Income Tax Appellate Tribunal - Hyderabad
M. Ranga Reddy, Hyd, Hyderabad vs Addl.Cit, Range-9, Hyd, Hyderabad on 24 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SHRI G. PAVAN KUMAR, JUDICIAL MEMBER
ITA.No.541/Hyd/2016
Assessment Year 2006-2007
Shri M. Ranga Reddy, The Addl. CIT, Range-9
Hyderabad. vs. Hyderabad.
PAN ADYPM1495Q
(Appellant) (Respondent)
For Assessee : Shri Mohd. Afzal
For Revenue : Smt. Suman Malik
Date of Hearing : 15.02.2017
Date of Pronouncement : 24.02.2017
ORDER
PER G. PAVAN KUMAR, J.M.
The appeal filed by the assessee is directed against the Order of the Ld. CIT(A)-7, Hyderabad dated 18.12.2015 for the A.Y. 2006-07. The assessee has raised the following grounds as under :
1. "The order of the learned Commissioner of Income Tax (Appeals)- 9 Hyderabad, is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.4,26,000 which was received by way of allowances by the assessee as a Member of Legislative Assembly.
3. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.l,22,57,084 made u/s 68 of the IT Act.
24. The learned Commissioner of Income Tax (Appeals) erred in assuming that the assessee has not discharged the onus cost on him to prove the genuineness of the transaction of the loan and the creditworthiness of the loan creditor and further erred in confirming the addition of addition of Rs.1,22,57,084.
5. The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the assessment of the loan creditor M/s Saptashikhara Housing Pvt Ltd, was reopened on the instigation of the Assessing Officer of the assessee and after examination no addition was made.
6. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary."
2. Brief facts of the case are the assessee is a Member of Legislative Assembly of A.P. and engaged in the Business of lorry, transport and sand supply and have income from agriculture. And the Return of income was filed on 30.11.2006 for the A.Y. 2006-07 with total income of Rs.2,34,349 including agriculture income of Rs.1 lakh. The assessee is a partner of M/s. Srinivasa Poultry and Horticulture Farm and M/s. Mahalakshmi Theatres. The Return of income was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice under section 143(2) was issued. In response to notice, the Ld. A.R. of the assessee appeared. The Ld. A.O. issued notice under section 142(1) of the Act calling for information i.e., Books of account, details of lands, crops and agriculture income, sale deed of property purchase details and cash flow statement for the F.Y. 2005-06 along with bank statement. The A.O. found that the assessee has salary income from A.P. Legislative Assembly and disclosed in the return of income and observed that the assessee as a Member of A.P. Legislative Assembly received salary and allowances Rs.4,80,000 consisting of salary, constitutional allowance, conveyance allowance, contingent allowance, telephone allowance, security guard allowance 3 and medical allowance. Whereas the assessee has disclosed Rs.30,000 as income from salary and has not offered any other allowances. The Ld. A.O. on perusal of the salary certificate find that there is no employer-employee relationship and allowances are exempt under Law provided the expenditure has been incurred by the assessee. As per section 10(17)(i) of the Act daily allowance of Member of Legislative Assembly (in short "MLA") is exempt and under section 10(17))(iii) of the Act Rs.2000 per month is exempt as specified by the Central Government and remaining allowance is taxable under 'other sources'. Therefore, the Ld. A.O. out of the total allowances received by the assessee, allowed only Rs.2000 per month as exemption and made addition of Rs.4,26,000 to the Returned income under income from other sources as no explanations were submitted in respect of claims expended wholly and exclusively for the purpose of earning the income.
3. Aggrieved, the assessee filed an appeal with the CIT(A). Whereas the Ld. CIT(A) considered the facts and the decision of the Tribunal and distinguished Coordinate Bench of Tribunal decision relied by the assessee as no evidence was produced on incurring of such expenditure and supported the findings of the A.O. and finally confirmed the action of the A.O. and dismissed the assessee's ground. Aggrieved, assessee filed an appeal before the Tribunal.
4. Before us, the Ld. Authorised Representative argued the grounds and reiterated the submissions made before the A.O. and in appeal proceedings in respect of allowances provided to the assessee. The Ld. A.R. submitted that the allowances are exempted under section 10(17)(iii) and filed paper book to substantiate the claim with salary certificate issued by the Government. The A.R. emphasizes that allowances are provided by the Legislative Assembly to carry-out the duties of MLA for their constituency and relied on the decision of Hyderabad Tribunal in the case of Shri Bijjam Parthasarathi Reddy, 4 Banaganapalli, Kurnool District vs., ACIT, Circle-1, Kurnool (ITA.No.1158 & 1159/H/06) and other Tribunal decisions and submitted that the allowances granted to the MLA are to meet the expenditure wholly and exclusively in performance of duty of the MLA and such expenses are incurred for specified purpose and thus allowances are to cover the constituency transport expenses and other expenses and prayed for deletion of the addition made by the Assessing Officer. Per Contra, the Ld. D.R. relied on the orders of the lower authorities and opposed the grounds.
5. We heard the rival submissions and perused the material on record and judicial decisions cited. The Ld. A.R's argument that the assessee being MLA, was provided with allowances by the State Legislative Assembly as referred to the salary certificate issued by the Legislature Secretariat dated 30.10.2006 at page 55 of the paper book, where the consolidated monthly amount of Rs.40,000 was paid including salary of Rs.2500 per month. These allowances are paid to Members for their constituency works which consists of conveyance allowance, contingency allowance, telephone allowance, security Car allowance and Medical allowance. Generally as a Member of Legislative Assembly, the Member incurs expenditure at various times irrespective of place and maintaining vouchers and bills is a non-realistic considering the movement and time and there is no dispute of incurring of expenditure by the A.O. except not producing the evidence in respect of claim. The assessee filed letter dated 24.12.2008 explaining that Rs.4,80,000 was received by the assessee and treated as receipt in the cash flow statement and withdrawn. The difficulty of Assessee-MLA was that, he could not obtain bills which is considered mandatory by the A.O. In this connection, the Ld. A.R. drew our attention to page 77 of the paper book wherein similar issue was discussed (Shri Bijjam Parthasarathi Reddy vs. ACIT, Circle-1 Kurnool) (supra), by the 5 Coordinate Bench of the Tribunal and held at page-4 para-7 which read as under :
"7. We have considered the rival submissions and perused the material on record. As for the claim of exemption in respect of the salary and allowances received by the assessee in his capacity as an MLA, we find that this issue is covered by the decision of the Tribunal dated 31.1.2006 in ITA No.218 and 219/Hyd/200S in the case of N Indrasena Reddy, Hyderabad vs., ITO, a copy of which is filed before us. The Tribunal by its order dated 31.1.2006 in that case, after detailed consideration of the relevant provisions of the Act, concluded vide para 6.1 thereof that in the case of a Member of Legislative Assembly of the State, provisions of both S.10(14)(i) and S.10( 17)(iii) will be applicable. In the case of CIT vs. Maddi Sudarshanam (174 ITR
659), Hon'ble Andhra Pradesh High Court has observed that so as to be entitled to the benefit of exemption under S.10( 14), it is enough if a person is holding an office and for the purpose of performing the duties/associated with that office, he is granted an allowance or benefit specifically to meet the expenses. In the case before us, the assessing officer himself has noted in para 3 (f) of the assessment order that the assessee was a high profile MLA and a renowned person and in order to maintain dignity, status and life style of a high profile MLA's reputation, the assessee should have incurred an amount of Rs.25,000 per month, viz. Rs.3 lakhs per annum. Considering totality of the facts and circumstances of the case, we accept the contention of the assessee and direct the assessing officer to allow deduction in respect of the expenditure incurred by the assessee in connection with performance of duties of his office as MLA."
5.1. Similarly, the above decision was considered by the Tribunal in the case of Shri B. Durga Prasad, Ex.MLA, Venkatagiri vs. ITO, Ward- 1, Gudur, Nellore District (ITA.Nos.826 to 830/H/2007 dated 28.09.2012) and relief was granted. The Mumbai Bench of ITAT in the case of Madanlal Mohanlal Narang vs. ACIT (2007) 104 ITD 190 (Mum.) emphasize on the allowances and has observed at para-7 as under:
"7. The expression to the extent to which such expenses are actually incurred, as finds place in section 10(14)(i), is not new to the I.T. Act. It was first introduced w.e.f. 1st April, 1955, in Section 4(3)(vi) of the Indian I.T. Act, 1922 which dealt with the exemption of allowance to the salaried employees. This amendment was made in the backdrop of Hon'ble Bombay High Court's judgment in the 6 case of Tejaji Frasaram Kharawalla v. CIT (1948) 16 ITR 260 (Bom.) wherein their Lordships had held that exemption under Section 4(3)(vi) was available even if portion of the allowance was not consumed and stood as surplus in the hands of the employees. Subsequently, though this decision was reversed by the Hon'ble Supreme Court in the case of CIT v. Tejaji Frasaram Kharawalla, not before Section 4(3)(vi) was amended, w.e.f. 1st April, 1955, by Finance Act, 1955· This amendment, it appears, resulted in considerable apprehension amongst the salaried employees as to how can they be expected to maintain meticulous details and evidence of expenditure incurred by them for the actual usage of allowance. To allay these apprehensions, the CBDT, on 1st Aug., 1955, issued a circular which is reproduced below for ready reference:
"Special allowance or benefit being reasonable and not disproportionately high - No details of expenses actually incurred need be asked for the purpose of granting exemption under Section 4(3)(vi) of 1922 Act. The exemption under Section 4(3)(vi) in respect of any special allowance or benefit will be available from the asst. yr. 1955-56 only to the extent of the sanctioned amounts. Generally speaking, where the specific allowance is reasonable with reference to the nature of the duties performed by the assessee and are not disproportionately high compared to the salary received by him, no attempt will ordinarily be made to call for details of the expenses actually incurred by him with a view to disentitling him to some extent from the exemption. An enquiry will, of course, be justified and will be made in cases where the allowances are prima facie unreasonably high."
We respectfully follow the Coordinate Bench decisions and the issue is similar in the present case. Accordingly we direct the Assessing Officer to delete the addition and allow the ground.
6. The second issue dealt by the A.O. where the assessee has purchased a property at Bahadurguda, Saroornagar Mandal for a consideration of Rs.1,20,00,000 and during the course of hearing proceedings, the assessee was called to submit the sources and cash flow statement. In compliance the assessee filed cash flow statement for the period from 01.04.2005 to 31.03.2006 and statement of affairs as 7 on 31.03.2006 and also bank statements. Further, the assessee filed confirmation letter from Sapthasikhara Housing P. Ltd., in respect of aggregate payments of Rs.69,27,244 to M/s. BIMCO Electrical Products P. Ltd., (on behalf of the assessee) to purchase land at Bahadurguda (v). The A.O. having collected the information is of the opinion that the assessee could not explain the credits and dealt exhaustively at pages 4 to 7 of his order and came to the conclusion that the assessee is not in a position to explain the credits. Whereas the assessee has submitted the statement of affairs and explained the investments of Rs.2,20,22,785 made from the advances at Rs.93,39,630 from Saptasikhara Housing P. Ltd., Rs.23,50,000 from family sources and the remaining Rs.91,33,155 from the personal account. On detailed verification, the Ld. A.O. found Sapthasikhara Housing P. Ltd., is a related concern. Based on cash flow statement submitted by the assessee on utilisation of the funds disclosed in a tabulated version at page-5 of the order, the Ld. A.O. observed that the company has not come forwarded to explain the amounts received by the assessee and also not produced the Books of account. Therefore, summons under section 131 of the Act are issued and there is no compliance to the summons and no Books of account were also produced. Whereas the A.O. based on the Annual reports of Sapthasikhara Housing P. Ltd., has made exhaustive financial analysis from 1999 to 2006-07 and after repeated reminders, the Ld. A.R. of the Company was appeared and explained that he was not in a position to produce the books of account but filed statement of advances confirming the advances referred at page-7 by the A.O. The A.O. on further investigation found that the D.Ds were purchased in the name of M/s. BIMCO Electrical Products P. Ltd., in respect of purchase of land by the assessee and his family members at Bahadurguda. The L.. A.O. issued notice under section 133(6) of the Act to the Syndicate Bank, Chaitanyapuri to submit the copies of D.Ds 8 and other information. The Bank has complied the notice with the information and the Ld. A.O. on verification found that Sapthasikhara Housing P. Ltd., is having account in the same Bank and cheques were issued from the account of Sapthasikhara Housing P. Ltd., and D.Ds were purchased by Mr. Penta Reddy having account in the same bank. The A.O. disbelieved the facts and held the transactions are not clear and was not satisfied and doubted the genuineness of the transactions as identity could not established and also non-cooperation of the company which finance the assessee and also the finance amount was in the name of Assessee-HUF and the financial transaction between Individual and HUF status has not been explained. With these observations, the A.O. made addition of Rs.1,22,57,084 under section 68 of the I.T. Act and passed the order.
7. Aggrieved, assessee filed an appeal before the Ld. CIT(A). The Ld. A.R. argued grounds and made the submissions on the sources supported by written submissions and confirmation from the company. The Ld. CIT(A) dealt on the findings of the A.O. at pages 4 to 9 of the order and referred to the submissions of the assessee at para-7 at page- 10 where the assessee substantiated the grounds with confirmations and judicial decisions. The Ld. CIT(A) has called for the Remand report in respect of unexplained credits of Rs.1,22,57,084. The Ld. A.O. has filed remand report referred at para 7.1 justifying the action in making the addition. However, assessee filed objections on the Remand report provided in the appeal proceedings by the CIT(A) explaining the investment along with the sources referred at page 12 to 14 of the order. The Ld. CIT(A) considered the remand report, assessee's submissions and comments of the A.O. and observed that the investment of Rs.1,22,57,084 could not be proved due to non-establishment of creditworthiness and genuineness of the transaction and inspite of providing adequate opportunity to the said company, the Books of 9 account were not produced and the Ld. A.O. made a finding that this company is a family owned company and the assessee has not discharged his burden to prove the genuineness of the transaction and the Ld. CIT(A) has confirmed the action of the A.O.
8. Aggrieved, assessee filed an appeal before the Tribunal. Before us, the Ld. A.R. argued the grounds and substantiated his arguments that the assessee has sources and referred to the paper book where supporting evidence of Rs.1,22,57,084 was filed and the Ld. A.R. also filed written submissions on purchase of property which was not filed during assessment proceedings and prayed for deletion. Per Contra, the Ld. D.R. strongly relied on the orders of the lower authorities and record of the A.O. and submitted that ample opportunities were provided to the assessee to substantiate his claim. But the assessee failed to prove the genuineness and creditworthiness of the transaction and prayed for confirmation of the order of the revenue authorities.
9. We have heard the rival submissions and perused the material on record and the judicial decisions. The Ld. A.R. argued that the assessee has sufficient source in respect of investment in the property Rs.1,22,57,084 and has substantiated the claim in the appeal proceedings and also referred to page-71 of the paper book where Sapthasikhara Housing P. Ltd., has made payment to M/s. BIMCO Electrical Products P. Ltd., and ledger account of M/s. Srinivasa Poultry Farm in the books of Saptasikhara Housing P. Ltd., which has advanced the amount to the assessee. Similarly, assessee has also introduced cash as per the documents. The A.O. has issued letter dated 10th March, 2010 to Saptasikhara Housing P. Ltd., to provide the information in respect of source of the assessee. We find that the Ld. CIT(A) has dealt exhaustively on the findings and also called for the remand report and assessee was also provided an opportunity to make his comments. The Ld. A.R. drew our attention to pages 71 and 73 of the paper book in 10 respect of purchase of properties and filed clarification on certain facts which the Bench has called for and these clarifications were furnished for the first time before the Tribunal and also Revenue's letter dated 14.02.2017 addressed by the Asst. Commissioner of Income Tax 9(1) to the Authorised Representative, ITAT 'A' Bench where the assessment record of the assessee for the A.Y. 2006-07 was called for. The A.O. reported that the records are not traceable and only concerned folder is available with the office. We found that the Ld. A.R. has given a clarification in respect of purchase of Demand Drafts. But these facts were not verified by the A.O. The Ld. D.R. submitted that the burden lies on the assessee to prove the transaction as genuine as the same was not provided before the A.O. At this juncture, the Ld. A.R. submitted that the assessee has adequate creditworthiness and sources to prove the genuineness of the transaction and prayed that an opportunity be provided to explain these vital facts with proofs to the A.O. To meet the ends of justice, we are of the opinion that the matter has to be examined by the A.O. to verify the genuineness of the transaction with the sources and confirmations. And the assessee is directed to file before the Assessing Officer all the material filed for the first time before the Tribunal. We accordingly, remit the disputed issue to the file of the A.O. for limited purpose and the ground of the assessee is allowed for statistical purposes.
10. In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 24th February, 2017.
Sd/- Sd/-
(B. RAMAKOTAIAH) (G.PAVAN KUMAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated 24th February, 2017
VBP/-
11
Copy to
1. Mr. M. Ranga Reddy, Hyderabad. C/o. Mohd. Afzal, Advocate, 11-5-465, Sherson's Residency, Flat No.402, Criminal Court Road, Red Hills, Hyderabad - 500 004.
2. Addl. CIT, Range-9, I.T. Towers, Hyderabad.
3. CIT(A)-7, Hyderabad.
4. Pr. CIT-7, Hyderabad.
5. D.R. ITAT "A" Bench, Hyderabad.
6. Guard File