Income Tax Appellate Tribunal - Hyderabad
Acit, Central Circle-2, , Hyderabad vs Shri P. Madhusudan Reddy, Hyderabad on 21 April, 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. Asst. Year Appellant Respondent
1070/Hyd/12 2002-03
1071/Hyd/12 2004-05
Asst. Commissioner of Shri P. Madhusudan
1073/Hyd/12 2006-07 Income Tax, Reddy,
Central Circle-2, HYDERABAD
HYDERABAD [PAN: AEWPP0306E]
1074/Hyd/12 2007-08
1075/Hyd/12 2008-09
ITA No. Asst. Year Appellant Respondent
1373/Hyd/12 2006-07
Shri P. Madhusudan Deputy
Reddy, Commissioner of
1374/Hyd/12 2007-08 HYDERABAD Income Tax,
[PAN: AEWPP0306E] Central Circle-2,
HYDERABAD
1375/Hyd/12 2008-09
For Revenue : Shri P. Chandra Sekhar, DR
For Assessee : Shri P. Murali Mohan Rao, AR
Date of Hearing : 08-02-2017
Date of Pronouncement : 21-04-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
These are mainly appeals by Revenue and cross-appeals by assessee from AYs. 2002-03 to 2008-09. There is no appeal for Shri P. Madhusudan Reddy :- 2 -:
AY. 2003-04 and appeal for AY. 2005-06 has already been disposed-off as the tax effect was less than Rs. 10 Lakhs. Thus, at present, there are Revenue appeals for AYs. 2002-03 and 2004-05 and cross-appeals by both the parties for AYs. 2006-07, 2007-08 & 2008-09. Since the issues are arising out of Search and Seizure proceedings, these are considered together and decided by this common order.
2. Assessee is in the business of real estate and was filing returns up to AY. 2005-06. There were search and seizure operations u/s. 132 of the Income Tax Act [Act] on 09-10-2007. During the course of search and seizure operations, certain documents have been found and seized pertaining to assessee's real estate activity and investments in various properties and companies etc. In the course of search proceedings itself, the Investigation Unit has identified certain transactions which assessee admitted and further that he was not maintaining the books of account and he would explain his investments in various real estate transactions as he has borrowals as well as other sources including sale/advance sale receipts. However, vide statement dt. 09-10-2007, assessee admitted a sum of Rs. 5 Crores as his undisclosed income pertaining to the earlier five years. Subsequently, the Investigation Unit has also examined the documents and correlated to an extent the information furnished/seized and vide the statement dt. 20-11-2007, they have quantified the sum of Rs. 6,41,33,000/- as excess investment over the known sources and Rs. 2,99,00,000/- as capital gains during the period. To this quantification, assessee however, accepted subject to verification of the details and furnishing further Shri P. Madhusudan Reddy :- 3 -:
evidence. In the third statement again u/s.132(4) recorded at his residential premises, the same was reiterated.
2.1. Consequent to search and seizure operations as notices u/s. 153A of the Act were issued on 26-06-2008 for the block period from AYs. 2002-03 to 2007-08, assessee was required to file returns of income within thirty days of the receipt of the notice.
Vide letter dt. 28-07-2008, assessee requested for extension of time on the reason that he has to analyse the seized records, bank accounts and documents etc., to compute the income for each assessment year and to file the returns accordingly. Assessee has not filed returns even upto 15-09-2008. AO has issued a show cause letter cautioning about initiation of prosecuting proceedings u/s. 276CC. Assessee filed returns on 18-08-2009 along with computation of income. While there is no change of income returned for AYs. 2002-03 to 2005-06, which were originally filed prior to the survey, assessee admitted incomes as under in the returns filed:
AY. Income Returned
(Rs)
2006-07 50,59,365
2007-08 2,80,15,181
2008-09 1,42,17,788
2.2. Assessee however, has not paid the taxes due on the returned incomes filed in response to the notice u/s. 153A, even Shri P. Madhusudan Reddy :- 4 -:
belatedly. For the AY. 2008-09, assessee paid part tax of Rs. 10,04,650/-. Assessee filed certain cash flow statements prepared out of the impounded and other material and arrived at a deficit cash for various investments and accordingly, quantified the above incomes.
3. However, assessee filed a letter dt.27-08-2009 retracting from the statements given u/s. 132(4) with regard to admission of undisclosed business income to an extent of Rs. 6.4 Crores and capital gain of Rs. 2.99 Crores, without specifying any reasons. He also filed letters dt. 05-11-2009 furnishing the revised computation of incomes for AY. 2006-07, 2007-08 and 2008-09, wherein income declared earlier was totally omitted and new computation disclosing total incomes as under was filed:
AY. Income Returned
(Rs)
2006-07 4,89,083
2007-08 (-)3,35,01,000
2008-09 1,920
3.1. AO has not considered the so called revised
computation and went on to complete the assessment on the basis of the returns filed by assessee disclosing higher incomes as stated earlier. AO completed the assessment by making various additions, mostly based on the cash flow statement furnished by assessee. Many of the additions in the impugned years was stated to be not Shri P. Madhusudan Reddy :- 5 -:
verifiable/for not furnishing full information by assessee. Even though cash flow statement seems to have been prepared on the basis of the various documents impounded during the course of survey, AO has not discussed any of those issues in the impugned assessment orders, but made various additions.
4. Assessee contested before the CIT(A) not only on the issue of various additions made by the AO to the incomes returned in response to the notices u/s. 153A, but also contested non- consideration of the revised computations filed, wherein assessee has disclosed reduced incomes. These are part of the grounds raised before the CIT(A) . AO objected to entertaining the appeals for AYs. 2006-07 to 2008-09, as assessee has not paid the admitted tax u/s. 249(4) of the Act. Ld.CIT(A) issued a show cause notice to assessee and also obtained a report from the AO on the submissions made by assessee. These were extracted as part of the order, but without giving a finding whether the revised computation is accepted or not or whether assessee's appeals were covered by the provisions of Section 249(4) or not, Ld.CIT(A) went on adjudicating the issue on merits. He has deleted almost all the additions for various reasons given, but mostly on the reason that there is no incriminating material found during the search, therefore, the additions are not warranted. Since the additions made by the AO to the returned income were deleted by the CIT(A), Revenue is aggrieved in all the years under consideration on merits of the additions deleted. Revenue is also contesting the issue that CIT(A) should not have entertained the appeals in terms of Section 249(4) for AY. 2006-07 to 2008-09, which was in violation of law. Assessee is not in appeal for AY.2002-03 and 2004-05. Since the Shri P. Madhusudan Reddy :- 6 -:
CIT(A) deleted the additions made to the returned income, the consequential orders passed by the AO resulted in determining the total income as returned by assessee while filing the returns on 18- 08-2009. As assessee contested the very issue before the CIT(A) and pleaded for accepting the revised computation, assessee is aggrieved on that issue in these three assessment years. Therefore, he is in cross-appeal for AYs. 2006-07 to 2008-09, as Ld.CIT(A) has not adjudicated or given a direction to the AO to accept the revised computation.
5. We have heard the Ld.DR in detail and also the Ld. Counsel. Both the parties have placed on record respective paper books giving importance to the documents which they relied on. Both the parties also placed their written submissions on record after the hearing was over. These were considered and appeals are decided as under:
Appeal for AY. 2002-03:
6. This is a Revenue appeal in which AO has brought to tax an amount of Rs. 75,94,804/- being total of the opening circulating capital shown in the status of individual at Rs. 14,82,059/- and Rs. 61,12,745/- in the status of HUF. AO's reasoning was that there were no details about opening circulating capital and assessee has not explained how such amount was available in the beginning of the year. Accordingly, he has brought the entire amount shown in two different statuses as unexplained income of assessee. Since assessee has filed NIL return for the impugned assessment year, the only addition is the opening capital Shri P. Madhusudan Reddy :- 7 -:
shown by assessee in the cash flow statement. Before the Ld.CIT(A) it was submitted that assessee has filed return of income by admitting NIL income and also filed Receipts and Payments A/c, statement of affairs and other information along with return of income. It was also submitted that AR has appeared from time to time and filed information called for and AO has erred in making addition of Rs. 75,94,804/- without considering the explanation offered by assessee. It was also contended that the opening cash balance cannot be income of the year and relied upon various case law particularly of Co-ordinate Bench of Hyderabad in the case of R. Ram Reddy and Smt. R. Neelima Reddy and Smt. R. Manoharamma in ITA No. 103 to 105/Hyd/2004. Ld.CIT(A) accepted assessee's contentions and deleted the same by stating as under:
"4.5. I have considered the submissions made by the appellant, gone through the order of the AO and the decisions relied on by the appellant. The facts of the case have already been brought on record as narrated above. It is the case of the appellant that for the year under consideration there was an opening capital of Rs. 75,94,804/-, consisting of individual cash balance of Rs. 14,82,059/- and cash balance of HUF of Rs. 61,12,745/-. This is the outcome of brought forward balances of the previous year. In fact it is the brought forward position of many a previous year. It is also a fact that there was no finding by the AO that some material was found during the course of action under section 132(1) pointing out that the opening balance was manipulated and requires correction and that correction is also possible as such period falls under the block period. Thus, in the absence of any finding as a result of search and seizure operations, the action of the AO in making the impugned addition has to be struck down as such action was not as per the provisions of law and the AO is directed accordingly".
6.1. Even though Ld.DR objected to the deletion of the above amount, we are of the opinion that Revenue has not made out any case for bringing it to tax- the opening capital shown by assessee. It is already admitted in the statement u/s. 132(4), Shri P. Madhusudan Reddy :- 8 -:
which was relied on by the Revenue for making various additions, that he was doing the real estate business earlier and his circulating capital by year 2000 would be about Rs. 2 Crores. However, he has shown the opening capital at Rs. 75,94,804/- that too in two separate statutes. Neither the AO nor the DR has explained whether there was a separate HUF status in the seized documents. However, as seen from the orders, all the transactions are considered in individual hand only. Considering the past record of assessee and in the absence of any contrary information placed on record, we do not find any fault with the order of the CIT(A) so as to modify the same. In fact the opening cash balance cannot be an income of this year and considering this aspect, we do not see any reason to interfere with the order of the CIT(A). Accordingly, grounds raised by Revenue in this year on this issue are dismissed.
6.2. In the result, this appeal of Revenue is dismissed.
Appeal for AY. 2004-05:
7. In this assessment year, on the basis of the seized material, the total investments made by assessee during the year was quantified at Rs. 7,99,000/- in De-lee Diamond Pvt. Ltd., in which assessee is the Managing Director and an amount of Rs. 53,25,300/- as investment in various properties and advances to purchase of lands etc. Even though AO states that all these investments/expenditures were duly considered in the Receipts and Payments A/c filed for the year 2003-04. The opening Shri P. Madhusudan Reddy :- 9 -:
circulating capital of AY 2002-03 is the basis for the investments. The findings of the AO on this are as under:
"1. Unexplained investment/deficit cash balance:
The assessee has invested an amount of Rs. 7,99,000 in De-lee diamond Pvt Ltd in which he is the Managing Director. Further the assessee has also incurred various expenditures like payments to brokers, advances to purchase of lands etc. All the documentary evidences were found and seized in the annexure A/PMR/Res/1 to 13. The bundle-wise of the payments made by the assessee in the relevant assessment year is as under:
A/PMR/Res/3 - Rs. 14,75,000
A/PMR/Res/6 - Rs. 3,00,100
A/PMR/Res/8 - Rs. 7,00,000
A/PMR/Res/9 - Rs. 8,50,000
A/PMR/Res/11 - Rs. 20,00,200
-----------------------
Rs. 53,25,300
-----------------------
The above said quantification was done by the assessee himself and it was submitted on 05.10.2009. The page wise of analysis of each and every seized material also done during the course of assessment proceedings and it is found that the above said quantification was true and correct. Accordingly the total investment in the form of payment to brokers, and landlords was Rs. 53,25,300. It was duly considered in the receipt and payment account filed for the financial year 2003-04. This is apart from Rs. 7,99,000 invested by the assessee in De-Lee Diamond Pvt Ltd. Hence the total investment of the assessee was Rs. 61,24,300. However the assessee has not disclosed this in his return of income. This is mainly because of the huge opening circulating capital introduced in the receipt and payment account of the financial year 2001-02.
As the opening circulating capital did not have any supporting evidences the same was not considered. As per the above said discussion the undisclosed investment in the form of deficit cash balance for the A.Y 2004-05 is Rs. 61,24,300".
7.1. In addition to the above amount, the AO also noticed that there was a deposit of Rs. 1,17,000/- in Syndicate Bank and this was brought to tax as income u/s. 68 of the Act. Before the Ld.CIT(A) assessee explained that all these Shri P. Madhusudan Reddy :- 10 -:
investments/expenditures were part of the cash flow statement and assessee has shown them in the Receipts and Payments Statement. Hence, the same amount cannot be brought to tax. It was further submitted that the opening cash balance was brought to tax in AY. 2002-03 and investments thereon from that amount was again brought to tax in this year as 'unexplained' which amounts to double addition. With reference to the cash deposit in bank account also assessee has explained that these are shown in the cash flow statements. Ld.CIT(A) has deleted the additions by stating as under:
"6.3. I have considered the submissions made by the appellant and also gone through the assessment orders. Prima facie it appears that these additions were double additions. In fact, such an addition was made for the assessment year 2002-03 and the same was not sustained for the reasons mentioned therein. Now second time same additions were repeated here for these assessment years on the basis of source. Whatever may be the immediate provocation for addition, by no stretch of imagination, double addition is not appreciated. Besides, there was no finding by the AO that in the actin under section 132(1), material was found pointing out to the bogus nature of claims for the impugned assessment years. In the circumstances, I am of the opinion that the additions made for all the assessment years need to be set aside and the AO is directed accordingly.
...........
7.2. I have considered the submissions made by the appellant, gone through the order of the AO. While making adjudication at para 6.2, it was observed that prima facie those were double additions. Now it has to be observed here that these are the triple additions. The queries raised by the AO regarding payments made to brokers and advance to purchase of lands considered as undisclosed investment in the form of deficit cash balance by the AO were answered by the appellant, which were completely ignored by the AO. In addition, it may be noted here that there was no finding by the AO that in the action under section 132(1), material was found pointing out to the bogus nature of investments made in lands. In the circumstances, I am of the opinion that the additions made for all the assessment years need to be set aside and the AO is directed accordingly.
.........
8.2. I have considered the submissions made by the appellant, gone through the order of the AO. This is the addition connected with cash Shri P. Madhusudan Reddy :- 11 -:
credits under the provisions of section 68 of the IT Act, 1961. These were reflected in books of account maintained. Once these were found recorded in books and no finding in search adverse to cash credits were found then prima facie no addition on such items is contemplated in the block assessment proceedings. The AO has observed that the appellant has failed to produce evidence for huge cash deposits and NRI receipts appearing in the bank accounts. If these deposits were found recorded in books, then no addition is called for, because such deposits are already disclosed in books. But, however, in case material is found in the action under section 132(1) pointing out adverse inference, then it could be stretched and a clear cut finding could be given before making any addition in the block assessment. In the present case, such a scenario is absent and as such the additions made under this head for all the impugned assessment years has to be deleted and the AO is directed accordingly".
7.2. In the above three paras, he has discussed about the investments in the company, payments to brokers and cash deposits respectively.
7.3. After considering the rival contentions, we are of the opinion that there is no need to differ from the order of the CIT(A), even though the reasoning given by the Ld.CIT(A) on some of the issues are not fully acceptable. The fact that assessee has made investments, which are shown in the Receipts and Payments statement i.e., cash flow statements. He has shown the opening cash balance from AY. 2002-03 and explained all the investments in the impugned year. AO while accepting that these investments have been shown in the Receipts and Payments statement, brought the amounts to tax only on the reason that the opening cash balance cannot be accepted. Even though he brought the amount to tax in AY. 2002-03 (which was separately deleted considered in the earlier appeal), he has brought to tax the investment shown again, which amounts to double addition. Since assessee has source of amount from his own circulating capital of earlier years, Shri P. Madhusudan Reddy :- 12 -:
in our view, the amounts cannot be considered as 'unexplained' unless there is any incriminating material to that extent. Assessee has already filed returns for the impugned assessment year earlier before the search and maintained books of account and AO has not either referred to the or discussed about them in the assessment order. This indicates that the transactions are duly accounted for. In view of that, we confirm the order of the CIT(A) and reject the grounds raised by the Revenue.
7.4. In the result this appeal of revenue is dismissed.
AYs. 2006-07, 2007-08 & 2008-09:
8. The facts in these three assessment years are similar and issues raised are also similar. The assessments were completed u/s. 153A for AY. 2006-07 and 2007-08 and under Section 143(3) for AY. 2008-09. In all the three years, assessee has disclosed higher incomes on which taxes were not paid and subsequently the revised computations were filed reducing the incomes, as stated earlier. Since the AO based computation on the basis of the returned incomes, assessee not only contested the additions made in the assessment, but also that revised computation was not considered by the AO. As briefly stated earlier, Ld.CIT(A) neither adjudicated the issue u/s 249(4) nor adjudicated the issue whether the revised computation is acceptable or not? He deleted almost all the additions made by AO on the reason that there is no incriminating material. The order of the CIT(A) is more or less similar and on same lines to the order extracted above in AY. 2004-05. His main thrust for deleting the Shri P. Madhusudan Reddy :- 13 -:
amounts was that there is no incriminating material in the search and seizure proceedings. Revenue has raised the grounds mainly on the issue of admitting the appeals violating the terms and conditions of Section 249(4) and also on merits of the deletions made by AO. Assessee however, is aggrieved on the issue that CIT(A) has not given any direction to the AO to accept the revised computation, even though specific ground was raised.
8.1. Ld.DR argued vehemently, relied on various case law and also filed written submissions, the summary of which is as under:
i. Assessee has admitted most of the amounts u/s. 132(4) in various statements recorded over a period of time and followed up with filing the returns admitting deficit cash. Thus, CIT(A) has erred in admitting the appeals filed in violation of provisions u/s 249(4);
ii. Revised computation, even though not discussed by the AO in the order but was commented in the remand report, cannot be accepted as valid as there is no concept of revised return in block assessments. Accordingly, the revised computations cannot be considered;
iii. As the assessee has not paid the admitted taxes on the returned income in AYs. 2006-07 and 2007-08 and partly in AY. 2008-09, in terms of Section 249(4), the appeals should not have been entertained by the Ld.CIT(A). He referred to the order of the Ld.CIT(A) particularly upto para 3.41 in Shri P. Madhusudan Reddy :- 14 -:
which he has discussed the show cause notice, reply given by assessee and the remand report by the AO. It was submitted that Ld CIT(A), without giving any finding thereon, erred in disposing off the appeals by the common order dismissing the additions made. It was submitted that Ld.CIT(A) should have given finding on this issue and should have rejected the appeals for AYs. 2006-07 to 2008-09.
8.2. With reference to the provisions of Section 249(4) originally inserted w.e.f. 01-10-1975 and subsequently amended by the Finance Act, 1989, it was submitted that Ld.CIT(A) has no discretion and CIT(A) cannot exempt assessee from payment of taxes on returned income before admitting the appeal. It was further submitted that CIT(A) is enjoying such power in the case of assessees falling under Clause-(b) only i.e., where no return of income has been filed by assessee and assessee has not paid advance tax of his income. He placed reliance on the following decisions:
i. S. Alagarswamy Vs. ITO & Another [269 ITR 43] (Madras High Court);
ii. Shyam Electrical Works Vs. CIT [284 ITR 413] (Madhya Pradesh High Court);
iii. CIT Vs. Smt. G.A. Samantakamani [259 ITR 215] (Madras High Court);
iv. Bharat Kumar Sekhasaria Vs. DCIT [82 ITD 512] (Mum Trib.); v. Kushmallal Hiralal Vs. ACIT [57 ITD 531] (Ahmedabad Trib.);
Shri P. Madhusudan Reddy :- 15 -:
8.3. It was his contention that CIT(A) should not have entertained the appeals and therefore, the order of the AO is required to be restored.
8.4. With reference to the contentions of assessee that the returns filed in response to Section 153A are invalid, it was submitted that the return of income filed in response to notice issued u/s. 153A subsequent to time limit provided therein cannot be considered as invalid return of income as there is no statutory requirement as in the case of return required to be filed u/s.
139(1). In respect of return to be filed u/s. 153A, the AO has power to extend the date of filing the return or the return filed beyond the time limit provided in the notice shall be considered for the purpose of completing assessment, if it is filed before the due date prescribed for completion of assessment u/s. 153A. However, such return filed beyond the time limit provided in notice u/s.153A or extended by the AO or in case there is no specific extension granted also, the return, if any, filed by the assessee before the completion of the proceedings shall be considered as valid return of income. On the other hand, the assessee has to face the consequences for not filing the return of income within the time limit provided in the notice u/s. 153A or beyond the time extended by the AO in terms of-
a. interest u/s. 234A(3) subsequent to completion of assessment from the date of expiry of time provided u/s. 153A till the date of filing the return of income or in case no return of income is filed, up to the date of completion of the assessment;
Shri P. Madhusudan Reddy :- 16 -:
b. the assessee is liable to penal provisions u/s. 271F; and c. assessee may be tried for prosecution u/s. 276CC.
In all the above three provisions, it is clearly stated that in the event of non-filing the return of income within the time provided in notice issued u/s. 153A, the assessee is liable for interest, penalty and prosecution accordingly. In view of this, it is quite clear that the assessee was allowed to file return of income, even beyond the time provided in the notice and such return is valid return of income for all the purposes under the Income Tax Act, including completion of the assessment, but with consequences of payment of interest, penalty and facing prosecution proceedings. In view of this, the assessee's contention that the returns of income filed by him beyond the time limit provided u/s. 153A is invalid, is not correct as per law.
8.5. For AY. 2008-09, which is not forming the part of block period, is the regular return filed u/s. 139 and therefore a revised return can be filed within one year from the end of the assessment year which ended on 31-07-2009. Since the return filed by assessee is a valid return, the revised computation filed after that date cannot be accepted.
9. Coming to the merits of the additions made by the AO, it was submitted that incriminating material was found during the course of search which was the basis for various statements recorded. While accepting that assessee has not maintained books of account at the time of search, assessee has prepared cash flow statements on the basis of which deficit cash was worked out and Shri P. Madhusudan Reddy :- 17 -:
filed the returns accordingly. It was further submitted that there is no requirement of any seized/incriminating evidence for making the additions and relied on the following cases:
i. E.N. Gopa Kumar Vs. CIT [75 Taxmann.com 215] (Kerala High Court);
ii. CIT Vs. St. Francis Clay Décor Tiles [70 Taxmann.com 234] (Kerala High Court);
9.1. It was submitted that the department has laid hands on certain incriminating documents containing the details of unrecorded transactions of assessee in the real estate business and assessments were completed based on such material and also on the basis of the statement recorded u/s. 132(4).
9.2. It was further submitted that Ld.CIT(A) has wrongly stated that additions were made on the basis of statement given by assessee u/s. 132(4) which was retracted later, therefore, the additions cannot be sustained. It was submitted that the observation of the CIT(A) is not correct in as much as the statements were recorded on the basis of supporting documentary evidence found during the course of search and the statement was made by assessee without any pressure or coercion. It was further submitted that in the preliminary statement, assessee admitted an amount of Rs. 5 Crores. Subsequently on examination of the documents, a higher amount in the second statement was admitted and reiterated in the third statement given. It was further submitted that assessee also worked out the deficit cash and filed the returns, even though belatedly and admitted deficit Shri P. Madhusudan Reddy :- 18 -:
cash on the basis of statements prepared by him. He referred to the letter of retraction to submit that the said letter was filed after two years from the date of original statement without any sworn affidavit or furnishing reasons along with corroborative evidences for such retraction. Ld.DR placed reliance on the following decisions:
i. CIT Vs. O. Abdul Razak (2012) [20 Taxmann.com 48] (Kerala High Court);
ii. CIT Vs. Hotel Meria (2011) [332 ITR 537] (Kerala High Court); iii. CIT Vs. T. Rangroop Chordia [69 Taxmann.com 202] (Madras High Court);
9.3. He also further submitted that retraction from the statements given u/s. 132(4) cannot be considered under the face value without there being any evidence brought on record to controvert the findings recorded at the time of conducting search and also statement given by assessee. He relied on the following case law:
i. Bhagirath Agarwal Vs. CIT [31 Taxmann.com 274] (Delhi High Court);
ii. Kantilal c. Shah Vs. ACIT [14 Taxmann.com 108] (Ahmedabad ITAT);
iii. Gopal S. Pandith Vs. DCIT [74 Taxmann.com 273] (Bangalore ITAT);
iv. Smt. Dayawanthi Vs. CIT [75 Taxmann.com 308] (Delhi High Court);
Shri P. Madhusudan Reddy :- 19 -:
9.4. It was submitted that order of the Ld.CIT(A) should be considered as ab initio void and the original assessment orders should be restored.
10. Ld. Counsel in reply however relied on the orders of the CIT(A) to submit that there were no incriminating material found during the search and all the documents and bank statements and deposits were part of assessee's accounted transactions. It is submitted that books of account at the time of search were not maintained but assessee was able to prepare the Receipts and Payments Statement and accordingly, the said statements were filed from FY. 2001-02 to 31st March, 2008 explaining various receipts and payments based on the seized material. It was submitted that assessee has not earned any profits and in fact, has suffered a big loss in AY. 2007-08, which was disallowed by the AO without being given any opportunity to assessee.
10.1. Coming to the issue that assessee has not paid admitted taxes, it was submitted that the assessments u/s. 153A were based on invalid returns of income, hence the same was ab initio-void. It was submitted that assessee has not filed returns of income in response to notice u/s. 153A. Assessee received notices u/s. 276CC on 12-03-2009 to file the returns of income otherwise non-filing will lead to prosecution. Assessee filed returns on 18- 08-2009 therefore, these returns which are filed in a hurry, were beyond the time limit given in the notices given u/s. 153A and are accordingly invalid returns of income. It was submitted that for AY. 2006-07, assessee filed originally return of income u/s. 139(1) on 31-10-2006 admitting income of Rs. 4,89,088/- and the taxes Shri P. Madhusudan Reddy :- 20 -:
have been paid, the same computation was reiterated in the revised computation filed. For AY. 2007-08, assessee filed computation of income declaring loss of Rs. 3,35,01,000/- and no tax could be payable. For AY. 2008-09, assessee has revised the computation to NIL but paid the tax of Rs. 10,04,650/- which was claimed as 'refund'. It was the contention that since the returns were filed beyond the time limit given, the returns are to be considered as invalid returns. Therefore, subsequent proceedings are null and void ab-initio. Consequently, the provisions of Section 249(4) do not apply.
10.2. It was also contended that even though revised computations were filed along with retraction letter in the course of assessment proceedings, the AO has neither discussed about the retraction nor considered the revised computation and the orders are totally silent on that. Therefore, AO computed wrongly from the income of so called invalid returns. It was submitted that if assessee's revised computation of income is taken up, then, there would be no demand of taxes. Thus, the appeals entertained by the CIT(A) are to be considered as valid. It was further submitted that Ld.CIT(A) has taken all steps by sending the documents filed before him for the comments of the AO, not only regarding computation of income and self-assessment tax but also other additions made. The AO indirectly accepted that the computation of income to be correct and no self-assessment tax would arise. It was submitted that Ld.CIT(A) also accepted the computation of income as there was no incriminating material and even though he has not mentioned very clearly that Section 249(4) is not attracted, the fact that he has disposed-off the appeals on merits do indicate Shri P. Madhusudan Reddy :- 21 -:
that he has considered the revised computation and has taken into account the fact that no taxes are payable on that computations. It was further submitted that Ld.CIT(A) has not directed the AO to make the assessments on the basis of the revised computations. Therefore, assessee is in appeal. Ld. Counsel relied on various judicial proceedings that incomes which were wrongly included should not have been brought to tax and the various judicial precedents relied on is as under:
i. Shri C. Radhakrishna Kumar Vs. Asst. Commissioner of Income Tax 16(1), Hyderabad [295 Hyd 2012]. Where in it was held that wrongful inclusion of an amount in the income tax return for the purpose of taxability, by itself will not make the assessee liable for tax. Article 265 of the Constitution provides that no taxes can be collected or levied without the authority of law. The Assessing Officer is required to compute the assessed income in accordance with law in terms of the provisions of the Income Tax Ac, 1961. Any wrongful offering of any amount towards income by the assessee will not operate as estoppel against the proper application of law.
ii. Bombay High Court in the case of CIT Vs. Prithvi Brokers & Shareholders Pvt. Ltd., [349 ITR 336] - the court held that the orders of the CIT(A) and the Tribunal clearly indicate that both the appellate authorities had exercised their jurisdiction to consider the additional claims as they were entitled to in view of the various judgments on the issue, including the judgment of the Supreme Court in National Thermal Power Corporation Limited. This is clear from the fact that these judgments have Shri P. Madhusudan Reddy :- 22 -:
been expressly referred to in detail by the CIT(A) and by the Tribunal.
iii. M/s. Vivera IT Applications Consulting (P) Ltd., Vs. Income Tax Officer, Ward-3(2), Hydreabad; 129/Hyd/2014 - the Hon'ble jurisdictional ITAT held that only issue arising for consideration before us in the present appeal is whether CIT(A) was justified in not entertaining assessee's additional ground claiming exemption u/s. 10A. As can be seen, CIT(A) has dismissed assessee's additional ground only for the reason that the claim of deduction u/s. 10A was not raised by assessee by filing a revised return relying upon a decision of Goetz India Ltd., and Hindustan Housing Development Corpn (supra). However, we find force in the contention of learned AR that ratio laid down in the aforesaid two decisions are restricted to the proceedings before the AO and will not apply to the appellate authorities.
iv. Mumbai ITAT in the case of Lok Housing & Construction Limited [27 taxmann.com 15] - it was held that wrong statement which was corrected by the assessee by filing the revised return and the AO as well as the learned CIT(Appeals), in our opinion, was not justified in bringing to tax such hypothetical income in the hands of the assessee company on the basis of original return of income ignoring the revised return filed by the assessee. We, therefore, decide this issue in favour of the assessee on merit and delete the addition made by the AO and confirmed by the learned CIT(A) on this issue.
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10.3. With reference to various additions made it was submitted that no addition can be made in search assessments without there being any incriminating material found during the search proceedings which have a bearing on such additions. It was further submitted that no addition to the income can be made only based on admissions made u/s. 132(4) unless the same is corroborated with tangible material/incriminating material having bearing on the assessment of income. Ld. Counsel placed on record CBDT Circular No. 286/2003 - IT(Inv) dt. 10-03-2003 in this regard. Ld. Counsel thereafter referred to the so called statements which was under:
"I am not in a position to explain the difference as of now. In view of this, you may take the difference of Rs. 6,41,00,000/- as my unaccounted income for different years".
Thus, it was stated that assessee has not categorically or voluntarily, knowing fully well about the discrepancy in the accounts, made admission of income. He has only said that if there is any deficiency, it may be taken as unaccounted. This does not mean that he has in full volition, admitted any income. Further, in answer against a question No. 12 it was stated -
"Since I am unable to produce the evidence before you, I am admitting Rs. 6,41,33,000/- as my unaccounted income for different years. However, I would like to reserve the right to produce the evidences in support of my capital as on 01-04- 2001, as and when I am able to produce the same".
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It was further submitted that as can be seen from the above answer, assessee was not fully convinced about the discrepancy. He has still reserved his right to explain and reconcile the accounts and accepted for any addition such reconciliation. However, he has fully reconciled the cash flow, which was not considered by the AO.
10.4. It was further submitted that AO accepted part of cash flow statement but did not accept the full and made additions on the basis of the Receipts and Payments Statement only. Ld. Counsel relied on the following decisions for the proposition that no addition can be made, when there is no incriminating material and all the documents were part of cash flow statements.
a. Order of Hyderabad ITAT in the case of Maa Highways in ITA No. 1832-1841/H/2014;
b. Order of Hyderabad ITAT in the case of B. Vijaya Kumar in ITA No. 235-236/H/2010;
c. Order of Mumbai ITAT in the case of All Cargo Logistics Limited cited in 23 taxmann.com 103;
d. Order of Hyderabad ITAT in the case of Midwest Gold Limited in ITA No. 1062/H/2014;
e. Order of Hyderabad ITAT in the case of AMR India Limited in ITA No. 1828-1831;
f. Order of Hyderabad ITAT in the case of Sri Nilaya Projects in ITA No. 80/H/2013;
11. Coming to the merits, the submissions of assessee are as under:
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8. Wrongful additions made basing on Documents for the years 2006-07, 2007-08 & 2008-09:
The Assessing Officer completed the assessment by making the additions under (i) Unexplained investment/deficit cash balance
(ii) Profit earned out of real estate transaction
(iii) Undisclosed Profit out real Estate transactions
(iv) Disallowance of Loss
(v) Unexplained cash credit u/s. 68 of IT Act.
The detailed position is as follows:
Addition Details AY 2006-07 AY 2007-08 AY 2008-09
(i) Unexplained investment/deficit 89,35,110 15,23,285 1,30,00,000 cash balance
(ii) Unexplained profit earned out 3,00,000 1,37,03,257 3,44,80,000 of real estate transaction
(iii) Undisclosed profit out real -- 80,00,000 88,00,000 estate transactions
(iv) Disallowance of Loss -- 3,35,01,000 --
(v) Unexplained cash credit u/s. 1,00,94,500 2,09,64,300 8,61,09,145 68 of IT Act Explanation regarding - "Unexplained investment/deficit cash balance"
The AO has made addition under "Unexplained Investment/Deficit Cash Balance for AY. 2006-07, 2007-08 and 2008-09 amounting to Rs. 89,35,110/-, Rs. 15,23,285/- and Rs. 1,30,00,000/- respectively. 9.1 The AO during the course of assessment proceedings, had made additions basing on sworn statement / DDIT quantification. He himself mentioned in the order that he verified the cash flow and certain deficit in cash balance and that he is not accepting because of DDIT quantification / sworn statement.
9.2 We want to bring to your attention that these documents are already reflected in the cash flows and no income arises. AO made addition only because of DDIT quantification / sworn statement.
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9.3 However, on appeal, the CIT (A) deleted these additions vide Para No. 7.2, Para No. 10.2.
10. Explanation for - "(ii) Profit earned out of real estate transaction
(iii) Undisclosed Profit out real Estate transactions"
The AO has made addition under "Profit earned out of real estate transaction" for AYs 2006-07, 2007-08 and 2008-09 amounting to Rs.3,00,000/-, Rs. 1,37,03,257 and Rs. 3,44,80,000/- respectively and made addition under "Undisclosed Profit on real Estate transactions" for AYs 2007-08 & 2008-09 amounting to Rs. 80,00,000/- and Rs. 88,00,000/- respectively.
10.1 The Assessee is in the business of real estate. He is doing multiple projects. He is following project completion method. As some of the lands are involved in litigation, profits will not arise unless the projects complete and litigation resolves. In some of the cases the litigation will continue for longer time. The AO wrongly calculated profits separately for some other transaction on hypothetical basis. The AO himself calculated the cost of land and profitability without understanding the real estate business. Some of the sales/ advances are only receipts not income. The assessee, in some cases, acts as agent for the owners of the land. All these transactions are reflected in the bank statements and cash flows. The AO cannot disturb the method of accounting followed by the assessee and arrive at profitability. The same thing explained very clearly in the following cases:
a. The Hon'ble jurisdictional High Court in the case of CIT Vs. Pact Securities & Financial Services Ltd., [61 taxmann.com 192] (Andhra Pradesh and Telangana);
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b. The Hon'ble Supreme Court in the case of S.A. Builders Ltd., Vs. CIT(Appeals), Chandigarh;
c. The Hon'ble High Court of Delhi in the case of CIT Vs. Dalmia Cements (P) Ltd., [121 Taxman 706 (Delhi)];
d. The Hon'ble High Court of Delhi in the case of CIT Vs. Oracle India (P) Ltd., [11 Taxmann.com 139 (Delhi)];
11 Explanation regarding- "Disallowance of Loss":
11.1 The Assessee claimed loss on account of litigation land to the extent of Rs. 3,35,01,000/- in the assessment year 2007-08. The AO accepted the litigation in the assessment order, however, not allowed the claim for want of details of dispute. We want to bring to your kind attention that all the documents are available in the seized documents. The assessee had explained to the AO that the land was in litigation for invalid title. The document is only a AGPA and as per the document he has to pay the balance amount. AO has not accepted the claim and made the addition.
During the course of CIT (A) proceedings, the CIT (A) deleted the addition vide Para No. 11.2, as the same is reflected in the records.
12 Explanation for - "Unexplained cash credit u/s. 68 of IT Act":
The AO has made addition under "Unexplained Cash Credits u/s 68 of IT Act" for AYs 2006-07, 2007-08 and 2008-09 amounting to Rs.1,00,94,500/-, Rs. 2,09,64,300/and Rs. 8,61,09,145/ - respectively.
12.1 The AO made Addition for the cash deposited in the bank u/ s 68 of the Act. The Section 68 reads as follows:
"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the (Assessing Officer), Shri P. Madhusudan Reddy :- 28 -:
satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year."
These amounts are part of advances received in the real estate business and sales. AO himself accepted in the cash flows receipts and payments. These are all my trade receivable/ cash sales. As per the Income tax Act, Sec. 68 will not applicable for the sales/trade receivable. These are the transactions -reflected in the records/cash flows and bank statements. As I am in the real estate business these transactions are part of my real estate receipt which are reflected in records. As the AO made addition basing on DDIT inv. /Statement recorded, the AO has not verified the evidences available and documents submitted. For this purpose we rely on the following case laws. Non application of own mind in deciding a quasi-judicial order is bad-in-law.
12.2 In this regard, reliance is placed on the following case laws:
(a) The Hon'ble Supreme Court of India in the case of CIT vs Lovely Exports (p) Ltd [2008] 216 CTR 195 (SC) held that If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company.
(b) The Hon'ble Supreme Court of India in the case of CIT vs Orissa Corpn (p) Ltd [1986] 25 taxman 80F (SC) held that In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue.
The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not Shri P. Madhusudan Reddy :- 29 -:
examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise. The High Court was, therefore, right in refusing to refer the questions sought for. Decision of the High Court affirmed.
The CIT(A) during the appeal proceedings deleted the addition vide Para No. 8.2.
13 Regarding disallowance of Rs. 3,44,80,000/-.
The AO made addition in A Y 2008-09 as part of profit earned out of real estate transaction. He has not accepted part of the cash flow to the extent of Rs. 3,44,80,000/-, and made addition. The assessee is into the real estate business and all the transactions are reflected in the regular books of account and cash flow is drawn sourcing from the books of Account. The AO has, without verifying the books of account, taken only a part of the transactions as not correct. We had clearly explained the same to AO during the course of assessment proceedings. However, on appeal the CIT(A) deleted the above addition vide para No. 9.2.
Thus in view of the above, We request the ITAT to sustain the deletion done by the CIT(A).
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14. Ld CIT (A) accepted computation of Income but not given specific directions The assessee has revised the returns filed u/s 153A for the Ay 2006-07 & 2007-08 and has also revised original return of AY 2008-09 by revised computation of income on 05-11-2009 during the assessment proceedings, the same was not considered by the AO. The Ld CIT(A) before admitting the appeal of the assessee taken remand report for the purpose of sec 249(4) and observed the comments of AO regarding the computation of income wherein he has not made comments for objection. In view of this Ld. CIT (A) decided that Sec 249(4) is not applicable and proceeded regarding the additions in appeal. In the order Ld CIT (A) erred in not giving specific directions to the AO for consideration of revised computation. Following items were not deleted by the AO in the consequential order. Since, Ld. CIT(A) did not give any specific directions for deletions of the same:-
i. Cash deficit amounting to Rs. 21,39,235/-, Rs. 5,73,50,481, and Rs. 1,13,90,068 for the assessment year 2006-07,2007-08 and 2008-09 respectively.
ii. Profit on sale of properties amounting to Rs. 25,00,000/-, Rs. 42,24,550/ - and Rs. 28,70,000/- for the AY 2006-07, 2007-08 and 2008- 09 respectively.
The Ld CIT (A) appreciated the fact that the assessee is in the real estate business and after considering the explanations and submissions of the assessee Revised computation was prepared by considering all the transactions and all the profits/ loss on sale of land during the particular years was also accounted. The Ld CIT (A) also opined that all transactions are recorded and separate profit on each items cannot be taken. The Ld CIT(A) rightfully deleted the additions made by the AO vide para no.9.2 and 12.2. The Ld CIT (A) already allowed and mentioned that profit on sale of land already reflected and there was no incriminating material.
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The Ld CIT(A) on having accepted the computation, failed to give specific directions on deletion of profit on sale of land. ".
11.1. Relying on the various legal precedents, it was submitted that the case law relied on by the Revenue are not applicable to the facts of the case and where there are two divergent views and the decisions given by the courts on an issue, one which is in favour of assessee has to be adopted [CIT Vs. Vegetable Products Ltd.,] [88 ITR 192] (SC). It was submitted that there is no merit in the additions made by the AO and CIT(A) validly deleted the amounts.
12. We have heard the rival contentions and perused the record. Both the parties have filed written submissions for these three assessment years mainly reiterating their contentions and relying on various case law. Before adverting to the various issues, it is necessary to place on record certain facts. In this case, assessee is in the real estate business and has been investing large amounts of funds which resulted in conducting of serch and seizure operations. Even though notices u/s. 153A were issued on 26-06-2008, assessee could file returns only on 18-08-2009 including the return for AY. 2008-09. In these returns, assessee has admitted returned incomes as under:
2006-07 50,59,365
2007-08 2,80,15,181
2008-09 1,42,17,788
Shri P. Madhusudan Reddy
:- 32 -:
12.1. As seen from the Paper Book placed by the Revenue, it is noticed that assessee sought time for filing returns in the interim period mainly on the reason that his business was going through a crucially dull period and he has no liquid resources to pay the self-
assessment tax. It may be recalled that assessee has admitted an amount of Rs. 5 Crores as 'undisclosed income' for all the years involved in the statement recorded on the date of search and subsequently, when the DDIT( Investigation) started correlating the documents and preparing statements, assessee had admitted higher income of Rs. 6.41 Crores and further capital gains of Rs. 2.99 Crores. Even though the statement was taken like that, as seen from the statement, it seems that the capital gains is part of the total income/receipts earned by assessee. Therefore, there seems to be double disclosure under different heads. Be that as it may, there is no dispute that assessee has earned some unaccounted incomes in the real estate business, which was quantified in the course of search. However, the statements so recorded from assessee are qualified statements. Assessee himself has stated that he has received advances/obtained loans for various investments, which he could not reconcile on the date of search or subsequently and wanted time to analyse the issues. That he has taken time to analyse the seized documents can be gazed from the fact that he went on seeking time in filing returns of income from the time he received notices u/s. 153A till he filed the returns. The returns for the three impugned assessment years were filed after due verification of the documents and bank account pass books/statements and he has quantified the difference between investments and sources as deficit cash and accordingly filed the returns. It is also fact that he did not pay self-assessment Shri P. Madhusudan Reddy :- 33 -:
tax pertaining to AYs. 2006-07 and 2007-08 and partly paid to an extent of Rs. 10,04,650 for the AY. 2008-09. Even the so called statement of retraction filed does not contain any evidence on what basis it was withdrawn. As pointed out by the Ld.CIT-DR, it is almost after two years from the time the statements u/s 132(4) were given. Ld.CIT-DR has relied on various case law in his submissions, which we do not intend to repeat here, but suffice to say that the self-serving retraction without any documentary evidence cannot dispel the statement made under oath u/s. 132(4). Further, assessee also filed returns of income disclosing certain incomes.
12.2. It is assessee's contention that assessee subsequently filed revised computation which shows lesser incomes. The basis for revised computation could not be analysed by us as neither the AO nor the CIT(A) considered the same as to why the same can be accepted or cannot be accepted. Except stating that there are no taxes payable, on the basis of revised computation, assessee also was not forthcoming why the revised computations are to be accepted as the basis for assessment. In the course of present proceedings, Ld. Counsel placed some reconciliation of the amounts involved by way of a table, but in the absence of verification by the Revenue authorities, we are not in a position to give any finding about the claims of assessee in this regard.
12.3. It is also fact that assessee contested the issue before the CIT(A), which was not adjudicated by the Ld. CIT(A). The issue of discharging the taxes on admitted income is very well connected with the issue whether the returns filed by assessee are valid or Shri P. Madhusudan Reddy :- 34 -:
not and whether the revised computation is valid or not? As the Ld. CIT(A) has not given any opinion on this issue. Even though he has issued show cause notice to assessee, we are of the opinion that it is very difficult to give any finding at this stage, since the genuineness of the computation filed by assessee in the returns filed on 18-08-2009 itself have been disputed by assessee. It is also fact that even though revised computations were received by the AO before completion of assessment, for the reasons best known to the AO, he has not considered the same at all nor discussed whether the claims are acceptable or not? In the absence of the finding on the genuineness of the incomes either disclosed or returned or the revised computations, the issues with reference to Section 249(4) cannot be considered, just because assessee has filed certain returns of income which were in dispute.
13. It is also seen that Ld. CIT(A) deleted almost all the additions on the reason that there is no incriminating material.
His orders in all the years are more or less same, without considering the factual aspect of the additions made or the contentions stated by assessee. The Hon'ble Jurisdictional High Court in the case of 1. Gopal Lal Bhadruka, 2. Avadesh Bhadruka,
3. Ahura Holdings Vs. DCIT [346 ITR 106] (AP) has held as under:
"Sections 153A, 153B and 153C were inserted in the Income-tax Act, 1961 with effect from June 1, 2003, in Chapter XIV. These sections are applicable to search operations or requisitions made after May 31, 2003. Simultaneously, section 158BI was inserted in Chapter XIV-B. By virtue of section 158BI of the Act, the various provisions of Chapter XIV-B of the Act are made inapplicable to proceedings under sections 153A and 153C of the Act. The effect of this is that while the provisions of Chapter XIV-B of the Act limit the inquiry by the Assessing Officer to those materials found during the search and seizure operation, no such limitation is found in so far as sections 153A and 153C of the Act are Shri P. Madhusudan Reddy :- 35 -:
concerned. Therefore, it follows that for the purposes of sections 153A and 153C of the Act, the Assessing Officer can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee.
A search and seizure operation was conducted in the residential- cum-business premises of the assessee. The sale consideration as per the sale deeds did not tally with the actual payments made by the purchasers. A scrutiny of eight sale deeds showed that on-money was paid by the vendees to the firm in which the assessee was a partner. The statement of the assessee was recorded. There was evidence of payment of on-money. Proceedings were initiated under section 153A of the Act in respect of the assessee, while proceedings were initiated against his son and the firm under section 153C of the Act. The Assessing Officer passed an assessment order in respect of the firm on a substantive basis, while protective assessments were made in respect of the assessee and his son. This was upheld by the Tribunal. On appeal to the High Court :
Held, dismissing the appeals, that on appreciation of the evidence, all the authorities came to the conclusion that the undisclosed income was that of the firm. There was no perversity in the view that all of them had concurrently taken. The addition was valid".
13.1. Thus, the evidences collected during the course of search can be considered by the AO. In fact as seen from the quantification by the DDIT in the course of search proceedings or the working by assessee in the post-search proceedings, the basis is the various documents/evidences of investments un-earthed during the course of search. Since assessee has not maintained the books of account by the time of search, there are only two methods of quantifying undisclosed income un-earthed during the course of search. One method is consolidating the assets and liabilities, assessment year-wise and bringing into tax the excess of assets over liabilities as income of the year. the other method is to prepare the Receipts and Payments Statement ( cash flow) for the impugned block period and on that basis examining whether assessee has earned incomes or not, under the provisions of the Shri P. Madhusudan Reddy :- 36 -:
Act. In this case, assessee chose the latter method of preparing Receipts and Payments Statement. Therefore, it is not correct on the part of the CIT(A) to hold that there is no incriminating search material warranting additions. The provisions of Section 153A are very clear that those assessments which are pending as on the date of search for conclusion would get abated. In this case, assessee has filed returns up to AY 2006-07 and there seems to be no scrutiny assessments. Question of abatement of pending proceedings does not arise. Consequent to the search as per the provisions, re-assessment has to be done quantifying the undisclosed income. Accordingly, we are of the opinion that the order of the CIT(A) deleting various additions on the reason that there is no incriminating material cannot be upheld.
14. At the same time, it is also to be noted that the tax has to be collected in accordance with law and any legal claim which is not properly made by inadvertence or ignorance should not be denied merely because assessee did not make a claim in the return of income. The Income Tax Act is meant for collection of correct tax and it cannot be treated as a lis between two parties but a tax adjustment as explained by the Hon'ble Madras High Court in the case of CIT Vs. Indian Express (Madurai) Pvt. Ltd., [140 ITR 705] at page No. 724. At any rate, appellate authority is entitled to admit any additional claim. However, the CIT(A) failed to consider assessee's contentions with reference to revised computation and as there is no direction regarding that to the AO, assessee in his appeals raised the contentions before us that the revised computations have not been considered. More over there is no finding whether assessee is an investor or doing it as business. As Shri P. Madhusudan Reddy :- 37 -:
seen from the statement recorded by DDIT, the fact that capital gains was computed indicate that assessee is treated as investor. In that case, the loss in business does not arise. Only capital loss on transfer of property should be quantified so as to set off or carried forward as per the provisions of the Act. Further DDIT quantified the total investment at Rs. 20,25,33,000 as on the date of search. This includes advances, sale proceeds, borrowals, some deficit cash etc as per assessee. These require examination as some transaction may yield profit or gain, as the case may be, which require quantification year wise. These aspects have not been examined and require further verification.
15. In view of that, since AO has not based the assessment directly on the seized material but on Receipts and Payments Statements and assessee also has furnished different statements at different points of time, in the interest of justice, we are of the opinion that the assessments pertaining to these three impugned assessment years are to be set aside, with a direction to AO to compute the incomes on basis of the incriminating material found and the returns if any filed earlier in any assessment year. The AO is also directed to quantify the incomes either on the basis of the seized material or if entire seized material is considered in the Receipts and Payments Statement furnished by assessee, on the basis of such statements. Assessee is also directed to furnish the correct computation of incomes for the impugned assessment years before the AO. Needless to say that assessee should be given due opportunity. AO is also directed to examine the issues afresh and need not base his computation either on the returns of income filed in August, 2009 or on the basis of the revised computations filed Shri P. Madhusudan Reddy :- 38 -:
subsequently. He should examine as if assessee has not filed the returns and quantify the incomes in each of the year in re- assessments based on facts. In case assessee is in a position to furnish the correct Receipts and Payments Statement with due evidence, AO is directed to consider the same after due examination. With the observations made above, we hereby set aside the orders of the AO and CIT(A) for the impugned three assessment years and restore the same to the file of the AO to examine the facts and determine afresh considering the law on the issues.
16. Since we are setting aside the assessments per se, we do not intend to examine the legal issues which were raised by the parties before us. Suffice to say that department is free to quantify the incomes after due examination of the facts and assessee is free to raise necessary legal claims/legal issues either before the AO or before the appellate authorities if required and all issues are open for consideration, if required. With these observations and directions, the grounds raised by both the parties are considered allowed for statistical purposes.
17. In the result, Revenue appeals for AYs. 2002-03 & 2004-05 are dismissed. Appeals both of Assessee and Revenue for AYs. 2006-07, 2007-08 & 2008-09 are allowed for statistical purposes.
Order pronounced in the open court on 21st April, 2017 Sd/- Sd/-
(G. PAVAN KUMAR) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 21st April, 2017
TNMM
Shri P. Madhusudan Reddy
:- 39 -:
Copy to :
1. Deputy Commissioner of Income Tax, Central Circle-2, Hyderabad.
2. Asst. Commissioner of Income Tax, Central Circle-2, Hyderabad.
3. Shri Pasham Madhusudhan Reddy, C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
4. CIT (Appeals)-Guntur.
5. CIT(Central)-Hyderabad.
6. D.R. ITAT, Hyderabad.
7. Guard File.