T. Jagan Mohan Rao, Guntur, Hyderabad V. DCIT, Central Circle-3, Hyd, Hyderabad

ITA 1088/HYD/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4408 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 21-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Document seized; Opportunity of being heard; Documents seized
• Section: 143(3); 153A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S.NO. ITA NO. AY APPELLANT RESPONDENT 01. 1088/H/15 2008-09 T. JAGANMOHAN RAO, GUNTUR. PAN ABBPT 6298 D DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 3, HYD. 02 1089/H/15 2009-10 -DO- -DO- 03 1090/H/15 2010-11 -DO- -DO- 04 1097/H/15 2006-07 -DO- -DO- 05 1098/H/15 2007-08 -DO- -DO- ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI K.J. RAO DATE OF HEARING 15-11-2016 DATE OF PRONOUNCEMENT 30-11-2016 O R D E R PER BENCH: ALL THESE APPEALS ARE PERTAINING TO ONE ASSESSEE D IRECTED AGAINST A COMMON ORDER OF CIT(A) 12, HYDERABAD, D ATED, 31/03/2015 FOR ASSESSMENT YEARS 2006-07 TO 2010-11. AS IDENTICAL ISSUES ARE INVOLVED IN ALL THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER, THEREFORE, A COMMON ORDER IS PASSED FOR T HE SAKE OF CONVENIENCE. 2. ON PERUSAL OF RECORD, WE FIND THAT THERE WAS A D ELAY OF 73 DAYS IN FILING THESE APPEALS BEFORE US. TO THIS EFFECT, THE ASSESSEE FILED AN AFFIDAVIT GIVING REASONS FOR SUCH DELAY. THE REASON S ADVANCED BY THE ASSESSEE WERE CONDONABLE AND ACCORDINGLY THE DELAY IS CONDONED AND THE APPEALS WERE ADMITTED FOR HEARING. 2 ITA NO. 1088/HYD/15 AND OTHERS T. JAGAN MOHAN RAO, GUNTUR 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE WAS SEARCHED ON 16/09/2010. ACCORDINGLY, NOTICES U/S 153A WERE I SSUED AND ASSESSMENTS WERE COMPLETED ON 28/03/2013 U/S 143(3) R.W.S. 153A OF THE ACT FOR AYS 2005-06 TO 2010-11. THE ASSESSEE IS IN APPEAL BEFORE US FOR AYS 2006-07 TO 2010-11. THE DETAILS OF INCOM E RETURNED AND ASSESSED ARE GIVEN BELOW: SL.NO. AY INCOME RETURNED INCOME ASSESSED ADDITION MADE 1 2005-06 3,18,286 4,49,704 1,31,418 2 2006-07 2,67,893 3,84,182 1,16,289 3 2007-08 6,56,330 12,63,649 6,07,319 4 2008-09 8,28,270 15,53,295 7,25,025 5 2009-10 10,80,770 20,01,488 9,20,715 6 2010-11 28,24,940 49,04,151 20,79,211 4. IN THE COURSE OF SEARCH, CERTAIN PAPERS IN A/T JMR/1 PAGES 54, 55 & 56 WERE SEIZED, WHICH INDICATED THAT THE ASSESSEE RECEIVED INTEREST AT THE RATE OF 15%. AO NOTICED THAT THE AS SESSEE IS DECLARING ONLY 10% AS INTEREST AND HE ESTIMATED THE ADDITIONA L INCOME AT 8% RELYING ON THE SEIZED PAPERS AND SUBJECTED IT TO TA X AS ADDITIONAL INTEREST. HE OBSERVED THAT THE ASSESSEE IS COLLECTI NG SUBSTANTIAL AMOUNT OF INTEREST BY WAY OF CASH ON AN AVERAGE OF 8% OF THE DECLARED INCOME AND HE ASSESSED SUCH UNDISCLOSED INCOME AS ADDITIONAL INCOME. ACCORDINGLY, AO GROSSED UP THE P RINCIPAL AMOUNT AND CALCULATED INTEREST @ 18% AND AFTER REDUCING TH E DECLARED INCOME, HE TREATED THE BALANCE AS ADDITIONAL UNDISC LOSED INCOME. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 5. THE CIT(A) ANALYSED THE INTEREST INCOME IN ALL T HE AYS AND ESTIMATED THE INTEREST RATE @ 15% AS AGAINST THE 18 % ESTIMATED BY THE AO, RELYING ON THE SEIZED DOCUMENTS FOUND DURIN G THE SEARCH IN WHICH THERE IS AN AGREEMENT WITH M/S MODERN AGRO CH EMICAL INDUSTRY IN WHICH THE ASSESSEE MADE AN AGREEMENT TO RECEIVE INTEREST @ 15%. THE CIT(A) HAS NOT CONVINCED HIMSELF THAT ASSESSEE WAS LENDING AT BANK INTEREST RATE AND THE LETTER (SEIZED DURING TH E SEARCH) INDICATING 3 ITA NO. 1088/HYD/15 AND OTHERS T. JAGAN MOHAN RAO, GUNTUR INTEREST RATE @ 15% ONLY FOR SECURITY PURPOSE AND M OSTLY OF THE TRANSACTIONS WHEREWITH PRIVATE PARTIES, IT IS REASO NABLE TO PRESUME AND EXTRAPOLATE THAT HE WOULD CHARGE 15% INTEREST F ROM OTHERS AS WELL RATHER THAN CHARGE 15% FROM ONLY ONE PARTY. WITH T HE ABOVE OBSERVATIONS, THE CIT(A) DIRECTED THE AO TO ESTIMAT E INTEREST INCOME @ 15% ON THE LENDING MADE TO PRIVATE PARTIES AFTER REDUCING INTEREST ACTUALLY CHARGED. ACCORDINGLY, HE REMITTED THE MATT ERS BACK TO THE FILE OF THE AO. 6. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS O F APPEAL, WHICH ARE COMMON IN ALL THE APPEALS UNDER CONSIDERATION. 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO DET ERMINE THE INTEREST INCOME AT 15% OF THE AMOUNT DUE FROM PRIV ATE PARTIES TOTALING TO RS. 8,20,711/-. 3. ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING. 7. LD. AR SUBMITTED THAT A SEARCH WAS CONDUCTED ON 16/09/2010 AND THE DEPARTMENT HAS SEIZED THREE DOCUMENTS, I.E. A/TMJR/1 PAGES 54, 55 & 56, WHICH ARE PLACED ON RECORD BY TH E ASSESSEE IN PAPER BOOK AT PAGES 88 TO 90. HE SUBMITTED THAT TH ESE PAPERS WERE RELATING TO A LOAN GIVEN TO M/S MODERN AGRO CHEMICA L INDUSTRIES IN AY 2010-11. HE SUBMITTED THAT THE ACTUAL AMOUNT GIVEN WITH THE INTEREST RATE OF 10% WHEREAS THE DOCUMENTS SEIZED INDICATE 1 .25% PER MONTH. THIS IS ONLY ARRANGEMENT WITH THE VENDOR FOR THE SA FETY AND SECURITY OF THE LOAN AMOUNT, IN CASE OF ANY DEFAULT, SUCH INTER EST WILL BE CHARGED, BUT, IN ACTUAL, ASSESSEE HAS CHARGED @ 10% PER ANNU M. HE FURTHER SUBMITTED THAT THE AO DID NOT FIND ANY OTHER DATA T O SUBSTANTIATE THAT THE ADDITIONAL INTEREST INCOME WAS EARNED BY THE AS SESSEE. HE SUBMITTED THAT THE CIT(A) HAS PRESUMED AND HAS NO E VIDENCE NOR MADE ANY ENQUIRY WITH OTHER PARTY I.E. VENDORS. FUR THER, HE SUBMITTED THAT THE PAPER SEIZED DURING SEARCH WERE DATED 10/1 1/2009, WHICH CAN BE APPLIED ONLY TO THE VENDOR M/S MODERN AGRO C HEMICAL 4 ITA NO. 1088/HYD/15 AND OTHERS T. JAGAN MOHAN RAO, GUNTUR INDUSTRIES NOT FOR OTHERS. AO AND CIT(A) CANNOT EST IMATE INTEREST FOR THE PREVIOUS AYS RELYING ON THIS EVIDENCE WHICH IS DATED 10/11/2009. 8. LD. DR, ON THE OTHER HAND, SUBMITTED THAT THERE IS EVIDENCE FOUND DURING THE SEARCH AND SUBMITTED THAT ESTIMATI ON OF INTEREST @ 15% IS REASONABLE AND EXTRAPOLATION @ PREVAILING RA TE. HE RELIED ON THE CASE LAW IN CASE OF RAJNIK & CO. VS. ACIT (AP) , 251 ITR 561. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. AO AND CIT(A) HAVE PRESUMED AND EXTRAPOL ATED THAT THE ASSESSEE WOULD HAVE CHARGED @ 15% INTEREST FROM THE PRIVATE PARTIES INSTEAD OF DECLARED INTEREST INCOME. NO DOUBT, THE DOCUMENTS SEIZED WERE RELATING TO FY 2009-10 AND THE LETTER DATED 10 /11/2009 IN WHICH THE ASSESSEE HAS LENT RS. 20 LAKHS TO M/S MODERN AG RO CHEMICAL INDUSTRIES @ 1.25% PER MONTH, WHICH AMOUNTS TO 15% OF INTEREST PER ANNUM. APART FROM THESE DOCUMENTS, NEITHER AO NOR C IT(A) HAS BROUGHT ON RECORD ANY OTHER EVIDENCE TO PROVE THAT THE ASSESSEE HAS IN FACT EARNED INTEREST MORE THAN DECLARED BY HIM. IN OUR CONSIDERED VIEW, AO/CIT(A) SHOULD HAVE INVESTIGATED FURTHER AN D COLLECTED THE INFORMATION FROM OTHER PARTIES U/S 133(6) OF THE AC T. LENDING OF MONEY IS ON CONTRACT BETWEEN TWO PARTIES MUTUALLY AGREEIN G TO LEND THE MONEY AT THE AGREED RATE OF INTEREST, IS A HIGHLY R ISKY BUSINESS IN WHICH DOCUMENTATION IS VERY VERY IMPORTANT. IN CASE OF DEFAULT, THE DOCUMENTS WILL BE USED AS EVIDENCE. IT IS NATURAL T O ENTER INTO AN AGREEMENT WITH THE TERMS OF AGREEMENT AGREED BETWEE N BOTH THE PARTIES. DURING SEARCH OPERATION, THEY FOUND ONLY O NE DOCUMENT IN WHICH ASSESSEE HAS ENTERED INTO THE AGREEMENT WITH M/S MODERN AGRO CHEMICAL INDUSTRIES. AS PER THE DOCUMENT, THE AGREED INTEREST WAS 15% AND THE SAME MAY BE APPLIED ONLY IN THE CAS E OF M/S MODERN AGRO CHEMICAL INDUSTRIES AND CANNOT BE APPLI ED TO OTHER PARTIES OR FOR THE PREVIOUS AYS. IN VIEW OF THE ABO VE DISCUSSION, FOR THE SAKE OF JUSTICE, WE REMIT THESE CASES BACK TO T HE FILE OF THE AO TO VERIFY THE DOCUMENTS SIGNED BY THE RESPECTIVE PARTI ES AND ADOPT THE RATE AS PER THE DOCUMENTS. IN CASE OF ORAL AGREEMEN T, AO TO COLLECT 5 ITA NO. 1088/HYD/15 AND OTHERS T. JAGAN MOHAN RAO, GUNTUR INFORMATION U/S 133(6) FROM THE OTHER PARTIES AND T HE RATE DECLARED BY THE PARTIES SHOULD BE ADOPTED. NEEDLESS TO SAY, THE ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY OF BEING HEARD IN THE MATT ER. 10. IN THE RESULT, ALL THE APPEALS UNDER CONSIDERAT ION ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 30 TH NOVEMBER, 2016 KV COPY TO:- 1. T. JAGAN MOHAN RAO, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, H. NO. 3-6-643 , ST. NO. 9, HIMAYAT NAGAR, , HYDERABAD 500 0 29 2. DCIT, CENTRAL CIRCLE 3, HYDERABAD. 3. CIT(A) 12, HYDERABAD 4. PR. CIT (CENTRAL), HYDERABAD 5. DR, ITAT, HYDERABAD BENCHES, HYD ` 6. GUARD FILE 6 ITA NO. 1088/HYD/15 AND OTHERS T. JAGAN MOHAN RAO, GUNTUR S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON W HICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER