ACIT, Central Circle, Tirupathi V. B. Srinivasulu, Kadapa, Hyderabad

CO 66/HYD/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8006 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 20-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business income; Search and seizure
• Section: 143(3); 153A; 131; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SL.NO. ITA NO. AY APPELLANT RESPONDENT 1. 1334/HYD/11 2006 - 07 SRI B. SRINIVASULU, KADAPA (PAN AFLPS7036N) DY. COMMISSIONER OF INCOME-TAX, TIRUPATHI. 2 1335/HYD/11 2005-06 ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCULE, TIRUPATHI M/S B. SRINIVASULU (HUF), KADAPA (PAN AYFPS5342A) 3 1336/HYD/11 2005 - 06 - DO - M/S B. SRINIVASULU (IND.), KADAPA AND C.O.NO. AY CROSS OBJECTOR RESPONDENT 4 65/HYD/11 (IN ITA NO. 1335/HYD/11) 2005-06 M/S B. SRINIVASULU (HUF), KADAPA ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCULE, TIRUPATHI 5 66 /HYD/ 11 (IN ITA NO. 1336/HYD/11) 2005 - 06 B. SRINIVASULU, KADAPA. - DO - ASSESSEE BY : SHRI S. RAMA RAO REVENU BY : SHRI NARA HARI BISWAL DATE OF HEARING : 11/10/2012 DATE OF PRONOUNCEMENT : 19/10/ 2012 2 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) ORDER PER ASHA VIJAYARAGHAVAN, J.M.: ALL THESE APPEALS AND C.OS PERTAINING TO SAME ASSE SSEE ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF CIT(A)-VI I, HYDERABAD FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. SINCE IDENT ICAL ISSUES ARE INVOLVED IN THESE APPEALS & COS., THE SAME WERE CLU BBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED F OR THE SAKE OF CONVENIENCE. ITA NO. 1334/HYD/11 FOR AY 2006-07 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH ERE WAS A SEARCH AND SEIZURE OPERATIONS U/S 132 OF THE ACT IN THE CA SE OF THE ASSESSEE ON 20/08/2008 WHEREIN CASH OF RS. 31,00,00 0/- WAS FOUND AND SEIZED FROM THE RESIDENCE OF THE ASSESSEE. ACCO RDINGLY, NOTICE U/S 153A DATED 11/08/2009 WAS ISSUED TO THE ASSESSE E FOR THE AY 2003-04 TO 2008-09 CALLING FOR RETURN OF INCOME. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED RETURN OF INCOME FOR THE AY 2006-07 ON 17/06/2010 BY ADMITTING A TOTAL INCOME OF RS. 11,35 ,806/-. THE AO NOTICED THAT A SUM OF RS. 6,45,000/- WAS CLAIMED BY THE ASSESSEE AS IMPROVEMENTS. ON BEING ASKED BY THE AO TO FURNIS H THE EVIDENCES FOR THE SAID IMPROVEMENTS, THE AR OF THE ASSESSEE FURNISHED THE LEDGER ACCOUNTS OF THE BUILDING REPAI RS. IT WAS NOTICED THAT THE ENTIRE AMOUNT WAS PAID IN CASH AND SELF-MA DE PRINTED VOUCHERS WERE ENCLOSED ALONG WITH THE LEDGER ACCOUN T AND IN SOME CASES CERTAIN CASH BILLS WERE ALSO ENCLOSED. THE AO ISSUED SUMMONS 3 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) U/S 131 THROUGH AR OF THE ASSESSEE AND ASKED TO PRO DUCE FEW OF THE PERSONS WHO HAVE SIGNED ON THE VOUCHERS. THE ASSESS EE STATED THAT THE SAID PERSONS ARE LABOURERS AND THEY CANNOT COME TO THE DEPARTMENT. SINCE THE ASSESSEE FAILED TO PRODUCE N ECESSARY EVIDENCES IN SUPPORT OF THE SAID EXPENDITURE CLAIME D, THE AO DISALLOWED THE SAID EXPENDITURE OF RS. 6,45,000/- B Y TREATING THE SAME AS NOT GENUINE. 3. ON APPEAL, BEFORE THE CIT(A), THE AR OF THE ASSE SSEE SUBMITTED THAT THE ASSESSEE HAD PURCHASED HOUSE PRO PERTY ON 02/07/1999 AT RS. 2,57,000/- WHICH HAS BEEN INDEXED AS ON THE DATE OF SALE AT RS. 3,85,888/-. THE ASSESSEE HAD CL AIMED TO HAVE SPENT RS. 6,45,000/- TOWARDS IMPROVEMENT OF THE SAI D PROPERTY. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE THOUGH SOLD SAID PROPERTY FOR RS. 16,00,000/- BUT ADOPTED THE SROS VALUE AT RS. 20,59,000/- THEREBY HE HAD WORKED OUT THE LONG TERM CAPITAL GAI NS AT RS. 10,28,112/-. HE CONTENDED THAT THE AO DID NOT ACCEP T THE IMPROVEMENT COST CLAIMED AT RS. 6,45,000/- STATING THAT THE ASSESSEE ONLY PRODUCED SELF-MADE VOUCHERS AND CERTA IN CASH BILLS TOWARDS THE IMPROVEMENT COST, AS THE AO WANTED TO V ERIFY THE SIGNATURES FO THE PERSONS WHO HAVE SIGNED THE VOUCH ERS AND BILLS BUT THE ASSESSEE COULD NOT PRODUCE THE SAID PERSONS . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CI T(A) HELD THAT THERE IS A POSSIBILITY OF INCURRING CERTAIN EXPENDI TURE FOR MAKING CERTAIN REPAIRS, PAINTINGS ETC. BEFORE SELLING THE HOUSE. HE, THEREFORE, ALLOWED A LUMP SUM EXPENSES OF RS. 2,00 ,000/- AS EXPENSES INCURRED TOWARDS DEVELOPMENT OF THE HOUSE AND THE BALANCE OF RS. 4,45,000/- SUSTAINED. 4 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. BEFORE US, THE LEARNED COUNSEL FOR THE ASSES SEE FILED A PAPER BOOK CONTAINING 39 PAGES, WHICH ARE IN SUPPORT OF A SSESSEES CLAIM AND THE DETAILS ARE AS UNDER: 1. RECEIPTS TOWARDS PURCHASE OF CEMENT 1 2. RECEIPT TOWARDS PURCHASE OF HARDWARE ITEMS 2 & 3 3. RECEIPT TOWARDS PURCHASE OF ELECTRICAL FITTINGS 4 TO 6 4. RECEIPT TOWARDS PURCHASE OF BLACK STONE SLABS 7 5. RECEIPT TOWARDS PURCHASE OF TIMBER 8 6. MARKET VALUE OF THE PROPERTY AS PER JT. SUB REGISTRAR, KADAPA 9 7. CASH VOUCHERS TOWARDS PAYMENT OF LABOUR CHARGES 10 TO 39. 6. IN THIS CONNECTION, WE REFER TO THE DECISION OF THE ITAT IN THE CASE OF SHANKAR TRADING CO.(P) LTD., VS. ACIT, 152 TAXMAN 49 WITH RESPECT TO ADHOC DISALLOWANCE, IT WAS HELD BY THE T RIBUNAL THAT THE AO WAS NOT EMPOWERED TO MAKE ANY ADHOC DISALLOWANCE WITHOUT POINTING OUT DEFECTS IN VOUCHERS PRODUCED BY THE AS SESSEE AND DELETED THE ADHOC DISALLOWANCE MADE BY THE AO. IN T HE CASE UNDER CONSIDERATION, THE BILLS AND VOUCHERS AND OTHER RE LATED DOCUMENTS HAVE BEEN PRODUCED BY THE ASSESSEE IN THE PAPER BOO K FILED BEFORE US. THEREFORE, WE ARE OF THE OPINION THAT ONE MORE OPPORTUNITY SHALL BE GIVEN TO THE ASSESSEE TO REPRESENT HIS CAS E BEFORE THE AO WITH THE DOCUMENTARY EVIDENCE. THEREFORE, WE REMIT THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE MATE RIAL FILED AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVI DING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 5 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1335/HYD/2011 FOR AY 2005-06 IN RESPECT OF B. SRINIVASULU (HUF). 8. BRIEFLY THE FACTS OF THE CASE ARE THAT THERE WAS A SEARCH OPERATION CONDUCTED IN THE CASE OF THE ASSESSEE ON 20/08/2008. THE AO PASSED ORDER U/S 143(3) R.W.S. 153C OF THE ACT B Y DETERMINING THE TOTAL INCOME AT RS. 13,72,000/- AGAINST THE INC OME RETURNED AT RS. 72,000/- BY MAKING AN ADDITION OF RS. 13,00,000 /-. 9. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) RAISING THE ONLY EFFECTIVE GROUND WITH REGARD TO THE ADDITION MADE BY THE AO AT RS. 1 3,00,000/- TOWARDS GIFTS RECEIVED FROM 6 PERSONS, WHICH ARE AS FOLLOWS:- NAME OF THE DONOR AMOUNT (RS.) P. JAYARAMAIAH 2,00,000 K.V. KONDAIAH 2,00, 000 P. LAKSHNUMMA 3,00,000 P RADHA KRISHNAIAH 1,50,000 K. SUBBAMMA 2,50,000 K. ESWARAMMA 2,00,000 TOTAL 13,00,000 10. THE AR OF THE ASSESSEE SUBMITTED BEFORE THE CIT (A) THAT THE AO HAD WRONGLY TREATED THE GIFTS RECEIVED FROM THE SAID SIX PERSONS AS UNEXPLAINED ON THE PREMISE THAT THE ABOVE PERSON S ARE NOT ASSESSED TO INCOME-TAX AND THEIR CREDIT WORTHINESS IS NOT ESTABLISHED. IT WAS FURTHER SUBMITTED THAT THE AO F AILED TO NOTE THAT THE RETURNS OF INCOME OF THE DONORS AND THE ASSESSE E ARE ASSESSED 6 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) WITH THE SAME AO AND THE DONORS HAVE FILED THEIR RE TURNS OF INCOME WHEREIN THEY HAVE ALSO ENCLOSED STATEMENT OF ACCOUN TS EXPLAINING THE GIFTS GIVEN BY THEM TO THE ASSESSEE. THE AR FUR THER SUBMITTED THAT IT WAS NOT APPRECIATED THAT THE ASSESSEE HAD D ISCLOSED THESE DETAILS IN THE ORIGINAL RETURN OF INCOME, WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT AND IN THE ABSENCE OF CONTRARY EVIDE NCE TO TREAT THE GIFTS DISCLOSED BY THE ASSESSEE IN HIS ORIGINAL RET URN AS UNEXPLAINED BY THE AO IS INCORRECT. IT WAS ALSO POINTED OUT THA T THE AO SHOULD NOT HAVE COME TO A GENERAL CONCLUSION THAT ALL THE DONORS WERE SIMILAR TO SRI VENKATA KOTAIAH WHO HAD INITIALLY CO NFIRMED ABOUT THE GIFTS GIVEN TO THE ASSESSEE AND LATER ON HE HAD DEN IED IN THE SAME STATEMENT. THE AR OF THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAYBHAI N. CHANDRANI V. ACIT, 231 CTR 474 (GUJ.). THE AR ALSO RELIED UPON T HE FOLLOWING CASE LAWS: 1. CALCUTTA BENCH OF ITAT IN THE CASE OF LMJ INTERN ATIONAL LTD. VS. DCIT, 119 TTJ 214. 2. AHMEDBAD BENCH OF ITAT IN THE CASE OF ROYAL MARW AR TOBACCO PRODUCTS PVT LTD. VS. DCIT, 29 SOT 53 3. DELHI BENCH OF ITAT IN THE CASE OF ANILKUMAR BHA TIA VS. ACIT IN ITA NOS. 2660 TO 2665/DEL/09. 4. VIZAGH BENCH OF ITAT IN THE CASE OF KGR EXPORTS VS. JCIT IN ITA NO. 494/V/2007. 11. THE AR OF THE ASSESSEE SUBMITTED THAT AS THE RE TURNS HAD BEEN PROCESSED U/S 143(1), THE ASSESSMENTS WERE NOT PEND ING AND AS NO MATERIAL WAS FOUND DURING THE COURSE OF SEARCH, THE ADDITIONS COULD NOT BE SUSTAINED. 12. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) OBSERVED THAT THE ASSESSEE HAD ORIGINALLY FILED TH E RETURN OF INCOME WHEREIN THE GIFS RECEIVED BY THE ASSESSEE ARE DISCL OSED AND THE 7 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) DEPARTMENT HAS ACCEPTED THE SAID RETURN OF INCOME. SIMILARLY, DONORS RETURNS OF INCOME HAVE ALSO ACCEPTED BY THE DEPARTMENT. HE NOTED THAT THE DONORS AS WELL AS THE ASSESSEE ARE A SSESSED WITH THE SAME AO. CONSEQUENT TO THE SEARCH OPERATION, THE AO HAD RECORDED THE STATEMENT FROM THE ONE OF THE DONORS BY NAME SR I VENKATA KOTAIAH WHOSE NAME IS WRONGLY WRITTEN AS SRI K.V. K ONDAIAH. THE AO HAS RECORDED THE STATEMENT OF SRI K. VENKATA KON DAIAH WHO HAD AGREED TO HAVE GIVEN GIFT TO THE ASSESSEE IN THE FI RST PART OF THE STATEMENT BUT LATER ON HE HAS DENIED THE SAME. HE F URTHER NOTED THAT THE AO, THEREFORE, RELYING UPON THE SAID STATE MENT, HAD TREATED NOT ONLY THE GIFT OF SRI VENKATA KOTAIAH BU T ALSO THE GIFT FROM OTHER DONORS AS BOGUS IN NATURE AND HAS MADE T HE ADDITION. 13. THE CIT(A) FURTHER HELD THAT THE AO HAS MERELY TAKEN SWORN STATEMENT OF SRI VENKATA KOTAIAH ONLY WHO HAD DENIE D TO HAVE GIVEN GIFTS OF RS. 2,00,000/- AND, THEREFORE, UTMOST THE AO COULD TREAT THE GIFT GIVEN BY SRI VENKATA KOTAIAH AT RS. 2,00,000/- AS BOGUS BUT THERE IS NO BASIS IN RESPECT OF OTHER DONORS. HE, T HEREFORE, CONFIRMED THE ADDITION OF GIFT PERTAINING TO SRI VE NKATA KOTAIAH AT RS. 2,00,000/- OUT OF RS. 13,00,000/- ADDITION MADE BY THE AO AND THE REMAINING RS. 11,00,000/- WAS DELETED BY THE CI T(A). 14. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUND OF APPEAL: THE CIT(A) ERRED IN ALLOWING UNEXPLAINED CASH GIFTS TO THE TUNE OF RS. 11,00,000/- IN VIEW OF THE FACT THAT GE NUINENESS OF THE TRANSACTIONS AND CREDIT-WORTHINESS OF THE DONOR S WERE NOT PROVED BY THE ASSESSEE THOUGH THE ONUS OF PROVING T HE GENUINENESS OF THE CASH GIFTS IS ON THE ASSESSEE. 8 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) 15. BEFORE US, THE LEARNED DR SHRI NARA HARI BISWAL VEHEMENTLY ARGUED THAT CREDITWORTHINESS OF THE DONORS HAS NOT BEEN ESTABLISHED BY THE ASSESSEE. FROM THE AOS RECORD, THE LEARNED DR STATED THAT THE ASSESSEE HAD DISCLOSED HUGE GIFTS YEAR AFTER YE AR IN THE INDIVIDUAL RETURN AND THE ABOVE SAID GIFTS IN THE H UF RETURN. HE FURTHER READ THE FINDINGS OF THE AO, WHICH ARE AS U NDER: DURING THE COURSE OF POST SEARCH PROCEEDINGS, THE A SSESSEE WAS ASKED TO PRODUCE THE ABOVE SAID DONORS. OUT OF 15 PERSONS, HE COULD PRODUCE FIVE DONORS AND IN TWO CA SES HE HAS PRODUCED THE LEGAL HEIRS AS THEY ARE VERY OLD AND S UFFERING FROM ILLNESS. THE SWORN STATEMENTS OF THE DONORS AN D LEGAL HEIRS WERE ALSO RECORDED. THE DONORS HAVE SIMPLY ST ATED THAT THEY WERE IN RECEIPT OF A MEAGER COMPENSATION IN TH E YEAR 1986 FROM THE ANDHRA PRADHESH GOVERNMENT WHEN THE SOMASILA PROJECT WAS IMPLEMENTED. SUCH COMPENSATION WAS GIVEN AS GIFT TO THE ASSESSEE AND HIS FAMILY. AS AL READY STATED, NOT EVEN A SINGLE DONOR WAS HAVING ANY TAXABLE INCO ME AT ANY POINT OF TIME AND ALL THE DONORS WERE HOLDING WHIT E COLOUR RATION CARDS INDICATE THAT THEIR STANDARD OF LIVING IS BELOW POVERTY LINE (BPL). A PERSON WHO IS LIVING BELOW PO VERTY LINE AND AT THE AGE OF 75 TO 80 MAY NOT GIVE SUCH A HUGE AMOUNT AS GIFT TO THE ASSESSEE AND THEIR FAMILY MEMBERS. I T IS ALSO NOT ACCEPTABLE THAT A MEAGER COMPENSATION THAT WAS REC EIVED IN THE YEAR 1986 WAS RETAINED WITH THEM FOR MORE THAN 15 TO 20 YEARS AND GIVEN FINALLY GIVEN TO THE ASSESSEE AS GI FT. THIS IS AGAINST THE HUMAN PROBABILITY. 16. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S. RAMA RAO REITERATED THE SUBMISSIONS AS MADE BEFO RE THE LOWER AUTHORITIES. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . EVEN THOUGH ON THE LEGAL ISSUE, WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT WHEN NO INCRIMINATING MATERIAL IS FOUND DURING THE COURS E OF SEARCH, THE 9 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) AO CANNOT MAKE ADDITION ON THE ISSUES, WHICH HAVE A LREADY BEEN COMPLETED, EVEN WHEN THE ASSESSMENTS WERE REOPENED BY VIRTUE OF PROVISIONS OF SECTION 153-A, THE FACT REMAINS THAT THE AO HAS NOT EXAMINED THE DONORS BY ISSUE OF SUMMONS U/S 131 TO PROVE THE IDENTITY AND CREDITWORTHINESS OF THE DONORS AND GEN UINENESS OF THE TRANSACTIONS. IN THESE CIRCUMSTANCES, WE DEEM IT FI T AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE I SSUE TO THE FILE OF THE AO WITH A DIRECTION TO CONDUCT PROPER ENQUIRY B Y ISSUING SUMMONS TO THE DONORS AND TO EXAMINE THEIR CAPACITY TO MAKE GIFTS. NEEDLESS TO SAY THAT THE AO SHALL GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE TO SUPPORT HIS CASE. WE ORDER ACCORDIN GLY. 18. IN THE RESULT, THIS APPEAL OF THE REVENUE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1336/HYD/2011 FOR AY 2005-06 IN RESPECT OF B. SRINIVASULU (INDIVIDUAL). 19. THE ASSESSEE HAD RECEIVED GIFTS FROM 12 PERSONS AMOUNTING TO RS. 29,00,000/-, WHICH ARE AS FOLLOWS: NAME OF THE DONOR AMOUNT (RS.) B. PADMAVATHI 3,50,000 B. SUBBAMMA 2,50,000 D. GANGANNA 1,00,000 G. SAVITRAMMA 2,00,000 K. ESWARAMMA 2,00,000 N. KAMALAMMA 2,00,000 P. CHENCHAMMA 3,00,000 P. JAYARAMAIAH 2,50,000 P. KONDAMMA 3,00,000 P. LAKSHMAMMA 2,00,000 P. RADHAKRISHNAIAH 3,50,000 P. RAJAMMA 2,00,000 TOTAL 29,00,000 10 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) 20. AS DONE IN THE CASE OF B. SRINIVASULU (HUF), TH E AO RELYING UPON THE SWORN STATEMENT OF SRI P. VENKATA KONDAIAH AND BASED ON HIS STATEMENT, CAME TO THE CONCLUSION THAT THE GIFT S RECEIVED FROM THE 12 DONORS AS BOGUS. ON APPEAL, THE CIT(A) DELET ED THE ADDITION MADE BY THE AO. 21.. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 22. GROUND NO. 1 IS GENERAL IN NATURE AND THE SAME IS NOT REQUIRED TO BE ADJUDICATED BY US. 23. GROUND NO.2 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN ALLOWING THE UNEXPLAINED CASH GIFTS TO THE TUNE OF RS. 29,00,000/-. 24. SINCE THE FACTS AND THIS GROUND OF APPEAL IN TH IS CASE ARE MATERIALLY IDENTICAL TO THAT OF THE CASE OF B. SRIN IVASULU (HUF), RESPECTFULLY FOLLOWING THE CONCLUSIONS DRAWN THEREI N VIDE PARA 15 (SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) RESTO RE THE ISSUE TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS AS GIV EN IN THE SAID CASE. ACCORDINGLY, GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION TOWARDS INTEREST CLAIM OF RS. 3,43,632/-. 26. IN THE COMPUTATION OF BUSINESS INCOME, THE ASSE SSEE HAD CLAIMED A SUM OF RS. 5,43,632/- AS THE INTEREST PAI D ON LOANS. THE AO NOTED THAT THE ASSESSEE DID NOT CARRY OUT ANY BU SINESS IN ANY OF THE YEARS AND HIS ONLY SOURCE OF INCOME WAS INCOME FROM HOUSE 11 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) PROPERTY AND PROFIT OR GAIN ON SALE OF IMMOVABLE PR OPERTIES. HE FURTHER NOTED THAT THE GAIN ON IMMOVABLE PROPERTY W AS ALSO ADMITTED UNDER THE HEAD LONG TERM CAPITAL GAIN AN D IT IS ONLY IN THE ASSESSMENT YEAR 2005-06, THE PROFIT ON SALE OF A HO USE PROPERTY PURCHASED AND SOLD IN THE RELEVANT HAD BEEN ADMITTE D UNDER THE HEAD BUSINESS INCOME. IT WAS NOTED THAT AGAINST THI S HE HAD CLAIMED SUCH A HUGE INTEREST OF RS. 5,43,632/-. IT WAS FURT HER NOTED THAT THE PROFIT AND LOSS ACCOUNT, BALANCE SHEET ENCLOSED TO THE RETURN OF INCOME REVEALED THAT THE ASSESSEE HAD TAKEN SOME PE RSONAL LOANS AND HE HAD PAID INTEREST TO THOSE PERSONS. THE AO W AS OF THE VIEW THAT SUCH INTEREST IS PAID ON HIS PERSONAL LOANS AN D IT CANNOT BE CLAIMED AS EXPENDITURE UNDER THE HEAD BUSINESS OR P ROFESSION, AS PER SECTION 36(1)(III), WHICH SAYS ANY INTEREST PA ID ON BORROWED CAPITAL WHERE THE CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE AGAINST THE PROFIT OR GAIN OF THAT BUSINE SS. THEREFORE, THE AO HELD THAT IN THE CASE UNDER CONSIDERATION THE AS SESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY AND HE HAS PURCHA SED A HOUSE ON 15/04/2004 AND SOLD THE SAME ON 07/03/2005, ON THIS PROFIT WAS OFFERED TO TAX. SINCE THERE IS NO BUSINESS ACTIVIT Y CARRIED OUT BY THE ASSESSEE IN THE EARLIER YEARS OR IN SUBSEQUENT YEAR S, THE AO DISALLOWED THE ENTIRE INTEREST CLAIM OF THE ASSESSE E OF RS. 5,43,632/-. 27. ON APPEAL, THE CIT(A) OBSERVED THAT ASSESSEE I S SEEN TO HAVE INVESTED IN PARTNERSHIP FIRM AND HE HAS BEEN RECEIV ING CONSIDERABLE INTEREST INCOME BUT THE INTEREST EXPENSES CLAIMED A RE HIGHER SIDE THEREBY IT APPEARS THAT THE BORROWED MONEY IS NOT F ULLY UTILIZED FOR BUSINESS PURPOSE. HE FURTHER OBSERVED THAT THE ASS ESSEE HAD PURCHASED A HOUSE FOR RS. 4,50,000/- AND HE HAD SOL D IT FOR RS. 12 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) 5,72,000/- AND THE INVESTMENT MADE IN PURCHASE OF T HE SAID HOUSE IS ONLY COMING TO RS. 4,50,000/-. THE CIT(A) WAS OF THE VIEW THAT IT CANNOT BE ALSO SAID THAT THE ASSESSEE HAS INVESTED THE BORROWED MONEY IN REAL ESTATE ALSO. THE CIT(A), THEREFORE, C ONFIRMED THE LUMPSUM DISALLOWANCE OF INTEREST OF RS. 2,00,000/- OUT OF THE DISALLOWANCE MADE BY THE AO AT RS. 5,43,632/-. 28. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 29. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S. RAMA RAO SUBMITTED THAT INTEREST ON THE SAME LOANS WAS A LLOWED BY THE SAME AO IN THE ASSESSMENT YEARS 2003-04 & 2004-05 A ND, THEREFORE, THE AO OUGHT TO HAVE BEEN ALLOWED THE IN TEREST CLAIM OF THE ASSESSEE IN THIS YEAR ALSO. 30. AFTER HEARING THE LEARNED DR, AND CONSIDERING T HE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE, WE REMIT T HE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE NATUR E OF LOAN TAKEN BY THE ASSESSEE AND IF IT IS THE FACT, THAT THE THERE IS BUSINESS INCOME, THE INTEREST CAN BE ALLOWED IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 31. IN THE RESULT, THIS APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. 13 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) C.O. NO. 65/HYD/11 IN THE CASE OF B. SRINVASULU (H UF) 32. CROSS OBJECTIONS RAISED BY THE ASSESSEE IN THIS APPEAL, READ AS UNDER:- 1. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE P ROVISIONS OF SECTION 153C HAVE NO APPLICATION TO THE FACTS OF THE CASE AS NO MATERIAL WAS FOUND DURING SEARCH. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS. 2 LAKHS MADE BY THE AO ON THE GROUND THAT GIFT RECEIV ED FROM SRI K.V. KODAIAH IS NOT GENUINE. 33. WE FIND THAT THE AO HAS RELIED UPON THE STATEME NT OF SRI VENKATA KONDAIAH, WHO INITIALLY CONFIRMED THE GIFTS , BUT, LATERON DENIED THE SAME STATEMENT. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE AO SHOULD HAVE ISSUED THE SUMMONS TO VENKATA KONDAIAH AND COULD HAVE GIVEN THE OPPORTUNITY TO TH E ASSESSEE TO EXAMINE HIM AND THEREAFTER DECIDED THE ABOUT THE GE NUINENESS OF THE GIFT BY HIM. IN THIS CONTEXT, THE AO ALSO COULD HAVE VERIFIED THE GIFT GIVEN BY SMT. EASWARAMMA, WIFE OF VENKATA KOND AIAH TO B. SRINIVASULU OR HIS FAMILY MEMBERS. SINCE THE AO FAI LED IN THE EXERCISE OF PROPER VERIFICATION AND EXAMINATION WIT H RESPECT TO THE GIFTS, WE RESTORE THE ISSUES TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ABOVE ASPECTS AND DECIDE THE ISSUES IN ACCORDANCE WITH LAW. 34. IN THE RESULT, C.O. FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 14 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) C.O. NO. 66/HYD/2011 IN THE CASE OF B. SRINIVASULU( IND.) 35. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F CROSS- OBJECTIONS: 1. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE P ROVISIONS OF SECTION 153C HAVE NO APPLICATION TO THE FACTS OF THE CASE AS NO MATERIAL WAS FOUND DURING SEARCH. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS. 2 LAKHS OUT OF RS. 5,43,632/-, MADE BY THE AO DISALLO WING INTEREST PAID TO THE CREDITORS. 36. GROUND NO. 1 HAS ALREADY BEEN DECIDED BY US IN ITA NO. 1336/HYD/11 (SUPRA), THEREFORE, THIS GROUND BECOMES INFRUCTUOUS AND THE SAME IS DISMISSED AS INFRUCTUOUS. 37. GROUND NO. 2 HAS ALSO BEEN DECIDED BY US IN ITA NO. 1336/HYD/11 VIDE PARA NO. 20(SUPRA), THEREFORE, RES PECTFULLY FOLLOWING THE CONCLUSIONS DRAWN THEREIN, WE REMIT T HIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 38. IN THE RESULT, THIS C.O. FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15 ITA NOS. 1334, 1335 & 1336/HYD/2011 & C.OS. 65 & 66 /HYD/11 M/S B. SRINIVASULU (HUF) AND B. SRINIVASULU (IND.) 39. TO SUM UP, ITA NO. 1334/HYD/11, ITA NOS. 1335 & 1336/HYD/11 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE C.O. NO. 65/HYD/11 IS ALLOWED FOR STATISTICAL PURPO SES WHILE C.O. NO. 66/HYD/11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE S. PRONOUNCED IN THE OPEN COURT ON 19/10/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAY ARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 19 TH OCTOBER, 2012 KV COPY TO:- 1) ACIT, CENTRAL CIRCLE, TIRUPATHI. 2) B. SRINIVASULU, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, H.NO. 3-6-643, ST. NO. 9, HIMAYATNAGAR, HYDERABAD 500 029 3) THE CIT (A)-VII, HYDERABAD. 4) THE CIT(CENTRAL), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HY DERABAD.