT(A) on account of amounts paid in cash on behalf of the principals is hereby deleted.
51. As regards the disallowance of land payment expenses of Rs. 22,00,000/-, the learned counsel submitted that the Assessing Officer added Rs. 22 lakhs on the ground that the payments for purchase of property to an extent of Rs. 22 lakhs was not properly explained. Further it is submitted that during the financial year relevant for the assessment year 2007-08, he received advance from Radha Realtors for purchase of land on their behalf. The said amount was added disbelieving the receipt. It was explained that the said amount was paid for acquisition of the property from Renuka vide agreement of sale cum general power of attorney dated 30/04/2007. At the time of entering into the general power of attorney, the assessee paid Rs. 15,00,000/- to Smt. Renuka on behalf of Radha Realtors. The learned counsel explained that the said amount was paid to the land owner from 23 ITA NOS. 653 TO 658/Hyd/2012 P. Prabhakar Rao out of the advance received from Radha Reators. The Assessing Officer added the said amount of Rs. 22 lakhs for the assessment year 2007-08 also disbelieving the receipt. The same is confirmed by the CIT(A) for the year under consideration. The learned counsel humbly submitted that the assessee was real estate agent and he received the amount during the financial year ended on 31/03/2007. In April, 2007, the assessee entered into an agreement of sale cum general power of attorney and paid this amount. The learned counsel, therefore, contended that the Assessing Officer could not have added the said amount either in the assessment year 2007-08 or for the assessment year 2008-
09.
52. Similar issue has been decided in AY 2007-08 vide para 30 to 32 wherein we have decided the issue in favour of the assessee. Following the conclusions drawn therein, we delete this addition of Rs. 22,00,000/- made on account of disallowance of land payment expenses.
53. In the result, appeal for AY 2008-09 being ITA No. 658/Hyd/12 is allowed.
54. To sum up, appeals being ITA Nos. 653, 654, 655/Hyd/12 and 656/Hyd are partly allowed for statistical purposes and ITA Nos. 657 & 658/Hyd/12 are allowed.
Order pronounced in the Open Court on 31/05/2013.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad Dated: 31 st May, 2013.
24
ITA NOS. 653 TO 658/Hyd/2012
P. Prabhakar Rao
Vbp/kv
Copy to
1. P.Prabhakar Rao, Hyderabad. PAN AGZPP8283F c/o. Sri S.Rama Rao, Advocate, Flat No.102, H.No.3-6-643, Shriya's Elegance, St.No.9, Himayatnagar, Hyderabad - 500 029.
2. DCIT, C.C.6, Hyderabad
3. CIT(A)-I, Hyderabad
4. CIT, (Central), Hyderabad
5. DR "A" Bench