D. Nagarjuna Rao, Hyd, Hyderabad V. ACIT Circle-8(1), Hyderabad

ITA 1102/HYD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74441 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Salary income
• Section: 234B; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NOS. 1102 & 2088/HYD/2011 ASSESSMENT YEARS : 2007-08 & 2008-09 D. NAGARJUNA RAO, HYDERABAD. PAN: ABPPD 7429Q ASST. COMMISSIONER OF INCOME- TAX, CIRCLE - 8(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI S. RAMA RAO REVENUE BY SHRI P. SOMASEKHAR REDDY DATE OF HEARING : 04-11-2013 DATE OF PRONOUNCEMENT : 01-01-2014 O R D E R PER BENCH: THESE APPEALS BY ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF CIT(A)-III, HYDERABAD. SINCE IDENTICAL ISSUES ARE I NVOLVED, THESE APPEALS WERE CLUBBED AND HEARD TOGETHER AND, THEREF ORE, WE DISPOSE OF THESE APPEALS BY WAY OF THIS CONSOLIDATED ORDER. WE HAVE HEARD LD.COUNSEL AND LD. CIT DR IN DETAIL. ITA NO. 1102/HYD/2011 FOR AY 2007-08. 2. GROUND NO. 1 & 2 ARE GENERAL IN NATURE. GROUND N O.3 IS PERTAINING TO CASH CREDIT. GROUND NO. 4 IS PERTAI NING TO DISALLOWANCE OF TRANSPORT EXPENDITURE. GROUND NO. 5 IS DISALLOWA NCE OF INTEREST AND GROUND NO. 6 IS CHARGING OF INTEREST U/S 234B & 23 4C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. 2 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO 3. AS REGARDS GROUND NO. 3 PERTAINING TO CASH CREDI T, THE AO NOTICED THAT DURING THE PREVIOUS YEAR RELEVANT TO A Y, ASSESSEE HAD CLAIMED RECEIPT OF UNSECURED LOAN OF RS. 6,85,000/- FROM ONE SRI D. UMA MAHESWARARAO. IN SUPPORT OF SUCH LOAN, ASSESSEE HAD FILED A CONFIRMATION LETTER FROM THE SAID PERSON, WHEREIN I T WAS STATED THAT HE HAD GIVEN AN AMOUNT OF RS. 6,85,000/- TO ASSESSEE T HROUGH CHEQUE DATED 26-10-2006. IN THAT LETTER, THOUGH THE SAID P ERSON HAD STATED ABOUT WORKING IN SAUDI ARABIA SINCE MORE THAN 12 YE ARS, IN ABSENCE OF DETAILS OF HIS SALARY INCOME FURNISHED IN THAT L ETTER AND IN THE ABSENCE OF ANY EVIDENCE FURNISHED BY THE SAID PERSO N IN SUPPORT OF HIS CREDITWORTHINESS, THE AO DID NOT ACCEPT SUCH LO AN AS GENUINE. FURTHER STATING THAT ASSESSEE HAD FAILED TO ESTABLI SH GENUINENESS OF SUCH TRANSACTION AND ALSO THE CREDITWORTHINESS OF T HAT PERSON, THE AO HELD THAT THE SAID AMOUNT SHOWN AS UNSECURED LOAN I N HIS INCOME, CANNOT BE ACCEPTED AS GENUINE. HE, THEREFORE, ADDED THE SAID AMOUNT TO INCOME OF ASSESSEE TREATING THE SAME AS UNEXPLAI NED CREDIT U/S 68 OF THE ACT. ON APPEAL, THE CIT(A) CONFIRMED THE ACT ION OF THE AO BY OBSERVING AS UNDER: 4.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE FACTS OF THE CASE. I HAVE PERUSED THE SAID CONFIRMATION LETTER. IT HAS BEEN SUBMITTED THAT SUCH AMOUNT WAS RECEIVED THROUGH CHEQUE. FROM THE SAID CONFIRMATION LETTER, IT IS SEEN THAT THE SAID PERSON HAS MERELY STATED THAT HE HAS PROVIDED AMOUNT OF RS. 6,85,000/- ON 26.10.2006 VIDE CHEQUE NO. 216126. HOWEVER, IN ABSENCE OF THE DETAILS OF SUCH CHEQUE I.E. THE NAME AND ADDRESS OF THE BANK ON WHICH SUCH CHEQ UE WAS DRAWN AND ALSO THE ACCOUNT NUMBER FROM WHICH THE SA ME WAS ISSUED, IT CANNOT BE SAID THAT SUCH LOAN WAS GENUIN E. FURTHER, IN THAT LETTER THE SAID PERSON HAS MERELY STATED THAT HE IS WORKING IN SAUDI ARABIA SINCE MORE THAN 12 YEARS AND HE HAS PROVIDED SUCH AMOUNT OUT OF HIS SALARY EARNINGS. HOWEVER, IN ABSENCE OF THE DETAILS/PARTICULARS OF THE ORGANIZATION IN WHIC H HE WAS WORKING AND ALSO THE DETAILS OF SALARY ETC., EARNED BY HIM, FURNISHED IN THAT CONFIRMATION LETTER, IT CANNOT BE ACCEPTED THAT HE HAS ACTUALLY ADVANCED SUCH AMOUNT OUT OF HIS EAR NINGS ABROAD, DURING THE PREVIOUS YEAR. IN FACT, THE SAID PERSON HAS FAILED TO ESTABLISH SUCH UNSECURED LOAN, CLAIMED TO HAVE BEEN GIVEN TO ASSESSEE. F8URTHER, THE APPELLANT HAS ALSO FAILED TO ESTABLISH GENUINENESS OF SUCH TRANSACTION FOR AN AM OUNT OF RS. 3 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO 6,85,000/-. UNDER THESE CIRCUMSTANCES, AND HAVING R EGARD TO THE REASONS STATED BY THE AO IN PARA 3 OF THE ASSES SMENT ORDER, THE SAID ADDITION MADE BY HIM TOWARDS UNEXPL AINED CREDIT U/S 68 OF THE ACT, IN THIS CASE IS JUSTIFIED. HENCE , SUCH ADDITION OF RS. 6,85,000/- IS CONFIRMED. 5. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL AND THE CREDITOR CONFI RMED HAVING GIVEN THE AMOUNT OF RS. 6,85,000/- VIDE CHEQUE NO. 216126 ON 26-10-2006. HE FURTHER SUBMITTED THAT THE CREDITOR SHRI UMA MAH ESWARA RAO CONFIRMED IN HIS CONFIRMATION LETTER THAT HE WAS WO RKING IN KINGDOM OF SAUDI ARABIA FOR MORE THAN 12 YEARS AND DERIVED INC OME FROM SALARY AND PROVIDED THE AMOUNT FROM OUT OF HIS NRI EARNING S. 6. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF AO AND CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE FIND THAT ASSESSEE HAS DEMONSTRATED BEFORE THE LOWE R AUTHORITIES AND EVEN BEFORE US THE IDENTITY AND CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION AS THE TRANSACTION D ONE THROUGH BANKING CHANNEL. THERE IS ALSO NO INCRIMINATING MAT ERIAL FOUND IN THE SEARCH PROCEEDINGS. THEREFORE, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE SAME IS HEREBY DELETED. GROUND NOS. 3 IS ALLOWED. 8. AS REGARDS GROUND NO. 4 PERTAINING TO DISALLOWAN CE TRANSPORT EXPENDITURE ON ADHOC BASIS, THE AO NOTED THAT IN TH E PROFIT & LOSS ACCOUNT IN RESPECT OF M/S SRI SITARAMANJANEYA FLOUR MILLS, ASSESSEE HAD CLAIMED TRANSPORTATION CHARGES AT RS. 29,15,035 /-. STATING THAT SUCH CLAIM IS ON HIGHER SIDE AND FURTHER STATING TH AT THE VOUCHERS MAINTAINED BY ASSESSEE FOR THE SAME ARE NOT VERIFIA BLE, THE AO 4 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO DISALLOWED 10% OF SUCH AMOUNT I.E. AT RS. 2,91,503/ - AND ADDED THE SAME TO THE INCOME OF ASSESSEE. 9. BEFORE THE CIT(A), THE AR OF ASSESSEE SUBMITTED THAT ASSESSEE IS REQUIRED TO TRANSPORT RICE, THE RAW MATERIAL, TO HIS PREMISES, THEREFORE, HE NEEDS ABOUT 60-70 LORRY LOADS OF RICE DURING THE PROCESS OF BUSINESS ACTIVITY. IT WAS STATED THAT THE TRANSP ORTATION CHARGES WERE PAID, BASED ON PREVAILING MARKET CONDITIONS. S TATING THAT SUCH CLAIM MADE BY ASSESSEE IS REASONABLE AND HIS BOOKS OF ACCOUNT WERE DULY AUDITED, THE LEARNED AR CONTENDED THAT THE AO WAS NOT JUSTIFIED IN MAKING THE SUCH DISALLOWANCE. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE CIT(A) RESTRICTED THE ADDITION TO RS. 1,50,000/- BY OBSERVING AS UNDER: 5.2 I HAVE DULY CONSIDERED SUCH SUBMISSIONS OF THE LD AR. AS PER SUCH SUBMISSION, THE BOOKS OF THE APPELLANT ARE AUDITED AND THE SAID CLAIM MADE BY HIM FOR TRANSPORT CHARGES AR E REASONABLE. HOWEVER, I AM UNABLE TO AGREE WITH SUCH CONTENTION. IN FACT, BEFORE MAKING SUCH DISALLOWANC E AT 10% OF THE TOTAL CLAIM MADE ON THAT ACCOUNT IN THE RETURN, THE AO HAS CLEARLY STATED THAT THE EXPENDITURE BY THE APPELLAN T IS ON HIGHER SIDE AND THE VOUCHERS ARE ALSO NOT VERIFIABLE. SUCH OBSERVATIONS ARE MAD BY THE AO IN PARA 5 OF THE ASS ESSMENT ORDER. HOWEVER, WITH REFERENCE TO SUCH ADVERSE FIND INGS GIVEN BY THE AO, THE APPELLANT HAS NOT MADE ANY SUBMISSIO N. IN FACT, IN THE FACE OF SUCH ADVERSE FINDINGS GIVEN BY THE A O, A PART OF DISALLOWANCE OUT OF SUCH CLAIM MADE BY THE APPELLAN T IS CALLED FOR IN THIS CASE. HOWEVER, SUCH DISALLOWANCE MADE B Y THE AO AT RS. 2,91,503/- IN THIS CASE, APPEARS TO BE ON THE H IGHER SIDE. IN MY VIEW, IT WOULD BE FAIR AND REASONABLE TO MAKE SU CH DISALLOWANCE IN THIS CASE AT RS. 1,50,000/-. ACCORD INGLY, THE AO IS DIRECTED TO MAKE SUCH DISALLOWANCE OUT OF THE TR ANSPORT CHARGES CLAIMED IN THE RETURN AT RS. 1,50,000/- ONL Y, WHICH WOULD RESULT IN RELIEF OF RS. 1,41,503/- TO THE APP ELLANT. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF AO AND CIT(A). OUT OF THE CLAIM OF TRANSPORTATION CHARGES, THE AO DISA LLOWED 10% ON THE GROUND THAT THE CLAIM IS ON HIGHER SIDE AND VOUCHER S MAINTAINED BY ASSESSEE FOR THE SAME ARE NOT VERIFIABLE. THE CIT( A) RESTRICTED THE 5 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO DISALLOWANCE TO RS. 1,50,000/- ON THE GROUND THAT T HE DISALLOWANCE MADE BY THE AO IS ON HIGHER SIDE. AS SEEN FROM THE ORDER OF AO THERE IS UNACCOUNTED TURNOVER IN THE CASE OF ASESSEE UNEA RTHED IN THE SEARCH. CONSEQUENT TO THAT ASESSEE ADMITTED THE TUR NOVER AND AGGREED FOR ADDITION ON GP, WHICH THE AO ACCEPTED. ONCE ADDITION WAS MADE ON THE BASIS OF GP DISALLOWANCE OF VARIOUS EXPENDITURES SHOULD NOT ARISE. THEREFORE, THE ADDITION OF RS. 1, 50,000/- SUSTAINED BY CIT(A) IS HEREBY DELETED. THIS GROUND IS ALLOWED . 11. GROUND NO. 5 IS AS FOLLOWS: THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE AO IN TAXING THE ENTIRE INTEREST FROM THE PARTNERSHIP FIR M M/S SR CONSTRUCTIONS OF RS. 17,07,124/- WHEN THE AMOUNT OF INTEREST ALLOWED BY THE AO WHILE COMPLETING THE ASSESSMENT O F THE PARTNERSHIP FIRM IS ONLY AN AMOUNT EQUAL TO 12% OF THE CAPITAL. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT IN VIEW OF THE PROVISIONS OF SECTION 28(V) OF THE IT ACT, INTEREST TO THE EXTENT OF 12% OF THE CAPITAL WHICH WAS ALLOWED IN THE ASSESSM ENT OF THE PARTNERSHIP FIRM CAN ONLY BE TAXED IN THE ASSESSMEN T OF THE PARTNERS. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO FOUND THAT AS PER THE SEIZED DOCUMENT, VIDE ANNEXURE NO. A/DNR/18, ASSESSEE WAS PAID INTEREST AMOUNTING TO RS. 89,532/ - ON HIS CAPITAL BY THE FIRM M/S NVM CONSTRUCTIONS. HE FURTHER NOTE D THAT ASSESSEE WAS ALSO PAID INTEREST OF RS. 17,07,124/- BY ANOTH ER FIRM M/S SR CONSTRUCTIONS, AS PER THE SEIZED DOCUMENT VIDE ANNE XURE A/DNR/18, HOWEVER, STATING THAT THE AMOUNT HAD NOT BEEN OFFER ED BY ASSESSEE FOR TAXATION IN THE RETURN OF INCOME FILED BY HIM FOR THIS ASSESSMENT YEAR, THE AO ADDED THE SAID AMOUNT TO THE INCOME RE TURNED. SINCE ASSESSEE ADMITTED THE INTEREST OF RS. 89,532/-, IN HIS RETURN OF INCOME THE CIT(A) DELETED THE SAME AND CONFIRMED TH E ADDITION OF RS. 17,07,124/- RECEIVED BY ASSESSEE TOWARDS INTEREST F ROM M/S SR CONSTRUCTIONS. 6 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO 13. AT THE OUTSET, IT WAS SUBMITTED THAT ASSESSEE HAS N OT RECEIVED ANY ADDITIONAL INTEREST NOR THERE WAS ANY CLAIM IN THE HANDS OF THE FIRM. FURTHER, IT WAS SUBMITTED THAT A NY INTEREST PAID TO PARTNER WHICH WAS NOT ALLOWED AS DEDUCTION, CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE PARTNER. THE LE ARNED COUNSEL PLACED ON RECORD THE DECISION OF COORDINATE BENCH IN THE CASE OF G. VENKAT RAO AND G. MADHAVA RAO IN ITA NO. 1075 & 1076/HYD/2011, ORDER DATED 10-07-2012 WHERE ON SIMILAR SET FACTS ADDITIONS HAVE BEEN MADE AS INTER EST INCOME RECEIVED FROM THE FIRMS AND THE COORDINATE BENCH DE CIDED AS UNDER: 8. WITH RESPECT TO THE ADDITION OF RS. 6,06,332/-, THE ASSESSEE SUBMITTED A COPY OF THE RETURN OF INCOME F OR THE ASSESSMENT YEAR 2008-09. THE LEARNED COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THERE IS INCOME FOR THE YEA R UNDER CONSIDERATION AND THE PROFIT & LOSS ACCOUNT DOES NO T DEBIT ANY INTEREST PAID TO THE PARTNERS. EVEN THE CAPITAL ACC OUNT DOES NOT HAVE ANY CREDIT UNDER THE HEAD INTEREST. INTERES T PAID TO PARTNERS, WHICH HAS BEEN DISALLOWED IN THE HANDS OF THE PARTNERSHIP FIRMS CANNOT BE ASSESSED IN THE HANDS O F THE PARTNERS. IN THESE CIRCUMSTANCES, WE DEEM IT FIT TO SET ASIDE THE ISSUES WITH RESPECT TO THE ADDITION OF RS. 3,54,65 5/- AND THE ADDITION OF RS. 6,06,332/- TO THE FILE OF THE ASSE SSING OFFICER TO DETERMINE THE CORRECT AMOUNT OF INTEREST RECEIVED B Y THE ASSESSEE FROM PARTNERSHIP FIRMS. ACCORDINGLY, GROUN D NOS. 4 & 5 ARE ALLOWED FOR STATISTICAL PURPOSES. 14. IN VIEW OF THE DECISION OF THE COORDINATE BENCH , WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO B RING TO TAX IN THE HANDS OF ASSESSEE ONLY TO THE EXTENT OF INTEREST AL LOWED IN THE HANDS OF THE FIRM. THUS, GROUND NO. 5 IS ALLOWED F OR STATISTICAL PURPOSES. 15. IN THE RESULT, APPEAL OF ASSESSEE IN ITA NO. 11 02/HYD/2011 IS ALLOWED FOR STATISTICAL PURPOSES. 7 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO ITA NO. 2088/HYD/2011 FOR AY 2008-09 16. THIS APPEAL IS DIRECTED AGAINST THE ORDER OF CI T(A)-III, DATED 14- 10-2011. GROUND NO. 1 & 6 ARE GENERAL IN NATURE. GR OUND NO. 2 PERTAINING TO THE ADDITION ON ACCOUNT OF TRANSPORT CHARGES. GROUND NOS. 3 & 4 ARE PERTAINING TO THE ADDITION ON ACCOUN T OF INTEREST RECEIVED FROM THE PARTNERSHIP FIRM. GROUND NO. 5 IS PERTAINING TO CHARGING OF INTEREST U/S 234A, 234B & 234C OF THE A CT, WHICH IS CONSEQUENTIAL IN NATURE. 17. AS REGARDS GROUND NO. 2, THE AO NOTED THAT IN T RADING, PROFIT & LOSS ACCOUNT OF M/S SRI SITHARAMANJANEYA FLOUR MILL , ASSESSEE HAD CLAIMED A SUM OF RS. 54,29,546/- TOWARDS TRANSPORT CHARGES. HE NOTED THAT SUCH CLAIM MADE BY ASSESSEE IS ON HIGHER SIDE. FURTHER STATING THAT SUCH EXPENDITURE WHICH WAS MOSTLY INCU RRED IN CASH, WERE NOT VERIFIABLE, HE DISALLOWED 10% OF SUCH AMOUNT I. E. RS. 5,49,954/- AND THUS, ADDED THE SAID AMOUNT TO RETURNED INCOME OF ASSESSEE. THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 4,00, 000/-. 18. WE HAVE CONSIDERED THE ISSUE. SIMILAR ISSUE HAS BEEN DECIDED BY US IN AY 2007-08 VIDE PARAS 8 TO 10 (SUPRA). FOL LOWING CONCLUSIONS DRAWN THEREIN, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION SUSTAINED BY CIT(A) ON THIS COUNT. THIS GR OUND IS ALLOWED. 19. AS REGARDS GROUNDS NO. 3 & 4 PERTAINING TO THE INTEREST, THE AO NOTED THAT AS PER THE SEIZED DOCUMENT VIDE ANNEXURE A/BNR/04, ASSESSEE WAS PAID INTEREST OF RS. 11,19,196/- ON HI S CAPITAL BY THE FIRM M/S SVK CONSTRUCTIONS PERTAINING TO THE AY UND ER CONSIDERATION. SINCE THE SAID AMOUNT HAD NOT BEEN OFFERED BY ASSES SEE FOR TAXATION, THE AO ADDED THE SAID AMOUNT TO THE INCOME OF ASSES SEE. THE CIT(A) CONFIRMED THE SAID ADDITION. 20. WE HAVE CONSIDERED THE ISSUE. SIMILAR ISSUE HAS BEEN DECIDED BY US IN AY 2007-08 VIDE PARAS 11 TO 14 (SUPRA). THERE FORE, FOLLOWING THE 8 ITA NOS. 1102 & 2088/HYD/2011 D. NAGARJUNA RAO REASONS THEREIN, WE RESTORE THE ISSUE TO THE FILE O F AO WITH IDENTICAL DIRECTIONS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, APPEAL OF ASSESSEE IN ITA NO. 20 88/HYD/2011 IS ALLOWED FOR STATISTICAL PURPOSES. 22. TO SUM UP, BOTH THE APPEALS IN ITA NOS. 1102 & 2088/HYD/2011 ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. R AMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT M EMBER HYDERABAD, DATED: 1 ST JANUARY, 2014. KV COPY TO:- 1) D. NAGARJUNA RAO, C/O SHRI S. RAMA RAO, ADVOCAT E, FLAT NO. 102, SHRIYAS RESIDENCY, ROAD NO. 9, HIMAYATNAGAR, HYDERABAD. 2) ACIT, CIRCLE - 8(1), HYDERABAD. 3) CIT(A)-III, HYDERABAD. 4) CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.