Bollineni Castings and Steel Ltd., Hyd, Hanamkonda V. DCIT, Central Circle-1(3), Hyd, Hyderabad

ITA 1143/HYD/2015

• Counselvise Citation: 114322514 RSA 2015
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 02-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Assessee Lawyers: D V ANJANEYULU; P PRAVALLIKA
• Keywords: Business income; Business expenditure; Search and seizure
• Section: 40A(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO. A.Y. APPELLANT RESPONDENT 1141/H/2015 2007 - 08 BOLLINENI CASTINGS & STEEL LIMITED, HYDERABAD. PAN AADCA7599N DCIT, CENTRAL CIRCLE 1(3) HYDERABAD. 1142/H/2015 2008 - 09 1143/H/2015 2009 - 10 1144/H/2015 2010 - 11 FOR ASSESSEE : MR. D.V. ANJANEYULU & MISS. P. PRAVALLIKA FOR REVENUE : SMT. VASUNDHARA SINHA DATE OF HEARING : 13.11.2015 DATE OF PRONOUNCEMENT : 1 8 .11.2015 ORDER PER SMT. P. MADHAVI DEVI, J.M. ALL THESE ARE ASSESSEES APPEALS FOR THE RELEVANT ASSESSMENT YEARS. IN ALL THESE APPEALS, TH E ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A ) IN CONFIRMING THE ADDITION MADE BY THE A.O. BY NOT ALL OWING THE EXPENDITURE RECORDED IN THE SEIZED MATERIAL AND ALSO IN SUSTAINING THE ADDITION ON ANOTHER GROUND I.E., THAT SECTIONS 40(A)(IA) AND 40A(3) ALSO MIGHT BE APPLICA BLE TO THE ASSESSEE. 2. BRIEF FACTS OF THE CASE ARE THAT THERE WAS A SEARCH AND SEIZURE OPERATION CONDUCTED IN THE BUSIN ESS PREMISES OF THE ASSESSEE ON 20.08.2009. DURING THE 2 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD COURSE OF SEARCH, CERTAIN INCRIMINATING MATERIAL/ DOCUMENTS WERE FOUND AND SEIZED. FROM THE RESIDENCE OF MR. B. SEENAIAH, MANAGING DIRECTOR OF THE COMPANY, FIVE SMALL NOTE BOOKS WERE SEIZED VIDE ANNEXURE A/BSR/02 WHICH CONTAIN ENTRIES OF CERTAIN RECEIPTS AND PAYME NTS. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143 (3) READ WITH SECTION 153A OF THE ACT, THE STATEMENT OF MR. B. SEENAIAH WITH REGARD TO THESE BOOKS WAS RECORDED WHEREIN HE HAD STATED THAT THESE BOOKS ARE RELATED TO THE ASSESSEE HEREIN AND FURTHER THAT BOTH THE RECEIPTS AND PAYMENTS MENTIONED IN THESE BOOKS ARE NOT ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNT. HE HAD FURTHER STATED THAT CERTAIN INCOMES ARE GENERATED TO MEET CERTAIN UNFOR ESEEN AND OTHER EXPENDITURE IN THE NATURE OF BUSINESS OF THE ASSESSEE AND THAT THE ENTRIES IN THESE BOOKS ARE IN CODE FORM AND THAT THE AMOUNTS SHOULD BE READ AS RUPEES IN THOUSANDS. DURING THE ASSESSMENT PROCEEDINGS, EFFOR TS WERE MADE TO CO-RELATE ENTRIES IN THE BOOKS WITH TH E ENTRIES IN THE REGULAR BOOKS OF THE ASSESSEE AND IT WAS FOUND THAT NONE OF THESE ENTRIES ARE ENTERED IN THE REGULAR BOOKS OF THE ASSESSEE. IT WAS OBSERVED THAT THE OPE NING BALANCES, RECEIPTS AND PAYMENTS MENTIONED IN THESE BOOKS ARE INCOHERENT AND THEREBY, CRIPPLED TO ESTAB LISH THE NEXUS WITH THE ENTRIES IN THE REGULAR BOOKS. TH EREFORE, A.O. CAME TO THE CONCLUSION THAT THE EXISTING DATA IN THE SEIZED BOOKS IS NON-VERIFIABLE AND THAT THE RECEIPT S HAVE BEEN GENERATED AND PAYMENTS HAVE BEEN MADE FOR THE 3 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD ASSESSEE COMPANY. THE YEAR-WISE RECEIPTS AS EXTRACT ED FROM THE BOOKS IS AS UNDER : SL.NO. ASST. YEAR UNDISCLOSED RECEIPTS 1. 2007 - 08 83,00,000 2. 2008 - 09 12,45,11,146 3. 2009 - 10 7,73,43,692 4. 2010 - 11 3,73,37,060 TOTAL 24,74,91,898 2.1. IN VIEW OF THE SAME, THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PAYMENTS CANNOT BE IG NORED AS THEY ARE NOT ALLOWABLE EXPENDITURE AND AS TO WHY ALL THE RECEIPTS CANNOT BE TAXED IN THE RESPECTIVE YEAR S AS SUPPRESSED RECEIPTS OF THE COMPANY. MR. B. KRISHNAI AH, CHAIRMAN OF THE COMPANY M/S. BSCPL INFRASTRUCTURE L TD AND ONE OF THE DIRECTORS IN ASSESSEE-COMPANY, SUBMI TTED HIS OBJECTIONS ON 19.12.2011 ACCORDING TO WHICH, MR . B. SEENAIAH IS ONE OF THE PROMOTERS OF M/S. BOLLINENI CASTING & STEELS LTD., AND HE PERSONALLY VISITS ALL THE SITES IN BSCPL DUE TO WHICH, THE STAFF UNDER HIM HAVE TAK EN ADVANTAGE OF HIS ABSENCE AND MISUSED THEIR POSITION S WHICH HAS RESULTED IN NOT ONLY GREAT FINANCIAL STRE SS TO THE COMPANY BUT HAS ALSO EFFECTED THE REPUTATION AND CREDIBILITY OF THE COMPANY. IT WAS SUBMITTED THAT M R. B. SEENAIAH GOT HINT ABOUT THE MISMANAGEMENT OF THE COMPANY AND THEREFORE, HE PERSONALLY WENT TO THE FA CTORY AND COLLECTED ALL THE INFORMATION AND DOCUMENTS FRO M THE RESPONSIBLE PERSONS AND ON SENSING THE FACT THAT MR . B. SEENAIAH WAS LOOKING INTO THE IRREGULARITIES PERPET RATED BY THEM, SUCH STAFF LEFT THE ORGANIZATION WITHOUT A NY 4 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD NOTICE. IT WAS SUBMITTED THAT THE FIVE BOOKS CONTAI NING DATA ABOUT BSCPL WERE BROUGHT BY MR. SEENAIAH TO HYDERABAD WHICH WAS SINCE SEIZED BY THE DEPARTMENT DURING THE SEARCH PROCEEDINGS AT THE RESIDENCE OF M R. SEENAIAH AND THEREFORE, MR. SEENAIAH WAS NOT ABLE T O EXPLAIN THE DETAILS RECORDED IN SUCH BOOKS AND ALSO FOR WHAT PURPOSE OF SUCH BOOKS WERE MAINTAINING. IT WAS ALSO EXPLAINED THAT THE DATES WERE NOT WRITTEN IN THE SE RIAL ORDER AND IT IS ALSO NOT CLEAR AS TO WHETHER THE FI GURES RELATE TO ANY FINANCIAL TERMS OR NOT. IT WAS ALSO S UBMITTED THAT THE STATEMENT GIVEN BY MR. SEENAIAH AT THE TIM E OF SEARCH WAS GIVEN BY HIM UNDER GREAT MENTAL TENSION AND WAS GIVEN WITH AN INTENTION TO GET AWAY FROM THE PROCEEDINGS AT HIS HOUSE AT THE EARLIEST. IT WAS AL SO SUBMITTED THAT TO BUY PEACE WITH THE DEPARTMENT, MR . SEENAIAH HAS DECLARED AN ADDITIONAL INCOME OF RS.1 CRORE DURING THE COURSE OF INVESTIGATION PROCEEDINGS THOU GH THERE WAS NO PROPER RECORD OR BASIS FOR ANY OF THE ITEMS WHICH WAS RECORDED IN THESE BOOKS. THEREFORE, IT WA S PRAYED THAT THE BOOKS CANNOT BE CONSIDERED FOR ANY ADDITION AT ALL. THE A.O. HOWEVER, WAS NOT CONVINCE D WITH THE SAID CONTENTION AND HELD THAT THE RECEIPTS GENE RATED TO MEET THE EXPENDITURE RECORDED IN THE BOOKS IS TA XABLE UNDER THE ACT BUT THE PAYMENTS MENTIONED IN THE BOO KS ARE NOT ALLOWABLE EXPENDITURE. HE THEREFORE, TREATE D THE RECEIPTS MENTIONED IN THESE REGISTERS AS INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS. 5 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD 3. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO, THOUGH AGREED IN PRINCIPLE THAT TH E PAYMENTS RECORDED IN THE BOOKS ARE TO BE ALLOWED AG AINST THE RECEIPTS MENTIONED THEREIN, FINALLY HELD THAT T HE ASSESSEE HAD CHOSEN TO KEEP THE UNDISCLOSED RECEIPT S AND PAYMENTS FROM OUT OF THE REGULAR BOOKS OF ACCOUNT A ND BUT FOR THE SEARCH, THIS FACT WOULD CERTAINLY NOT H AVE COME TO THE NOTICE OF THE DEPARTMENT. SHE HELD THAT BY K EEPING THIS PART OF THE BUSINESS OUT OF THE REGULAR BOOKS OF ACCOUNT, THE ASSESSEE SHOULD NOT BE ALLOWED TO BE I N A RELATIVELY ADVANTAGEOUS POSITION COMPARED TO THAT O F THE ASSESSEE WHO DID HIS BUSINESS FAIRLY AND HONESTLY. SHE FURTHER HELD THAT THE TRANSACTIONS IN THE SEIZED BO OKS SHOULD BE FIGURATIVELY BE BROUGHT INTO THE REGULAR BOOKS OF ACCOUNT AND BE CONSIDERED AS PART OF THE SAME FOR T HE PURPOSE OF ASSESSMENT. HOWEVER, AS REGARDS THE ALLOWABILITY OF PAYMENTS AS RECORDED IN THE SEIZED MATERIAL IS CONCERNED, SHE HELD THAT THE CORRESPONDING EXPEN DITURE CAN BE ALLOWED ONLY IF THE ASSESSEE FURNISHES THE D ETAILS OF THE PAYEES CONCERNED ALONG WITH THEIR CONFIRMATIONS SINCE THE PAYMENTS ARE CLAIMED TO HAVE BEEN MADE IN CASH AND HAVE NO INDEPENDENT CORROBORATIVE EVIDENCE. SHE HEL D THAT SINCE THE ASSESSEE HAS NOT FILED THE REQUISITE DETAILS, IT IS NOT POSSIBLE TO CONSIDER THESE AMOUNTS AS PAR T OF INCOME ANYWHERE AS IT WOULD BE AGAINST THE PUBLIC P OLICY THAT PAYMENT BE ALLOWED AS EXPENDITURE IN THE HANDS OF THE PAYER AND THE CORRESPONDING RECEIPT IN THE HAND S OF THE PAYEE SHOULD NOT BE CONSIDERED AS INCOME. SHE 6 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD FURTHER OBSERVED THAT EVEN IF THE EXPENDITURE IS TO BE ALLOWED AS DEDUCTION, THE AMOUNTS CLAIMED BY THE ASSESSEE ARE HIT BY THE PROVISIONS OF SECTION 40A(3 ) OF THE ACT SINCE ALL THE PAYMENTS WERE IN CASH AND EXCEEDE D RS.20,000 IN EACH INSTANCE. SHE ALSO HELD THAT SINC E THE PAYMENTS ARE ILLEGAL IN NATURE, THEY WERE HIT BY TH E MISCHIEF OF SECTION 40(A)(IA) OF THE I.T. ACT AND T HEREFORE WERE NOT ALLOWABLE. ACCORDINGLY, SHE CONFIRMED THE ADDITIONS MADE BY THE A.O. 4. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BY THE ASSESSEE BE FORE THE AUTHORITIES BELOW, SUBMITTED THAT IN ORDER TO B UY PEACE WITH THE DEPARTMENT, THE ASSESSEE HAS ACCEPTE D THAT THE AMOUNTS MENTIONED IN THE SEIZED MATERIAL A S RECEIPTS ARE THE UNDISCLOSED INCOME OF THE BUSINESS OF THE ASSESSEE. HE SUBMITTED THAT IN THE SAME BREATH, THE REVENUE OUGHT TO HAVE ALLOWED THE CLAIM OF EXPENDIT URE AS RECORDED IN THE SEIZED MATERIAL. HE SUBMITTED TH AT THE LD. CIT(A) HAS ERRONEOUSLY HELD THAT THE EXPENDITUR E IS NOT ALLOWABLE EVEN UNDER SECTIONS 40A(3) AND 40(A)( IA) OF THE I.T. ACT. AS REGARDS THE ISSUE AS TO WHETHER AN Y ADDITION UNDER SECTION 40A(3) CAN AT ALL BE MADE IN THE CASE OF SEIZED MATERIAL, HE PLACED RELIANCE UPON TH E DECISIONS OF PUNE BENCH OF THIS TRIBUNAL IN THE CAS E OF THE DHANVARSHA BUILDERS VS. DCIT (2006) 102 ITD 375 (PUNE) AND IN THE CASE OF SMT. BOMMANA SWARNA REKHA 7 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD VS. ACIT (2005) 94 TTJ 885 (VIZAG) BY VIZAG BENCH O F THIS TRIBUNAL. 5. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ADMITTEDLY THE ASSESSEE HAS NOT DISCLOSED THE RECEI PTS AND PAYMENTS AS ENTERED IN THE FIVE REGISTERS FOUND DUR ING THE COURSE OF SURVEY AND HAS NOT EXPLAINED THE ENTRIES THEREIN, AS TO WHETHER THE ENTRIES RELATED TO RECEI PTS OR PAYMENTS, SHE SUBMITTED THAT PAYMENTS CLAIMED TO BE MADE BY THE ASSESSEE IS NOT ALLOWABLE. SHE SUBMITTE D THAT BY ALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE AS RECORDED IN THESE REGISTERS, WHICH ARE IN FACT INCO HERENT AND NOT VERIFIABLE, THE REVENUE WOULD BE AT LOSS. I N SUPPORT OF HER CONTENTION THAT THE EXPENDITURE CLAI MED TO HAVE BEEN MADE IN CASH IN EXCESS OF RS.20,000 IS DISALLOWABLE UNDER SECTION 40A(3) OF THE ACT AFTER 25.07.1995, THE LD. D.R. HAS PLACED RELIANCE UPON T HE DECISION OF B BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT, C.C.2, HYDERABAD VS. M/S. PRAJAY ENGINEERS SYNDICAT E LTD., HYDERABAD IN IT(SS) A. NO.18/HYD/2001 DATED 22.08.2008. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD AND THE JUDICIAL PRECEDENTS RELI ED BY EACH OF THE PARTIES, WE FIND THAT THE UNDISPUTED FA CTS ARE THAT THE ASSESSEE HAS ACCEPTED THAT BOOKS FOUND AND SEIZED DURING THE COURSE OF SEARCH PERTAIN TO THE A SSESSEE AND THAT THE RECEIPTS AND PAYMENTS MENTIONED THEREI N ARE 8 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD ALSO RELATING TO THE BUSINESS OPERATIONS OF THE ASS ESSEE. WHATEVER MAY BE THE REASON FOR ACCEPTING THE RECEIP TS MENTIONED IN THE BOOKS, THE LONE CONTENTION OF THE ASSESSEE BEFORE US IS THAT THE EXPENDITURE RELATING TO THE RECEIPTS SHOULD BE ALLOWED. WE AGREE WITH THE CONTE NTION OF THE LD. D.R. THAT THE EXPENDITURE WHICH HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ALONE CAN BE ALLOWED AND IT IS NOT VERIFIA BLE FROM THE SEIZED MATERIAL THAT THIS EXPENDITURE IS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WE ALSO AGREE WITH THE LD. D.R. THAT MOST OF THE EXPENDITURE BEING INCURRED IN CASH AND SOME OF WHIC H MAY BE FOR ILLEGAL PURPOSES IS ALSO NOT ALLOWABLE U NDER SECTIONS 40A(3) AND 40(A)(IA) OF THE I.T. ACT. THER EFORE, THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ENTIRE PAYMENTS MENTIONED IN THE SEIZED MATERIAL IS TO BE ALLOWED WHILE TREATING THE RECEIPTS AS INCOME OF TH E ASSESSEE IS NOT TENABLE. HOWEVER, WE ALSO AGREE WIT H THE LD. COUNSEL FOR THE ASSESSEE THAT THE ENTIRE RECEIP TS RECORDED IN THE REGISTERS CAN NOT BE TREATED AS THE INCOME OF THE ASSESSEE. THE RELATABLE BUSINESS EXPENDITURE HAS TO BE ALLOWED FROM THE RECEIPTS TO COMPUTE THE UNDISCL OSED INCOME OF THE ASSESSEE. THEREFORE, THE ONLY COURSE OPEN TO THE REVENUE WOULD BE TO REJECT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND TO ESTIMATE THE BUSI NESS INCOME OF THE ASSESSEE. AS THE FACTS RELATING TO TH E COMPUTATION OF GROSS PROFIT OR NET PROFIT OF THE AS SESSEE FOR THE EARLIER OR SUBSEQUENT ASSESSMENT YEARS OR RELAT ING TO 9 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD OTHER ASSESSEES IN SIMILAR BUSINESS ARE NOT BEFORE US, WE ARE OF THE OPINION THAT THE ISSUE NEEDS RE-LOOK/RE- CONSIDERATION BY THE A.O. FOR ESTIMATION OF THE ASS ESSEES INCOME. IT IS NEEDLESS TO MENTION THAT ASSESSEE SHA LL BE GIVEN A FAIR OPPORTUNITY OF HEARING AS REGARDS THE ESTIMATION OF THE UNDISCLOSED BUSINESS INCOME AND T HE ASSESSEE SHALL COOPERATE WITH THE A.O. BY PRODUCING ALL THE RELEVANT MATERIAL FOR SUCH ESTIMATION. SINCE PA YMENTS MENTIONED IN THE SEIZED MATERIAL ARE NOT BEING CONS IDERED AS THE EXPENDITURE OF THE ASSESSEE, THE APPLICABILI TY OR OTHERWISE OF THE PROVISIONS OF SECTIONS 40A(3) AND 40(A)(IA) OF THE I.T. ACT IS ALSO NOT RELEVANT AT THIS STAGE. ASSESSEES APPEALS ARE ACCORDINGLY TREATED AS ALLOWED FOR STAT ISTICAL PURPOSES. 7. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.2015. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 18 TH NOVEMBER, 2015 VBP/- 10 ITA.NOS.1141, 1142, 1143, 1144/HYD/2015 BOLLINENI CASTINGS & STEEL LTD., HYDERABAD COPY TO : 1. BOLLINENI CASTINGS & STEEL LTD., HYDERABAD C/O. M/S. ANJANEYULU & CO., CHARTERED ACCOUNTANTS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD 500 080. 2. THE DCIT, CENTRAL CIRCLE - 1(3), HYDERABAD. 3. CIT(A) - XI , HYDERABAD 4 . PR. CIT (CENTRAL) , HYDERABAD 5 . D.R. ITAT B BENCH, HYDERABAD. 6 . GUARD FILE