ITO Ward -1, Nalgonda, Nalgonda V. M/s. Sri Venkateswara Chit Funds, Nalgonda

ITA 1042/HYD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6256 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 29-08-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 27-05-2011
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Depreciation; Reasonable cause; Condonation of delay
• Section: 133A; 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1042/HYD/2011 2004 - 05 INCOME TAX OFFICER, WARD-1, NALGONDA M/S. SRI VENKATESWARA CHIT FUNDS, NALGONDA [PAN: AAZFS9604F] 1314/HYD/2011 2004 - 05 M/S. SRI VENKATESWARA CHIT FUNDS, NALGONDA [PAN: AAZFS9604F] ADDL. COMMISSIONER OF INCOME TAX, RANGE-9, HYDERABAD FOR REVENUE : SHRI A. SITARAMA RAO, DR FOR ASSESSEE : SHRI S. RAMA RAO, AR DATE OF HEARING : 29-08-2016 DATE OF PRONOUNCEMENT : 16-09-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE TWO ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS)-VI, HYDERABAD, DATED 15-02-2011. THE APP EAL BY ASSESSEE WAS FILED WITH A DELAY OF 44 (FORTY FOUR) D AYS. ASSESSEE FILED A PETITION FOR CONDONATION OF DELAY EXPLAINING T HE REASON THAT DURING THE RELEVANT PERIOD, THE BUSINESS OF ASSESSEE REMAIN CLOSED AND STAFF HAVE LEFT THE SERVICES. THERE WERE COURT CAS ES ALSO BY THE PRIZED BIDDERS AND CHEQUE BOUNCING CASES. MANAGING PARTNER ALONE WAS LOOKING AFTER THE AFFAIRS AND THE DELAY WAS DUE TO MANY I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 2 -: FACTORS INCLUDING ILL-HEALTH OF MANAGING PARTNER. CON SIDERING THE PRAYER AND THE OBJECTION OF LD. DR, WE HEREBY CONDONE THE DELAY AS ASSESSEE HAS REASONABLE CAUSE IN NOT PREFERRING THE A PPEAL IN TIME. APPEAL IS ADMITTED. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PARTNERSH IP FIRM CARRYING ON CHIT FUND ACTIVITY. FOR THE AY. 200 4-05, IT FILED ITS RETURN OF INCOME ON 29-11-2004 ADMITTING AN INCOME OF RS. 42,400/-. THE SAID RETURN WAS ORIGINALLY PROCESSED U/S. 143(1) OF THE INCOME TAX ACT [ACT]. THE ASSESSING OFFICER (AO), THEREAFTER, CONDUCTED SURVEY U/S. 133A OF THE ACT AT THE PREMISES OF ASSESSEE ON 30-09-2007. AO DURING THE COURSE OF SURVEY, IMP OUNDED CERTAIN BOOKS OF ACCOUNT SHOWING SUPPRESSION OF RECEI PTS AND INFLATION OF EXPENDITURE. AO ACCORDINGLY ISSUED A N OTICE U/S. 148. AO MENTIONS THAT ON VERIFICATION OF THE ACCOUNTS IT IS R EVEALED THAT SOME OF THE ENTRIES MADE IN THE BOOKS OF ACCOUNT ARE NO T CONSIDERED WHILE PREPARING THE RETURN OF INCOME; CER TAIN TRANSACTIONS WERE NOT AT ALL REPORTED TO THE DEPARTMENT; TH E P&L A/C PREPARED AND ANNEXED TO THE RETURN OF INCOME DID N OT TALLY WITH THE BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE; THER E IS ALSO DISCREPANCY BETWEEN THE BOOKS OF ACCOUNT OF ONE YEAR AND ANOTHER YEAR AS THE OPENING AND CLOSING BALANCES ARE NOT TALLY ING; SOME OF THE ENTRIES ARE NOT MADE IN THE BOOKS OF ACCOUNT. THE AO ALSO FOUND THAT THERE IS AN ACCOUNT PARTNERS SITTING FEE W HICH IS AN IMPREST ACCOUNT MAINTAINED BY THE MANAGING PARTNER AN D THAT SOME OF THE EXPENDITURE RECORDED THEREIN IS NOT ADMISS IBLE AS PER LAW. ACCORDINGLY, HE PASSED THE ASSESSMENT ORDER DET ERMINING THE TOTAL INCOME AT RS. 50,02,650/-. HE MADE THE FOLLOWIN G ADDITIONS: I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 3 -: RS. 1. UNEXPLAINED CREDIT IN OPENING BALANCES 5,74,132 2. UNEXPLAINED CREDIT IN THE ACCOUNTS OF PARTNERS 10,00,000 3. DISALLOWANCE OF SA LARY OF K. MOHAN REDDY 18,000 4. UNEXPLAINED CREDIT TOWARDS EXCESS OF LIABILITIES IN BOOKS 25,11,297 5. UNEXPLAINED CREDIT FOR DEFICIT OF ASSETS IN BOOKS 83,242 6. ADDITION FOR SUPPRESSION OF INCOME 1,082 7. ADDITION FOR INFLATION OF EXPENDITURE 6,01, 860 8. DISALLOWANCE OF PART OF EXPENSES OF PARTNERS SITTING FEES 1,72,900 9. DISALLOWANCE OF DEPRECIATION 4,705 10. DISALLOWANCE OF DONATIONS 7,000 3. ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE AO WAS NOT CORRECT IN CONSIDERING AMOUN TS FROM INCOMPLETE BOOKS OF ACCOUNTS AND FINAL STATEMENTS FILED BEFORE THE DEPARTMENT AND ALSO CONSIDERING THE ASSETS A ND LIABILITIES AND DEBITS AND CREDITS SEPARATELY WITHOUT RE-CONCILING THEM. IT WAS ALSO SUBMITTED THAT CERTAIN CASH TRANSACTIO NS INCLUDING CREDIT BY PARTNERS WERE NOT ENTERED IN THE BOOKS OF ACCOUNT WHICH ARE NOT COMPLETE BUT ADJUSTED IN FINAL AC COUNTS PREPARED. THE DIFFERENCE AROSE DUE TO THESE FACTORS. 4. LD. CIT(A) CONSIDERING THE EXPLANATION AND DOCUM ENTS PLACED ON RECORD, DELETED FULLY/ PARTIALLY THE FOLLOW ING ADDITIONS: RS. 2. UNEXPLAINED CREDIT IN THE ACCOUNTS OF PARTNERS 10,00,000 FULL 4. UNEXPLAINED CREDIT TOWARDS EXCESS OF LIABILITIES IN BOOKS 25,11,297 PARTIAL RELIEF TO THE EXTENT OF RS.20,28,000 8. DISALLOW ANCE OF PART OF EXPENSES OF PARTNERS SITTING FEES 1,72,900 PARTIAL RELIEF TO THE EXTENT OF RS.1,20,000 I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 4 -: BALANCE OF ADDITIONS WERE CONFIRMED BY LD. CIT(A). H ENCE BOTH PARTIES ARE AGGRIEVED. 5. LD. COUNSEL SUBMITTED THAT THE AO HAS COMPARED THE FINAL STATEMENTS FILED IN EARLIER YEAR AND INCOMPLETE BOOKS OF THIS YEAR AND ALSO FINAL STATEMENTS OF THIS YEAR FILED WITH R ETURN OF INCOME. IT WAS SUBMITTED THAT THE PARTNERS CASH INTRODUCED AS CAPITAL WAS ADJUSTED IN FINAL ACCOUNTS LAST YEAR AS WELL AS IN THIS YEAR AND THE SAME RESULTED IN VARIOUS DIFFERENCES IN CAPITAL ACCOUNTS, EXPENDITURES AND CLAIMS ETC. NOT ONLY THAT I N TRIAL BALANCE, THE ASSETS AND LIABILITIES WERE SHOWN SEPARATE LY WHEREAS IN FINAL ACCOUNTS, THESE WERE SHOWN AT NET AMOUNTS. THEREFORE, CIT(A) WAS NOT CORRECT IN ACCEPTING PARTLY WHERE AS AL L THE ADDITIONS ARE EXPLAINABLE. 6. LD. DR HOWEVER, EXPLAINED THE DETAILS OF ADDITIONS MADE FROM THE ASSESSMENT ORDER AND SUBMITTED THAT SURVEY HAS B EEN CONDUCTED AFTER THREE YEARS AND SO ASSESSEES STATEMEN T THAT BOOKS OF ACCOUNTS WERE NOT CLOSED OR FINAL ENTRIES WERE NOT M ADE IS NOT CORRECT. THE ACCEPTANCE OF ASSESSEE CONTENTIONS BY LD. CIT(A) IS NOT CORRECT AND SUPPORTED THE GROUNDS RAISED BY REVENUE . 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE PAPER BOOK PLACED ON RECORD. CERTAIN FACTS ARE TO BE NOTED BEFORE ADJUDICATING THE VARIOUS ADDITIONS: ASSESSEE EVEN THOUGH HAS MAINTAINED BOOKS OF ACCOUNT, THEY ARE NOT COMPLETE AS THE FINAL ENTRIES HAVE NOT BEEN I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 5 -: INCORPORATED BY WAY OF JOURNAL ENTRIES IN THE BOOKS OF ACCOUNT; ASSESSEE HAS NOT SUBJECTED THE BOOKS OF ACCOUNT TO AUDI T AS ASSESSEES TURNOVER IS LESS THAN RS. 40 LAKHS AND COMPULSORY AUDIT WAS NOT PRESCRIBED; AO HIMSELF ACCEPTS VIDE PARA VI IN PAGE 9 OF THE ORD ER THAT MANAGING PARTNER HAS MAINTAINED THE SEPARATE CASH IMP REST ACCOUNT AND AO HAS VERIFIED THOSE AMOUNT ALSO. IN FAC T, HIS FINDING ON THIS IS AS UNDER: THIS BOOK IS ACCEPTED AS EVIDENCE BECAUSE THE ACCO UNT IS PRESENT IN THE ORIGINAL LEDGER, THERE IS EVIDENCE O F AMOUNTS DRAWN THROUGH BANK CHEQUES AND SOME ENTRIES ARE VARIABLE LIKE PAYMENTS TO REGISTRAR OFFICE AND INTEREST TO PARTNE RS ETC. PART OF THE RENT, TRAVELLING EXPENSES, VEHICLE HIRE CHARGES , CASH DISCOUNTS, GENERAL EXPENDITURE, AGENTS MEETING EXPENSES, STAFF WELFARE AND HOSPITALITY ETC., ARE MADE THROUGH THIS ACCOUNT. T HAT IS WHY SOME OF THE ACCOUNTS SHOWN IN P&L A/C ARE MISSING FROM T HE MAIN LEDGER. WITH THESE FINDINGS, THE AO HAS ACCEPTED CERTAIN TRANSAC TIONS WHICH INDICATE THAT THE BOOKS OF ACCOUNT ARE NOT COMPLE TE IN ALL RESPECTS. THE AO INSTEAD OF RECONCILING THE ACCOUNTS WITH THAT OF JOURNAL ENTRIES OR ASKING FOR EXPLANATION FOR THE MISS ING ENTRIES/DIFFERENCE IN THE AMOUNTS, SIMPLY ADDED ALL THE AMOUNTS; BOTH ON ASSETS SIDE AS WELL AS LIABILITIES SI DE IN THE BALANCE SHEET. NOT ONLY THAT, THE DIFFERENCES IN THE REC EIPTS AS WELL AS PAYMENTS, NOT ONLY OF THE FINAL STATEMENTS FI LED ALONG WITH THE RETURN OF INCOME AND THE BOOKS OF ACC OUNT I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 6 -: BUT ALSO FROM THE FINAL ACCOUNTS OF THE PREVIOUS YEAR W ERE ADDED; AO HAS NOT RECONCILED THE FINAL STATEMENTS OF EARLIER Y EARS RETURN WITH THAT OF FINAL STATEMENT OF THIS YEARS RETURN. KEEPING THE ABOVE FACTS AS CULLED OUT FROM THE ORDERS A ND DOCUMENTS ON RECORD, WE HAVE EXAMINED VARIOUS CONTEN TIONS AND THE FINDINGS ON EACH OF THE ADDITION MADE BY THE AO IN THE ASSESSMENT ORDER ARE AS UNDER: ADDITION OF UN-EXPLAINED CREDIT IN OPENING BALANCE OF RS. 5,74,132/-: 8. AO HAS ADDED AN AMOUNT OF RS. 5,74,132/- ON THE DIFFERENCE BETWEEN THE CLOSING BALANCE IN CERTAIN ITEM S AS ON 31- 03-2003 I.E., FINAL ACCOUNTS ENCLOSED TO THE RETURN OF INCOME IN AY. 2003-04 AND OPENING BALANCE AS ON 01-04-2003 IN THE BOOKS OF ACCOUNT FOR THIS YEAR. AO HAS LISTED THE DIFFERENCE IN LIABILITIES SIDE AND ASSETS SIDE AND MAJOR DIFFERENCE IS WITH RE FERENCE TO ARREAR OF CHIT SUBSCRIPTIONS AND CASH IN HAND. THE DIFFERENCE OF LIABILITIES SIDE IS ONLY RS. 446/-. IT WAS THE EXPLA NATION OF ASSESSEE BEFORE THE LD. CIT(A) (AS WELL AS BEFORE THE AO) THAT THE FINAL STATEMENTS FILED ALONG WITH RETURN OF INCOME ARE A FTER ADJUSTING THE PARTNERS CAPITAL ACCOUNTS, WHEREIN EACH OF THE PARTNERS HAVE CONTRIBUTED RS. ONE LAKH EACH TOTALLING TO RS. 5 LAKHS DURING THAT YEAR AND THOSE AMOUNTS HAVE NOT BEEN CARRIED OVER AS OPENING BALANCE IN THE BOOKS OF ACCOUNT FOR T HIS YEAR. SINCE THE ENTRIES ARE SHOWN IN THE FINAL ACCOUNTS FILE D FOR THE EARLIER YEAR, THE DISCREPANCY OF RS. 5 LAKHS IN CASH RECEIPT HAS I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 7 -: COME IN THE OPENING CASH BALANCE OF THIS YEAR. FURTHE R, AN AMOUNT OF RS. 79,312/- WAS COLLECTED FROM THE SUBSCR IPTIONS ON THE CHITS, WHICH WAS SHOWN AS A DIFFERENCE IN THE STATEM ENTS, WHEREAS THIS AMOUNT COLLECTED WAS ADJUSTED IN THE FINAL ACCOUNTS. THUS, THE TOTAL AMOUNT OF RS. 5,79,312/- HAS AFFECTED N OT ONLY THE CASH DIFFERENCE BUT ALSO VARIOUS OTHER ACCOUNTS. SINC E THE PARTNERS HAVE CONTRIBUTED THE AMOUNT IN THE EARLIER YEAR WHICH WAS ALREADY ACCEPTED, AN AMOUNT OF RS. 5 LAKHS CANNO T BE CONSIDERED AS DISCREPANCY IN THIS YEAR. WITH REFE RENCE TO THE AMOUNT OF RS. 79,312/- COLLECTED FROM VARIOUS SUBSCR IBERS, THIS HAS COME IN FOR ADJUSTMENT IN VARIOUS CHIT SUBSCRIPTION S ACCOUNT, THEREFORE, AS PER THE BOOKS, THE CHITS SUBSCRIPTION AM OUNT WAS AT RS. 25,93,234/-. BUT IN THE FINAL STATEMENTS IT WAS RS. 25,93,234/-. SINCE THESE AMOUNTS HAVE BEEN RECONCILED/RECONCILABLE, ADDITION IS NOT WARRANTED. L D. CIT(A) DID NOT AGREE WITH THE CONTENTION AND UPHELD THE ADDITION AND ASSESSEE HAS RAISED THE GROUND ON THIS. 8.1. AFTER CONSIDERING THE EXPLANATION OF ASSESSEE AN D EXAMINING THE RECORD, WE ARE OF THE OPINION THAT THE AD DITION CANNOT BE SUSTAINED. THE EXPLANATION IS PROPER AS PE R THE FINAL ACCOUNTS SUBMITTED TO THE DEPARTMENT NOT ONLY THIS YEAR BU T ALSO IN EARLIER YEAR. IN VIEW OF THIS, GROUND OF ASSESSE E IS ALLOWED. UN-EXPLAINED CREDIT IN THE ACCOUNTS OF PARTNERS RS. 10 LAKHS: 9. THIS ADDITION WAS MADE BY THE AO IN PARA 2 OF THE ORDER. AO WAS OF THE OPINION THAT IN THE CAPITAL ACCOU NT OF EACH PARTNER, RS. 2 LAKHS CASH WAS SHOWN IN FINAL ACCOUNTS FILED WITH IT I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 8 -: RETURN, BUT IN THE LEDGER FOR THE YEAR, NO ACCOUNT IS P RESENT FOR ANY OF THE PARTNERS AND ALSO IN THE CASH BOOK, NO SUCH CA SH INTRODUCTION WAS SEEN. HE HOWEVER, CALLED FOR EXPLAN ATION AND FOUND THAT TRIAL BALANCE FILED ON 12-12-2008 PARTNERS A CCOUNT IS SHOWN AT RS. 2,66,000/-. HE WAS OF THE OPINION THAT TH ERE IS NO BASIS FOR THE FIGURE OF RS. 2,66,000/- IN EACH PARTN ERS ACCOUNT. THEREFORE, RS. 10 LAKHS I.E., FIVE PARTNERS AT RS. 2 LAKHS EACH WAS ADDED U/S. 68 AS UNEXPLAINED CASH CREDIT. HOWEVER , HE DID NOT DISTURB THE INTEREST WORKED OUT ON THE ENTIRE CAPITAL. LD. CIT(A) HAS ACCEPTED ASSESSEES SUBMISSION THAT EACH OF THE PA RTNER HAS INTRODUCED RS. 2 LAKHS DURING THE YEAR AND THESE WERE CARRIED OVER IN THE FINAL ACCOUNTS AND RECONCILED WITH THE RETURNS F ILED BY THE PARTNERS IN THEIR INDIVIDUAL HANDS, NOT ONLY IN THIS YE AR BUT ALSO IN EARLIER YEARS. LD. CIT(A) HAS ACCEPTED THE FACT THAT P ARTNERS HAVE INTRODUCED RS. 2 LAKHS EACH AND THEY HAVE SOURCES AND SHOWN IN THEIR RETURN OF INCOME. THE ADDITION WAS DELETED. H ENCE, REVENUE IS AGGRIEVED AND PREFERRED THE GROUND ON THIS ISSUE. 9.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) . FIRST OF ALL, WE ARE UNABLE TO UNDERSTAND HOW THE AO COULD MAKE ADD ITION OF RS. 10 LAKHS, WHEN HE HIMSELF GIVES A FINDING THAT TH ERE IS NEITHER CASH INTRODUCTION IN CASH BOOK NOR THERE IS A LEDGER A CCOUNT IN THE BOOKS OF ACCOUNT, SO RELIED UPON BY HIM. THE ADDITI ON U/S. 68 IS NOT WARRANTED AS THERE IS NO SUCH CREDIT IN BOOKS OF A CCOUNT. BE THAT AS IT MAY, ASSESSEE IN THE FINAL ACCOUNTS HAS SHO WN RS. 2 LAKHS CREDIT IN THE NAME OF EACH OF THE PARTNERS AND H AS FILED THE RETURNS IN THEIR INDIVIDUAL CAPACITIES ADMITTING THE CAS H CREDITS. THE AO COULD HAVE VERIFIED THESE IN THE INDIVIDUAL HA NDS BUT NOT IN I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 9 -: THE FIRMS HANDS. THEREFORE, CIT(A)S ORDER IS CORR ECT NOT ONLY ON FACTS BUT ALSO ON LAW. THERE IS NO MERIT IN REVENUES GROUND, ACCORDINGLY THE SAME IS DISMISSED. DISALLOWANCE OF SALARY OF SHRI K. MOHAN REDDY: 10. AN AMOUNT OF RS. 18,000/- WAS DISALLOWED AS SAL ARY PAID TO ONE OF THE PARTNERS SHRI K. MOHAN REDDY. ACCO RDING TO AO, THE SAID PARTNER IS NOT A WORKING PARTNER AND THEREFORE, SALARY TO HIM IS NOT AN ALLOWANCE, IN VIEW OF THE PROVISIONS O F SECTION 40(B) OF THE ACT. AO RELIED ON THE STATEMENT RECORDED FROM TH E SAID PARTNER WHO STATED THAT HE HAS NO ACTIVE ROLE IN CHIT FUN D COMPANY. LD. CIT(A) ALSO CONFIRMED THE DISALLOWANC E. 10.1. AFTER CONSIDERING THE RIVAL CONTENTIONS AND EXA MINING THE STATEMENT PLACED ON RECORD AT PGS. 33-35 OF THE PAP ER BOOK, WE ARE OF THE OPINION THAT THE DISALLOWANCE IS NOT WARRANTE D. FIRST OF ALL, THE STATEMENT RECORDED U/S. 131 CLEARLY INDICATES TH AT SHRI MOHAN REDDY IS AWARE ABOUT HIS PARTNERSHIP IN THE FIRM AND ADMITS THAT HE IS RESPONSIBLE AS A PARTNER FOR ALL AFFA IRS OF THE FIRM. IN FACT, QUESTION NO. 3 ITSELF ASKS HIM ABOUT THE AC TIVE ROLE IN THE DAY-TO-DAY AFFAIRS OF THE CHIT FUND FOR WHICH HE REP LIED THAT HE HAS NO ACTIVE ROLE AS IT WAS LOOKED AFTER BY SHRI A. VEN KATESH. THIS ANSWER GIVEN TO A SPECIFIC QUESTION DOES NOT MEAN THAT H E IS NOT A WORKING PARTNER. MANAGING PARTNER AND WORKING PARTNER HAVE DIFFERENT ROLES. AS SEEN FROM THE P&L A/C AN AMOUNT OF RS. 54,000/- WAS PAID AS SALARIES TO PARTNERS AND THREE OF THE FIVE PARTNERS ARE GETTING RS. 18,000/- EACH. ONLY THE SALAR Y PAID TO SHRI MOHAN REDDY WAS DISALLOWED ON THE BASIS OF SO CALLED I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 10 -: STATEMENT. WE DO NOT AGREE WITH THE OBSERVATION OF THE AO AS THE DISALLOWANCE HAS NO BASIS. AO IS DIRECTED TO ALLOW THE AMOUNT AS CLAIMED. GROUND IS ALLOWED. UNEXPLAINED CREDIT TOWARDS EXCESS LIABILITIES IN THE BO OKS RS. 25,11,297/-: 11. AO OBSERVED THAT THERE ARE CERTAIN DISCREPANCIES A ND THERE IS EXCESS OF LIABILITIES IN BOOKS OF ACCOUNT OF RS. 25,11,297/-. AO MADE ADDITION VIDE PARA 4 OF THE ASSESSMENT ORDER B Y COMPARING THE FIGURES ADMITTED IN THE RETURN OF INCOME AND FIGURES FOUND DURING THE COURSE OF SURVEY IN THE BOOKS OF AC COUNT. ASSESSEE EXPLAINED BEFORE THE CIT(A) THAT ASSETS AND L IABILITIES ARE TO BE RECONCILED. IT WAS SUBMITTED THAT DIFFERENCE ON AC COUNT OF LIABILITY ON OWN CHITS WAS WORKED OUT AT RS. 28,13,00 0/-, WHEREAS INVESTMENT ON OWN CHITS WAS AT RS. 20,28,000/-. IF TH ESE AMOUNTS ARE RECONCILED, THERE WOULD BE NO DIFFERENCE. HOWEV ER, LD. CIT(A) WHILE ACCEPTING THE DEDUCTION OF RS. 20,28,000/-, CON FIRMED AN ADDITION OF RS. 4,83,297/-. BOTH REVENUE AND ASSESSE E ARE AGGRIEVED ON THIS. 11.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, CONSID ERING THAT BOOKS OF ACCOUNT ARE NOT COMPLETE EVEN THOUGH THEY ARE IMPOUNDED AFTER THREE YEARS OF CLOSURE OF THE ACCOUN TING YEAR, THE RECONCILIATION GIVEN BY ASSESSEE WAS NOT CORRECTLY AP PRECIATED BY THE AO OR CIT(A). SINCE THE FINAL ACCOUNTS ARE TALLYIN G, THE SO CALLED DISCREPANCIES ON THE BASIS OF INCOMPLETE BOOK S CANNOT LEAD TO AN ADDITION THAT TOO, WHEN ASSESSEE WAS EXPLAINING THA T BOTH THE ASSETS AND LIABILITIES ARE TO BE RECONCILED. CONSI DERING THE RECONCILIATION FILED BY ASSESSEE BEFORE THE CIT(A), WE ARE OF THE I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 11 -: OPINION THAT THERE IS NO NEED FOR ANY ADDITION ON THI S ACCOUNT. ACCORDINGLY, THE ORDER OF CIT(A), DELETING THE AMOUNT O F RS. 20,28,000/- WAS CONFIRMED AND THE BALANCE CONFIRMED AMOUNT OF RS. 4,83,297/- IS ALSO DIRECTED TO BE DELETED. REVE NUES GROUND IS ACCORDINGLY DISMISSED AND ASSESSEES GROUND IS ALLO WED. ADDITION OF SUPPRESSION OF INCOME OF RS. 1,082/-: 12. AO BY BRIEFLY STATING THAT AN AMOUNT OF RS. 1,082 /- WAS SHORT COMPUTED IN THE DIVIDEND ACCOUNT MADE AN ADDITION WHICH ASSESSEE CONTENDS THAT DIVIDEND IS CORRECTLY ACCOUNTED. THERE IS NO CLARITY IN THE ADDITION OF AO. AS SEEN FROM PARA 4 OF THE ORDER, THE SO CALLED DISCREPANCIES BETWEEN BOOKS AND ENTRIES IN THE FINAL STATEMENTS ON THE LIABILITIES SIDE, THERE WAS A DIFFEREN CE OF RS. - 450/- IN THE DIVIDEND PAYABLE ACCOUNT. ON THE ASSETS SIDE, THERE IS NO DISCREPANCY ON THIS ACCOUNT BUT IN THE INCOME ON CHITS, THERE IS A DISCREPANCY OF RS. 1203.99, AS PER THE AO IN THE TABLE PROVIDED. INSTEAD OF RECONCILING DIVIDEND PAYABLE A ND DIVIDEND ON CHIT ACCOUNTS AND FURTHER WITHOUT VERIFYING THE FINAL STATE MENTS, THE AO HAS ARRIVED AT THE SO CALLED DISCREPANCY. IT I S NOT AN ADDITION OF SHORT COMPUTATION OF DIVIDEND INCOME BUT NET OF DIVIDEND, MISCELLANEOUS INCOME AND PENALTIES. AS FA R AS MISCELLANEOUS INCOME IS CONCERNED, IN THE FINAL ACCO UNTS, ASSESSEE OFFERED RS. 57,123/- AS INCOME, WHEREAS IN THE BOOKS , IT WAS ONLY RS. 33,510/-, THEREBY A NEGATIVE FIGURE OF RS. 23,61 3/- WAS ARRIVED AT IN THE TABLE. IN FACT, ASSESSEE HAS OFFERED HIGHE R INCOME IN THE FINAL STATEMENTS. SINCE AO HAS NOT VERIFIED THE FINAL S TATEMENTS AND HIS SO CALLED DISCREPANCIES ARE BASED ON INCOMP LETE BOOKS OF ACCOUNT, WE DO NOT SEE ANY REASON TO CONFIRM THE NET DI SCREPANCY SO ARRIVED AT BY THE AO. GROUND IS ALLOWED. I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 12 -: INFLATION OF EXPENDITURE RS. 6,01,860/-: 13. AN AMOUNT OF RS. 6,01,860/- WAS DISALLOWED AS SUPPRESSION/ INFLATION OF EXPENDITURE BY LISTING OUT I N THE TABLE UNDER THE HEAD EXPENDITURE. AS BRIEFLY STATED EARLIE R, AO HAS COMPARED THE FINAL ACCOUNTS AND INCOMPLETE BOOKS OF ACCOUNT. IN THE LAST COLUMN OF THE TABLE ITSELF, AO HAS GIVEN REMARK S THAT MOST OF THE EXPENDITURE HAS MET FROM THE PARTNERS SITTING FEE A CCOUNT AND FOR EACH OF THE AMOUNTS THERE WAS AN EXPLANATION GI VEN. THE ULTIMATE DIFFERENCE BETWEEN THE TWO COLUMNS WAS ARRIV ED AT RS. 6,01,860/-. EVEN THOUGH AO HAS GIVEN VARIOUS EXPLAN ATIONS IN THE ASSESSMENT ORDER ITSELF SURPRISINGLY, HE DISALLOWS TH E AMOUNT IN THE ORDER. LD. CIT(A) ALSO CONFIRMED THE AMOUNT STATIN G THAT ASSESSEES TELESCOPING REQUEST CANNOT BE GIVEN AS AP PELLANT DID NOT GIVE PROPER EXPLANATION. 13.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE SURPRISED THAT AO EVEN AFTER RECONCILING THE AMOUNT AS NOTED DOWN THE LAST COLUMN OF THE TABLE THOUGHT IT FIT TO DISALLOW THE AMOUNT. CONSIDERING THE VERY SAME EXPLANATION, WE ARE OF THE OPINION THAT NO DISALLOWANCE IS CALLED FOR AS THE SO CALLED DISCR EPANCIES AROSE BECAUSE OF COMPARISONS UNDER TAKEN ON THE BASIS OF IN COMPLETE BOOKS OF ACCOUNT AND FINAL STATEMENTS. THERE CANNOT B E ANY INFLATION OF EXPENDITURE, WHEN ALL THE EXPENDITURES WE RE CORRECTLY CLAIMED BY ASSESSEE IN THE FINAL STATEMENTS. GROUND OF ASSESSEE IS ALLOWED. I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 13 -: DISALLOWANCE OF PART OF EXPENSES OF PARTNERS SITTING FE ES OF RS. 1,72,900/-: 14. ACCORDING TO AO, THERE IS EXCESS PAYMENT OF INTER EST TO PARTNERS OF RS. 13,300/- AND SITTING FEE OF RS. 1,59, 600/- WHICH WAS DISALLOWED. THE LD. CIT(A) GAVE PARTIAL RELIEF OF RS. 1,20,000/-. 14.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE UNABLE TO UNDERSTAND HOW THE INTEREST AT 12% OF RS. 1,59,600/- CA N BE DISALLOWED. AS SEEN FROM THE FINAL STATEMENTS, THE ENTIR E INTEREST ON PARTNERS CAPITAL CLAIMED WAS ONLY RS. 51,800/- AN D THE AMOUNT CLAIMED IN THE P&L A/C WAS RS. 51,800/- ONLY. HOW A N AMOUNT OF RS. 1,59,600/- COULD BE DISALLOWED IS NOT EXPLAINAB LE. THEREFORE, WE DO NOT FIND ANY REASON TO CONFIRM THE ADDITION SO MA DE, BASED ON THE SO CALLED ENTRIES IN THE PARTNERS SITTING FEE A CCOUNT IN CASH IMPREST MAINTAINED BY MANAGING PARTNER. HOWEVER, WITH REFERENCE TO THE DISALLOWANCE OF RS. 15,791/- CONSIDERED TO BE MISCELLANEOUS EXPENDITURE, WE CONFIRM THE DISALLOWANCE AS THE INTERES T FOR BUSINESS PURPOSES IS NOT EXPLAINED. THEREFORE, WHILE CONFIRMING THE AMOUNT OF RS. 15,791/-, ASSESSEE GETS RELIEF OF R S. 1,59,600/-. GROUND IS PARTLY ALLOWED. 15. THE LAST GROUND IN ASSESSEES APPEAL IS WITH RE FERENCE TO DISCREPANCY IN DEPRECIATION CLAIM AND DONATION. AS FAR AS CLAIM OF DEPRECIATION IS CONCERNED, SAME WAS DISALLOWED ON TH E BASIS OF INCOMPLETE BOOKS OF ACCOUNT WITHOUT CONSIDERING THE FINAL STATEMENTS. THEREFORE, WE ARE OF THE OPINION THAT THERE CANNOT BE ANY DISALLOWANCE, SO LONG AS THE FINAL STATEMENTS HAVE NOT BEEN I.T.A. NOS. 1042/HYD/2011 1314/HYD/2011 SRI VENKATESWARA CHIT FUNDS :- 14 -: EXAMINED PROPERLY BY THE AO. AS FAR AS DONATION IS CONCERNED, CONSIDERING THE NATURE OF THE AMOUNT, WE UPHOLD THE DIS ALLOWANCE. 16. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED AN D APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 16 TH SEPTEMBER, 2016 TNMM COPY TO : 1. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-9, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-I, NALGONDA. 3. M/S. SRI VENKATESWARA CHIT FUNDS, NALGONDA. C/O. S. RAMA RAO, ADVOCATE, 3-6-643, SHRIYAS ELEGANCE, FLAT NO. 102, ST. NO. 9, HIMAYATNAGAR, HYDERABAD. 4. CIT(APPEALS)-VI, HYDERABAD. 5. CIT-VI, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.