Keshava Bhat Vangala, Hyderabad V. Income Tax Officer, Hyderabad

ITA 1213/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74607 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 16-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEEVAN LAL LAVADIYA
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Unexplained investment; Unexplained expenditure; Business income; Depreciation; Income from undisclosed sources; Additional evidence; Reasonable cause; Onus to prove
• Section: 44AD; 143(3); 142(1); 32; 68; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1213/HYD/2013 A.Y. 2006-07 ITA NO. 1214/HYD/2013 A.Y. 2007-08 SRI KESHAVA BHATT VANGALA HYDERABAD PAN: ABHPV6410D VS. THE ITO WARD-8(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SRI JEEVAN LAL LAVADIYA DATE OF HEARING: 1 8 . 1 2 .2013 DATE OF PRONOUNCEMENT: 12.02.2014 O R D E R PER CHANDRA POOJARI, AM: THE ABOVE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A)-III, HYDERAB AD DATED 16.7.2013 FOR ASSESSMENT YEARS 2006-07 AND 2007-08. SINCE COMMON ISSUES ARE INVOLVED THE ABOVE TWO APPEALS AR E CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL TAKE UP THE APPEAL IN ITA NO. 1213/HY D/ 2013 FOR A.Y. 2006-07. THE ASSESSEE RAISED THE FOL LOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOT H ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN DECIDING THE APPEAL EX- PARTE WITHOUT PROVIDING PROPER OPPORTUNITY TO THE APPELLANT HEREIN. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER IN ESTIMATING THE PROFIT AT 12.5% OF THE RECEIPTS OF RS. 3,39,20,385. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE APPELLAN T ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 2 CORRECTLY ADMITTED THE INCOME FROM THE CONTRACTS AN D SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO ACCEP T THE BOOK RESULTS. 3. THE ASSESSEE FILED A PETITION FOR ADMISSION OF ADDI TIONAL GROUND OF APPEAL WHEREIN THE ADDITIONAL GROUNDS ARE RAISED, AS FOLLOWS: (1) THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE ADOPTION OF A NET PROFIT RATE OF 12.5% IS NOT JUSTIFIABLE. (2) THE LEARNED CIT(A) IS NOT JUSTIFIED IN ADOPTING SUCH PERCENTAGE ON THE GROSS RECEIPTS OF RS. 3,39,20,385 WITHOUT CONSIDERING THE FACT THAT THERE ARE RECOVERIES BY THE CONTRACTEE ON ACCOUNT OF MATERIAL AND SALES TAX AGGREGATING TO RS. 97,60,135 (RS. 84,63,840 AND RS. 12,96,295). 4. THE AR SUBMITTED THAT THE APPELLANT FILED THE ABOVE MENTIONED APPEAL AGAINST THE ORDER OF THE LEARNED C IT(A)-III, HYDERABAD IN ITA NO. 0554/2011-12 DATED 16.7.2013. THE SAID APPEAL WAS FILED BEFORE THE HONBLE ITAT ON 16.8.20 13. THE APPELLANT INADVERTENTLY OMITTED TO RAISE THE ABOVE GROUNDS OF APPEAL AT THE TIME OF FILING THE APPEAL. ACCORDING TO HIM, ALL THE FACTS RELATING TO THESE GROUNDS OF APPEAL ARE ON RE CORD. THEREFORE, HE PLEADED THAT THE TRIBUNAL MAY ADMIT T HE ADDITIONAL GROUNDS OF APPEAL AND PASS APPROPRIATE O RDERS IN THE MATTER. 5. AFTER HEARING BOTH THE PARTIES, WE ARE INCLINED TO ADMIT ADDITIONAL GROUNDS BY PLACING RELIANCE IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (229 ITR 383) (SC) W HERE THE APEX COURT CLEARLY OBSERVED THAT THERE MAY BE SEVER AL FACTORS JUSTIFYING RAISING OF A NEW PLEA IN AN APPE AL AND EACH CASE HAS TO BE CONSIDERED ON ITS OWN FACTS. T HE APPELLATE AUTHORITIES MUST BE SATISFIED THAT THE GR OUND RAISED WAS BONA-FIDE AND THAT THE SAME COULD NOT HA VE BEEN RAISED EARLIER FOR GOOD REASONS. THE APPELLAT E ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 3 AUTHORITIES SHOULD EXERCISE THEIR DISCRETION IN PER MITTING OR NOT PERMITTING THE ASSESSEE TO RAISE AN ADDITION AL GROUND/ ADDITIONAL EVIDENCE IN ACCORDANCE WITH LAW AND REASONS. THERE IS NO BLANKET PERMISSION TO THE ASS ESSEE TO RAISE THE ADDITIONAL GROUND OR FILING OF ADDITIO NAL EVIDENCE ACCORDING TO HIS OWN WHIMS AND FANCIES. T HERE SHOULD BE REASONABLE CAUSE FOR FURNISHING ADDITIONA L EVIDENCE BELATEDLY. IN OUR OPINION, IN THIS CASE, THERE IS REASONABLE CAUSE FOR NOT RAISING THESE GROUNDS ON E ARLIER OCCASION AND WE ARE SATISFIED WITH THE REASONS ADVA NCED BY THE ASSESSEE IN HIS PETITION. ACCORDINGLY, THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE ADMIT TED FOR ADJUDICATION. 6. AT THE TIME OF HEARING, ORIGINAL GROUND NO. 2 IS NO T PRESSED. ACCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSED. 7. ORIGINAL GROUND NO. 3 IS WITH REGARD TO ESTIMATION OF INCOME AT 12.5% OF THE GROSS RECEIPTS OF RS. 3,39,2 0,385. 8. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN I NDIVIDUAL, DERIVES INCOME FROM CIVIL CONTRACT WORK. THE ASSES SEE DID NOT FILE RETURN OF INCOME FOR A.Y. 2006-07. THE AO ISS UED NOTICE U/S. 148 ON 6.8.2010, IN RESPONSE TO WHICH THE ASSE SSEE FILED THE RETURN OF INCOME FOR A.Y. 2006-07 ON 26.8.2010 DECLARING TOTAL INCOME OF RS. 19,97,916. THE AO COMPLETED TH E ASSESSMENT U/S. 143(3) R.W.S. 147 OF THE INCOME-TAX ACT, 1961 BY MAKING AN ADDITION OF RS. 18,28,470 AND DETERMIN ED THE TOTAL INCOME AT RS. 38,26,388. ON APPEAL, THE CIT( A) CONFIRMED THE ORDER OF THE AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN OUR OPINION, THE TRIBUNAL IS CONSIS TENTLY HOLDING ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 4 THAT IN CASE OF ESTIMATION OF INCOME IN RESPECT OF CONTRACT WORKS, THE INCOME IS TO BE ESTIMATED AT 8% OF THE R ECEIPTS OF MAIN CONTRACT WORKS. FOR THIS PURPOSE, WE PLACE RE LIANCE ON THE ORDER OF THE TRIBUNAL DATED 31 ST JANUARY, 2011 IN ITA NO. 668/ HYD/2009 & ORS. IN THE CASE OF M/S. C. ESWARA REDDY & CO. VS. ACIT, WHEREIN THE TRIBUNAL HELD AS FOLLOWS: '6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT AND VOUCHERS. ON EXAMINATION OF THE BOOKS OF ACCOUNT WITH REFERENCE TO THE VOUCHER PRODUCED, THE ASSESSING OFFICER FOUND THAT THE VOUCHER DOES NOT TALLY WITH THE CASHBOOK. WHEN THE VOUCHER DOES NOT TALLY WITH CASHBOOK, IN OUR OPINIO N, THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT PROPERLY. THEREFORE, THE BOOK RESULT WILL NOT REFLECT THE CORRECT PROFIT OF THE ASSESSEE. IN THE SE CIRCUMSTANCES, IN OUR OPINION, THE ASSESSING OFFICE R HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT. THEREFO RE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LO WER AUTHORITY IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE PROFIT. 7. NOW COMING TO THE ESTIMATION OF PROFIT. THE ASSESSING OFFICER ESTIMATED THE PROFIT AT 12.5%. HOWEVER, THE CIT(A) RESTRICTED THE SAME TO 8% IN RESPECT OF MAIN CONTRACT AND 5% ON SUB-CONTRACT. WHEN THE BOOKS OF ACCOUNT WERE REJECTED THE ONLY METHOD AVAILABLE TO THE ASSESSING OFFICER IS TO ESTIMATE THE PROFIT. THE PROFIT RATIO CANNOT BE A CONSTANT FACTOR FOR EACH AND EVERY YEAR. IN OTHER WORDS, PROFIT RATIO WOULD FLUCTUATE DEPENDING UPON VARIOUS FACTORS SUCH AS THE PLACE OF EXECUTION OF CONTRACT, AVAILABILITY OF RAW MATERIAL, LABOUR AND ASSESSEE'S OWN FUNDS, ETC. THEREFORE, FOR THE PURPOSE OF ESTIMATING THE PROFIT, THE LOWER AUTHORI TIES MAY TAKE INTO CONSIDERATION THE PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME LOCALITY AND OTHER FACTORS SUCH AS AVAILABILITY OF LABOUR, DEMAN D IN THE MARKET, ETC., AS DISCUSSED ABOVE. THEREFORE , THE PROFIT RATIO OF THE OTHER ASSESSEES IN THAT LOC ALITY MAY BE ONE OF THE FACTORS TO BE TAKEN INTO CONSIDERATION. HOWEVER, THAT CANNOT BE THE SOLE CRITERIA FOR FIXING THE PROFIT RATIO FROM THE CONTR ACT ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 5 BUSINESS. BY KEEPING THIS FACTUAL SITUATION IN MIN D, LET US NOW EXAMINE WHETHER THE ESTIMATION OF PROFIT BY THE CIT(A) AT 8% ON MAIN CONTRACT AND 5% ON SUB CONTRACT IS JUSTIFIED OR NOT. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA), K.C. REDDY ASSOCIATES (SUPRA), SRI SRINIVASA CONSTRUCTIONS (SUPRA) AND M. BHASKAR REDDY (SUPRA). NO DOUBT THIS TRIBUNAL ESTIMATED THE PROFIT FROM 12.5% TO 8% DEPENDING UPON THE FACTUAL SITUATION. THE LEARNED DR MADE AN ATTEMPT TO DISTINGUISH THE ORDER OF THIS TRIBUNAL I N M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOVER IS ONLY RS. 54,40,420. IT IS A WELL KNOWN FACT THAT WHENEVER THE TURNOVER INCREASES THE PROFI T RATIO WOULD GO DOWN. MERELY BECAUSE THE TURNOVER INCREASES THE PROFIT MAY NOT GO UP. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION IN THE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THIS TRIBUNAL ESTIMATED THE PROFIT AT 8% IN THE CASE OF M. BHASKAR REDDY (SUPRA) ONLY BECAUSE THE TURNOVER WAS RS. 51,40,420. A BARE READING OF THE ORDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) CLEARLY SHOWS THAT THIS TRIBUNAL AFTER CONSIDERING THE JUDGEMENT OF THE APEX COURT IN C. VELUKUTTY, 60 ITR 239 AND THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN ARIHANT BUILDERS PVT. LTD. VS. ACIT, 291 ITR 41 (SB ) AND BY TAKING A CLUE FROM SECTION 44AD OF I.T. ACT THE PROFIT WAS ESTIMATED AT 8%. ADMITTEDLY SECTION 44A D WOULD BE APPLICABLE IN RESPECT OF A CASE WHERE THE GROSS CONTRACT RECEIPT DOES NOT EXCEED RS. 40 LAKHS . WHEREVER THE GROSS CONTRACT RECEIPTS EXCEED RS. 40 LAKHS THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE. THEREFORE, THE PROFIT CAN BE ESTIMATED EITHER AT LOWER THAN 8% OR ABOVE 8% DEPENDING UPON THE FACTUAL SITUATION. AS DISCUSSED EARLIER, FOR T HE PURPOSE OF ESTIMATING THE PROFIT VARIOUS FACTORS SU CH AS THE PROFIT RATIO OF THE ASSESSEE IN THE EARLIER YEAR, PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME LOCALITY, DEMAND FOR THE PRODUCT, AVAILABILITY OF LABOURERS, RAW MATERIALS, ETC., AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK, ETC., HA VE TO BE TAKEN INTO CONSIDERATION. THEREFORE, IN OUR OPINION, REFERENCE TO EARLIER ORDER OF THIS TRIBUNA L ALONE FOR THE PURPOSE OF ESTIMATING THE PROFIT AT 12.5% MAY NOT BE JUSTIFIED AT ALL. ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 6 9. IN FACT, IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS IN ITA NOS. 116 AND 117/HYD/2007 FOR A.YS. 1993-94 AND 1994-95 THE TRIBUNAL ESTIMATED THE PROFIT ONLY AT 8% EVEN THOUGH THE PRO FIT WAS ESTIMATED AT 12.5% FOR A.Y. 1992-92. THIS ITSE LF SHOWS THAT FOR EACH YEAR THE PROFIT HAS TO BE ESTIMATED DEPENDING UPON THE FACTORS WHICH PREVAIL IN THE LOCALITY. 10 WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE CIT(A) AFTER REFERRI NG TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) AND THE SPECIAL BENCH DECISION IN ARIHANT BUILDERS (SUPRA) ESTIMATE D THE PROFIT AT 8% FOR MAIN CONTRACT AND FOR SUB CONT RACT AT 5%. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THIS TRIBUNAL UNIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% ON THE SUB CONTRACT DEPENDING UPON THE FACTUAL SITUATION. THEREFORE, I N OUR OPINION, ESTIMATION OF PROFIT AT 8% BY THE CIT( A) ON MAIN CONTRACT AND AT 5% ON SUB CONTRACT IS JUSTIFIED. WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 11. NOW COMING TO THE CLAIM OF THE ASSESSEE TOWARDS SEIGNIORAGE CHARGES. NO DOUBT THE SEIGNIORAGE CHARGES ARE IN RELATION TO THE MATERIAL SUPPLIED BY THE GOVERNMENT FOR EXECUTING THE WORK. THE APEX COURT IN THE CASE OF BRIJ BHUSHANLAL (SUPR A) CONSIDERED THIS ISSUE AND FOUND THAT THE MATERIAL SUPPLIED BY THE GOVERNMENT/CONTRACTOR WILL NOT HAVE ANY ELEMENT OF PROFIT. THEREFORE, THE SAME SHALL B E REDUCED FROM THE CONTRACT RECEIPTS. IN VIEW OF THE JUDGEMENT OF THE APEX COURT THE SEIGNIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RECEIPTS F OR THE PURPOSE OF ESTIMATING THE PROFIT. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER WHILE COMPUTING THE TO TAL CONTRACT RECEIPTS THE SEIGNIORAGE CHARGES SHALL BE REDUCED FROM THE TOTAL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATING THE PROFIT. 12. NOW COMING TO THE DEPRECIATION. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTION (SUPRA). IN THE CASE BEFORE THE JURISDICTIONAL HIGH COURT AN ADDITION WAS MADE ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 7 TOWARDS INTEREST AND REMUNERATION PAID TO THE PARTNER WHEN THE PROFIT WAS ESTIMATED. THE JURISDICTIONAL HIGH COURT AFTER CONSIDERING THE PROVISIONS OF SECTION 29 AND 40 FOUND THAT NO SEPARATE ADDITION SHALL BE MADE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT DEPRECIATION SHALL BE ON THE WDV FROM THE PROFIT COMPUTED/ESTIMATED. THEREFORE, DEPRECIATION SHALL BE ALLOWED ON THE PROFIT COMPUTED. 13. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 44AD OF THE ACT. NOW DOUBT THIS PROVISIO N IS APPLICABLE FOR THOSE CASES WHERE THE TURNOVER/TO TAL CONTRACT RECEIPT DOES NOT EXCEED RS. 40 LAKHS. HOWEVER, BY FINANCE (NO. 2) ACT OF 2009 WITH EFFECT FROM 1.4.2011 THE LEGISLATURE REMOVED THE RESTRICTI ON OF THE TOTAL CONTRACT RECEIPTS OF RS. 40 LAKHS. BY TAKING A CLUE FROM THE PROVISION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISIONS WHICH ARE APPLICABLE WITH EFFECT FROM 1.4.2011, WE FIND THAT THE DEDUCTION AVAILABLE U/SS. 30 TO 38 SHALL BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT AND NO FURTH ER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED. DEPRECIATION IS ALLOWABLE U/S. 32 OF THE INCOME-TAX ACT. THEREFORE, AS PROVIDED IN SECTION 44AD NO FURTHER/SEPARATE DEDUCTION SHALL BE ALLOWED. IN VI EW OF THE ABOVE, IN OUR OPINION, THE CLAIM OF DEPRECIA TION ON THE ESTIMATED INCOME IS NOT JUSTIFIED. THEREFOR E, THE LOWER AUTHORITIES HAVE RIGHTLY REJECTED THE SAM E. 14. NOW COMING TO THE PAYMENT OF INTEREST AND SALARY TO THE PARTNER. PROVISO TO SECTION 44AD(2) CLEARLY SAYS THAT SALARY AND INTEREST PAID TO THE PARTNER SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB-SECTION (1) OF SECTION 44AD SUBJECT TO LIMITATION U/S. 40(B) OF THE ACT. AS WE HAVE ALREA DY OBSERVED, THOUGH THERE WERE RESTRICTIONS WITH REGAR D TO APPLICATION OF SECTION 44AD WHEREVER THE TOTAL CONTRACT RECEIPTS EXCEED RS. 40 LAKHS, WITH EFFECT FROM 1.4.2011 SUCH RESTRICTION WAS REMOVED BY THE LEGISLATURE. MOREOVER, THE CO-ORDINATE BENCH THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) AFTER TAKING A CLUE FROM SECTION 44AD ESTIMATED THE PROFIT AT 8% O F THE CONTRACT RECEIPT. THEREFORE, BY TAKING A CLUE FROM THE PROVISION OF SECTION 44AD AS IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PROVISIONS WHICH WOULD COME INTO OPERATION WITH ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 8 EFFECT FROM 1.4.2011, IN OUR OPINION, THE PAYMENT O F INTEREST AND SALARY TO THE PARTNER SHALL BE ALLOWED SUBJECT TO LIMITATION SPECIFIED IN SECTION 40(B) OF THE ACT FROM THE ESTIMATED INCOME. 15. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF IND WELL CONSTRUCTION (SUPRA). THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT WAS ASSESSMENT YEAR 1981-82. SECTION 44AD WAS INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 1.4.1994. THEREFORE, THE JURISDICTIONAL HIGH COURT HAD NO OCCASION TO CONSIDER THE PROVISIONS OF SECTI ON 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND AS IT WOULD BE APPLICABLE WITH EFFECT FROM 1.4.2011. IN VIEW OF THE PROVISIO N OF SECTION 44AD AS IT IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE AMENDMENT MADE WITH EFFECT FROM 1.4.2011 IT IS OBVIOUS THAT THE LEGISLATURE INTENDED TO ALLOW THE INTEREST AND SALA RY SEPARATELY FROM THE ESTIMATED INCOME. THEREFORE, T HE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF INDWELL CONSTRUCTIONS (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE IN THIS CASE. ACCORDINGL Y WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SALARY AND INTEREST PAID TO THE PARTNER SUBJECT TO THE LIMITATION PROVIDED IN SECTION 40(B) OF THE ACT. 10. ACCORDINGLY, WE DIRECT THE AO TO ESTIMATE INCOME OF THE ASSESSEE AT 8% OF THE GROSS RECEIPTS ON CONTRACT WO RKS IN CONFORMITY WITH THE ORDER OF THE TRIBUNAL CITED SUP RA. WE ALSO DIRECT THE AO TO CONSIDER THE JUDGEMENT OF SUPREME COURT IN THE CASE OF BRIJ BHUSHAN LAL PARDUMAN KUMAR V CIT (115 ITR 524) (SC) CITED SUPRA FOR THE PROPOSITION THAT MATERIAL SUPPLIED BY THE CONTRACTOR SHALL BE REDUCED FROM GROSS CONTRACT RECEIPTS AS IT DOES NOT HAVE PROFIT ELEMENT. 11. ASSESSEE'S APPEAL IN ITA NO. 1213/HYD/2013 IS PARTL Y ALLOWED. ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 9 12. NOW WE WILL TAKE UP ASSESSEE'S APPEAL IN ITA NO. 1214/HYD/2013 FOR A.Y. 2007-08. THE ASSESSEE RAISE D THE FOLLOWING GROUNDS OF APPEAL: A) THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. B) THE LEARNED CIT(A) ERRED IN DECIDING THE APPEAL EX-PARTE WITHOUT PROVIDING PROPERTY OPPORTUNITY TO THE APPELLANT HEREIN. C) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ESTIMATING THE PROFIT A T 12.5% OF THE CONTRACT RECEIPTS. D) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 2,18,27,000. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE INVESTMENT WAS PROPERLY EXPLAINED AND, THEREFORE, NO ADDITION SHOULD HAVE BEEN MADE. E) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS. 64,70,580 U/S. 68 OF THE I.T. ACT. 13. FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDI VIDUAL DERIVING INCOME FROM CIVIL CONTRACT WORKS. AS HE H AS NOT FILED HIS RETURN OF INCOME FOR THE A.Y. 2007-08, THE AO I SSUED NOTICE U/S. 148 OF THE INCOME-TAX ACT, 1961 ON 6.8.2010 AN D A NOTICE U/S. 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED ON 3.1.2011. IN RESPONSE, THE ASSESSEE FILED HIS RETURN OF INCOM E ON 26.8.2010 DECLARING TOTAL INCOME OF RS. 25,03,629. THE AO COMPLETED THE ASSESSMENT ON 29.12.2011 U/S. 143(3) R.W.S. 148 OF THE ACT, BY MAKING THE FOLLOWING ADDITIONS AND D ETERMINED THE TOTAL INCOME AT RS. 3,30,50,329: A) ADDITION TOWARDS NET PROFIT: RS. 22,49,120. B) ADDITION TOWARDS UNEXPLAINED INVESTMENT: RS. 2,18,27,000 AND C) ADDITION TOWARDS UNSECURED LOANS: RS. 64,70,580. 14. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE AO . AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 10 15. GROUND NO. 2 IS NOT PRESSED BEFORE US. ACCORDINGLY , THIS GROUND IS DISMISSED AS NOT PRESSED. 16. GROUND NO. 3, WITH REGARD TO ESTIMATING THE PROFIT AT 12.5% OF THE CONTRACT RECEIPTS, IS PARTLY ALLOWED A S DECIDED IN ASSESSEE'S APPEAL IN ITA NO. 1213/HYD/2013 IN THE E ARLIER PART OF THIS ORDER. 17. WITH REGARD TO GROUND NOS. 4 AND 5, THE ASSESSEE FI LED ADDITIONAL EVIDENCE AS FOLLOWS: 1. STATEMENT SHOWING THE AMOUNTS CONTRIBUTED BY THE JOINT OWNERS IN THE PROPERTY ADMEASURING 4943 SQ. FT. SITUATED AT UNIT MODULE A-1, IN QUADRANT-2 OF CYBER TOWERS, MADHAPUR. 2. COPY OF THE SALE DEED EXECUTED ON 31.7.2006 BY SIX JOINT OWNERS OF THE PROPERTY ADMEASURING 4943 SQ. FT. SITUATED AT UNIT MODULE A-1, IN QUADRANT-2 OF CYBER TOWERS, MADHAPUR. 3. COPY OF THE SALE DEED EXECUTED IN FAVOUR OF THE ASSESSEE VIDE DOCUMENT NO. 13255/2006. 4. LETTER OF CONFIRMATION OF SRI V.V. NARAYANA MURTHY, UNSECURED CREDITOR. 5. LETTER OF CONFIRMATION OF SRI V. SUBRAMANYA SAI. 6. BANK STATEMENT OF SRI V. SUBRAMANYA SAI MAINTAINED WITH SYNDICATE BANK, SOMAJIGUDA, HYDERABAD. 7. STATEMENT SHOWING THE AMOUNTS WITHDRAWN BY THE ASSESSEE FROM HIS BANK ACCOUNT NO. 30562010002262 MAINTAINED WITH SYNDICATE BANK, JUBILEE HILLS BRANCH FOR PAYMENT OF CONSIDERATION IN RESPECT OF PROPERTY MENTIONED AT S. NO. 2 ABOVE. 8. BANK STATEMENT (OD ACCOUNT) NO. 30561250000059) MAINTAINED WITH SYNDICATE BANK, JUBILEE HILLS BRANCH, HYDERABAD. ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 11 18. FURTHER, THE ASSESSEE FILED A PETITION SEEKING ADMI SSION OF ADDITIONAL EVIDENCE AS FOLLOWS: 'PETITION REQUESTING FOR ADMISSION OF ADDITIONAL EVIDENCE: THE PETITIONER HEREIN FILED THE ABOVE MENTIONED APPEAL AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-V, HYDERABAD IN ITA NO. 0555/ITO 8(2)/CIT(A)-III/2011-12 DATED 16.7.2013. THE ADDITIONS MADE BY THE ASSESSING OFFICER INCLUDE AN AMOUNT OF RS. 1,07,50,000/ - (OU T OF RS. 2,18,27,000) ON THE GROUND THAT THE SAID AMOUNT OF INVESTMENT MADE IN PURCHASE OF LAND JOINTLY BY THE APPELLANT AND 5 OTHER FAMILY MEMBERS IS NOT EXPLAINED BY THE PETITIONER. THE ASSESSING OFFICER ALSO MADE ADDITION OF RS. 1,10,77,000/- BEING THE COST OF 3.27 GUNTAS OF AGRICULTURAL LAND PURCHASED VIDE DOCUMENT NO. 13255/2006 EXECUTED ON 2.6.2006. THE PETITIONER ADMITTED HIS SHARE OF INVESTMENT IN THE LAND OF RS. 25 LAKHS JOINTLY PURCHASED AND ALSO THAT OF THE AGRICULTURAL LAND AS CAN BE SEEN F ROM THE BALANCE SHEET. THE PETITIONER EXPLAINED THE SOURCES IN THE BALANCE SHEET. ONE OF THE SOURCE REPRESENTS THE CREDITS FROM SRI JAIPAL REDDY & OTHE RS AMOUNTING TO RS. 64,70,580/-. THE ASSESSING OFFICE R ADDED THE ENTIRE INVESTMENT IN THE PROPERTY OF RS. 2,18,27,000/- IN THE ASSESSMENT OF THE PETITIONER WITHOUT CONSIDERING THE FACT THAT THE INVESTMENT MADE BY THE PETITIONER IS ONLY RS. 25 1AKHS & RS. 1,10,770/-. AGGREGATING TO RS. 1,35,77,000/-. THE ASSESSING OFFICER ALSO ADDED THE CASH CREDITS OF RS. 64,70,580/- WITHOUT PROVIDING AN OPPORTUNITY. ONE OF THE JOINT OWNER VIZ., V. SUBRAMANYA SAI CONTRIBUTED HIS SHARE OF COST OF LAND OF RS. 15 LAKHS BY WITHDRAWING THE SAID AMOUNT FROM HIS BANK ACCOUNT WITH SYNDICATE BANK (ACCOUNT NO. 30082010691081) AND HE ALSO PROVIDED A LOAN OF RS. 15 LAKHS TO SRI V. LAXMINARAYANA, ANOTHER JOINT OWNER. THE SAID AMOUNTS AGGREGATING TO RS. 30 LAKHS ARE WITHDRAWN FROM HIS SAID BANK ACCOUNT. ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 12 THE PETITIONER COULD NOT FILE THE DETAILS AND THE EVIDENCES AS THE ASSESSING OFFICER DID NOT PROVIDE PROPER OPPORTUNITY AND THE NOTICES ISSUED BY THE CI T (APPEALS) WERE NOT RECEIVED BY THE PETITIONER. THEREFORE, THE PETITIONER IS FILING THE FOLLOWING DOCUMENTS FOR CONSIDERATION OF THE HON'BLE ITAT. S. NO. PARTICULARS PAGE NO. 01 STATEMENT SHOWING THE AMOUNTS CONTRIBUTED BY THE JOINT OWNERS IN THE PROPERTY ADMEASURING 4943 SQ. FT. SITUATED AT UNIT MODULE A-I, IN QUADRANT-2 OF CYBER TOWERS, MADHAPUR 1 02 COPY OF THE SALE DEED EXECUTED ON 31.7.2006 BY SIX JOINT OWNERS OF THE PROPERTY ADMEASURING 4943 SQ. FT. SITUATED AT UNIT MODULE A-I, IN QUADRANT-2 OF CYBER TOWERS, MADHAPUR 2 - 10 03 COPY OF THE SALE DEED EXECUTED IN FAVOUR OF THE ASSESSEE VIDE DOCUMENT NO. 13255/2006 11 - 16 04 LETTER OF CONFIRMATION OF SRI V.V. NARAYANA MURTHY UNSECURED CREDITOR 17 05 LETTER OF CONFIRMATION OF SRI V. SUBRAMANYA SAI 18 06 BANK STATEMENT OF SRI V. SUBRAMANYA SAI MAINTAINED WITH SYNDICATE BANK, SOMAJIGUDA, HYDERABAD 19 - 20 07 STATEMENT SHOWING THE AMOUNTS WITHDRAWN BY THE ASSESSEE FROM HIS BANK ACCOUNT NO. 30562010002262 MAINTAINED WITH SYNDICATE BANK, JUBILEE HILLS BRANCH FOR PAYMENT OF CONSIDERATION IN RESPECT OF PROPERTY MENTIONED AT S. NO. 2 ABOVE 21 08 BANK STA TEMENT (OD ACCOUNT) NO. 30561250000059) MAINTAINED WITH SYNDICATE BANK, JUBILEE HILLS BRANCH HYDERABAD 22 - 27 THE PETITIONER HUMBLY REQUESTS THE HON'BLE ITAT TO KINDLY ADMIT THE SAID DOCUMENTS AS ADDITIONAL EVIDENCE AND PASS APPROPRIATE ORDERS. PETITIONER' 19. AFTER HEARING BOTH THE PARTIES, WE ADMIT THE ADDITI ONAL EVIDENCE IN RESPECT OF GROUND NOS. 4 AND 5. SINCE THE ADDITIONAL EVIDENCE WAS NOT BEFORE THE AO, IN OUR OPINION, IT IS JUST AND ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 13 PROPER TO REMIT GROUND NOS. 4 AND 5 ALONG WITH THE ADDITIONAL EVIDENCE TO THE FILE OF THE AO FOR CONSIDERING THE ISSUE AFRESH IN THE LIGHT OF THE ADDITIONAL EVIDENCE FILED BY THE A SSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. FURTHER, WE MAKE IT CLEAR THAT THE AO IS AT LIBERTY TO MAKE ADDITION U/ S. 68 OR 69 OF THE ACT EVEN THOUGH THE INCOME OF THE ASSESSEE IS E STIMATED, IF THE ASSESSEE NOT EXPLAINED CREDIT/INVESTMENT PROPER LY. FOR THIS PURPOSE, WE PLACE RELIANCE ON THE ORDER OF THE CO-O RDINATE BENCH IN THE CASE OF SRI P.V. SITARAMASWAMY NAIDU VS. AD DL. CIT IN ITA NO. 264/HYD/2012 ORDER DATED 9.1.2013 WHEREIN T HE TRIBUNAL HELD AS FOLLOWS: '10. THE NEXT GROUND IS WITH REGARD TO SUSTAINING THE ADDITION MADE U/S. 68 OF THE INCOME-TAX ACT, 1961 AND NOT GIVING THE BENEFIT OF TELESCOPING TO THE SAME OUT OF THE ESTIMATED BUSINESS INCOME OF THE ASSESSEE. . 11. THE LEARNED AR SUBMITTED THAT ONCE THE INCOME IS ESTIMATED THERE CANNOT BE ANY ADDITION OF WHATSOEVER. FOR THIS PURPOSE HE RELIED ON THE JUDGEMENT OF INDWELL CONSTRUCTIONS (232 ITR 776) WHEREIN IT WAS HELD THAT WHERE THE BOOKS OF ACCOUNT ARE REJECTED BY THE REVENUE CANNOT RELY ON THE SAME BOOKS FOR ADDITION OF EXACT ITEM IN THE PROFIT AND LOSS A/C. 12. WE HAVE CAREFULLY GONE THROUGH THIS JUDGEMENT. THIS JUDGEMENT IS WITH REGARD TO ALLOWABILITY OF DEDUCTION WHILE COMPUTING BUSINESS INCOME OF THE ASSESSEE. NOW, WE ARE CONCERNED WITH THE ADDITION MADE U/S. 68 OF THE ACT. IN THE PRESENT CASE, THE ASSESSING OFFICER MADE ADDITION WITH REGARD TO CREDIT SHOWN IN THE NAME OF MS. DEVI INDUKURI AT RS. 30,07,392 AND IN THE NAME OF MR. NANDYALA BHASKAR REDDY AT RS. 80,00,000 TOTALLING TO RS. 1,10,07,392. WHEN THE CREDIT ENTRY IS SHOWN IN THE BOOKS OF ACCOUNT IT IS INCUMBENT UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF CREDIT, CREDITWORTHINESS OF THE PARTY AND GENUINENESS OF THE TRANSACTION. THE FACT THAT ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 14 THE ENTRIES ARE SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WHOSE INCOME HAD ALREADY BEEN COMPUTED ON THE BASIS OF THE ESTIMATE BUT NOT ON THE RETURN FILED BY THE ASSESSEE, THAT DOES NOT PREVENT THE ITO FROM TREATING, BUT ENTITLES HIM TO TREAT, THE UNEXPLAINED CASH CREDIT AS INCOME FROM UNDISCLOSED SOURCES WHICH FALLS UNDER THE HEAD OF INCOME 'INCOME FROM OTHER SOURCES'. UNLESS THE ASSESSEE, BY INDEPENDENT AND SATISFACTORY EVIDENCE, ESTABLISHES THAT THOSE AMOUNTS RELATE OR REFERABLE TO THE UNDISCLOSED INCOME FROM KNOWN OR DISCLOSED SOURCES VIZ., THE BUSINESS, WHOSE INCOME HAD ALREADY BEEN ESTIMATED. IN THE PRESENT CASE, THE ASSESSEE DID NOT ABLE TO ESTABLISH THE CASH CREDITS MENTIONED ABOVE AS GENUINE CREDITS. THE ASSESSEE'S STAND FROM THE BEGINNING AND ALSO BEFORE US IS THAT THE CASH CREDITS ARE GENUINE. THE ASSESSEE NEVER TOOK SPECIFIC STAND THAT THESE UNEXPLAINED CASH CREDITS ARE REFERABLE TO THE INCOME FROM DISCLOSED SOURCES VIZ., BUSINESS, WHOSE INCOME HAS BEEN ESTIMATED BY THE REVENUE AUTHORITIES. IN ORDER TO DELETE THIS ADDITION, THE ASSESSEE IS BOUND TO EXPLAIN THE SOURCE OF CREDIT, GENUINENESS OF THE TRANSACTION AND THE CAPACITY OF THE LENDER TO ADVANCE THE SAME. AS THE ASSESSEE FAILED TO EXPLAINED THESE CRITERIA, WE HAVE NO HESITATION IN CONFIRMING THE ACTION OF THE CIT(A). FOR THIS PURPOSE, WE PLACE RELIANCE ON THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. MADURI RAJAIAHGARI KISTAIAH (120 ITR 294). FURTHER, WE PLACE RELIANCE ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V. DEVI PRASAD VISWANATH PRASAD (72 ITR 194) WHEREIN HELD THAT ON REJECTION OF BOOKS OF ACCOUNT, BUSINESS INCOME ESTIMATED, ADDITION TOWARDS UNEXPLAINED CASH CREDIT SEPARATELY VALUED. 13. FURTHER, THE APPROACH OF THE VARIOUS HIGH COURTS' IS NOT UNIFORM ON THE ABOVE ASPECT AS WOULD BE SEEN FROM THE FOLLOWING CASES. IN CIT V. AGGARWA L ENGG. CO. (JAI.) (2006) 206 CTR (P&H) 648, THE PUNJAB & HARYANA HIGH COURT HELD, RELYING ON DECISION IN CIT VS. BANWARILAL BANSHIDHAR (1998) 148 CTR (ALL) 533; (1998) 229 ITR 229 (ALL), THAT N O SEPARATE ADDITION ON ACCOUNT OF CASH CREDIT AND ON ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 15 ACCOUNT OF UNEXPLAINED PAYMENTS FOR PURCHASES MADE OUTSIDE THE BOOKS CAN BE MADE ONCE THE NET PROFIT RATE IS APPLIED ON CONTRACT RECEIPTS OF AN ASSESSEE FOR ESTIMATING HIS INCOME FROM CONTRACT WORK. EVEN WHEN THE BOOKS OF ACCOUNT RELATING TO TH E ASSESSEE'S BUSINESS ARE REJECTED AND INCOME FROM SUCH BUSINESS IS DETERMINED ON ESTIMATE BASIS, A SEPARATE ADDITION (WHICH MAY NOT EXCEED THE DIFFERENCE BETWEEN THE INCOME AS ESTIMATED BY THE DEPARTMENT AND THE INCOME/LOSS AS PER BOOKS) MAY BE MADE UNDER SECTION 68 TOWARDS CASH CREDITS WHICH ARE NOT EXPLAINED OR WHICH ARE NOT PROPERLY EXPLAINED. THIS IS BECAUSE THE SOURCE OF THE FORMER IS BUSINESS WHEREAS FOR THE LATTER THE DEPARTMENT DOES NOT HAVE TO LOCATE ANY PARTICULAR SOURCE [KALE KHAN MOHAMMED HANIF VS. CIT (1963) 50 ITR 1 (SC) IMPLIEDLY OVERRULING RAMCHARITAR RAM HARIHAR PRASAD VS. CIT (1953) 23 ITR 301 (PAT) AND IMPLIEDL Y APPROVING SRINIVAS RAMKUMAR VS. CIT (1948) 16 ITR 254 (PAT) AND G.M. CHENNA BASAPPA VS. CIT (1958) 34 ITR 576 (AP) ON THIS POINT]. IN THIS CASE, THE SUPREME COURT HELD THAT THE ITO HAVING ASSESSED THE INCOME OF THE ASSESSEE ON A PERCENTAGE BASIS, WAS ALSO JUSTIFIED IN TREATING THE UNEXPLAINED CASH CREDIT AS PROFITS FROM AN UNDISCLOSED SOURCE. REPELLING THE CONTENTION THAT THE ENTRIES FOUND IN THE BOOKS OF ACCOUNT OF THE BUSINESS MUST BE REFERABLE TO THE INCOME OF THE BUSINESS WHICH HAD BEEN COMPUTED ON THE BASIS OF AN ESTIMATE WITHOUT ACCEPTING THE RETURN FILED BY THE ASSESSEE, WHICH AMOUNTS TO DOUBLE TAXATION OF THE SAME INCOME, THE COURT RULED THUS: 'THE QUESTION WOULD SEEM TO SUGGEST THAT BECAUSE THE INCOME FROM A DISCLOSED SOURCE HAS BEEN COMPUTED ON THE BASIS OF AN ESTIMATE AND NOT ON THE BASIS OF THE RETURN FILED IN RESPECT OF IT, AN INCOME REPRESENTED BY A CREDIT ENTRY IN THE BOOKS OF ACCOUNT OF THAT SOURCE CANNOT BE HELD TO BE INCOME FROM ANOTHER AND UNDISCLOSED SOURCE. WE DO NOT SEE WHY IT CANNOT BE SO HELD ..... IF THE INCOME IS TREATED AS ONE FROM AN UNDISCLOSED SOURCE WHICH THE QUESTION POSTULATES, IT IS NOT TREATED AS INCOME OF THE DISCLOSED SOURCE WHICH HAD PREVIOUSLY BEEN ASSESSED TO TAX AND, THEREFORE, THERE IS IN SUCH A CASE NO DOUBLE TAXATION. IT IS NOT A CASE WHERE THE INCOME SOUGHT TO BE TAXED WAS HELD TO BE UNDISCLOSED INCOME OF ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 16 A DISCLOSED SOURCE, THE INCOME OF WHICH SOURCE HAD PREVIOUSLY BEEN TAXED ON THE BASIS OF AN ESTIMATE ..... THE QUESTION WHETHER INCOME REPRESENTED BY AN ENTRY IN THE BOOKS OF A BUSINESS IS INCOME OF THAT BUSINESS OR OF ANOTHER BUSINESS WOULD HAVE TO BE DECIDED ON THE FACTS WHICH SHOWED THE BUSINESS TO WHICH IT BELONGED. BUT QUITE CLEARLY, THE ANSWER TO THAT QUESTION WOULD NOT DEPEND ON WHETHER THE INCOME FROM THE FIRST MENTIONED BUSINESS HAD BEEN COMPUTED ON THE BASIS OF A RETURN FILED OR OF AN ESTIMATE OF THE INCOME MADE BY THE TAXING AUTHORITIES THEREFORE, IT CANNOT BE SAID THAT THE TAXING AUTHORITIES WERE PRECLUDED FROM TREATING THE AMOUNTS OF THE CREDIT ENTRIES AS INCOME FROM UNDISCLOSED SOURCES SIMPLY BECAUSE THE ENTRIES APPEAR IN THE BOOKS OF A BUSINESS WHOSE INCOME THEY HAD PREVIOUSLY COMPUTED ON A PERCENTAGE BASIS.' 14. THERE IS NO PRESUMPTION THAT ANY CASH CREDIT ENTRY FOUND IN THE BUSINESS ACCOUNTS OF THE ASSESSE E IS RELATED TO HIS CONCEALED INCOME FROM THE SAME BUSINESS [CIT VS. MADURI RAJAIAHGARI KISTAIAH (1979 ) 120 ITR 294 (AP) WHERE THE ASSESSEE PLEADS THAT THE IMPUGNED CASH CREDITS CAME OUT OF SUPPRESSED PROFITS WHICH ARE ALREADY INCLUDED IN THE INCOME ESTIMATED FROM BUSINESS ON REJECTION OF THE BOOKS, IT IS FOR HIM TO PROVE THAT IT IS SO [CIT VS. DEVI PRA SAD VISHWANATH PRASAD (1969) 72 ITR 194 (SC) REVERSING DEVI PRASAD VISHWANATH PRASAD VS. CIT (1963) 50 ITR 641 (ALL) AND IMPLIEDLY APPROVING ON THIS POINT MADDI SUDARSANAM OIL MILLS CO. VS. CIT (1959) 37 ITR 369 (AP) AND CIT VS. KRISHNA MINING CO. (1972) 83 ITR 860 (AP). THE SUPREME COURT IN THIS CASE OF CIT VS. DEVI PRASAD VISHWANATH PRASAD OBSERVED THUS : 'THERE IS NOTHING IN LAW WHICH PREVENTS THE ITO IN AN APPROPRIATE CASE IN TAXING BOTH THE CASH CREDIT, THE SOURCE AND NATURE OF WHICH IS NOT SATISFACTORILY EXPLAINED AND THE BUSINESS INCOME ESTIMATED BY HIM UNDER SECTION 13 OF THE IT ACT, AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AS UNRELIABLE ..... WHETHER IN A GIVEN CASE THE ITO MAY TAX THE CASH CREDIT ENTERED IN THE BOOKS OF ACCOUNT OF BUSINESS, AND AT THE SAME TIME ESTIMATE THE PROFIT MUST, HOWEVER, ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 17 DEPEND UPON THE FACTS OF EACH CASE ..... WHERE THERE IS AN UNEXPLAINED CASH CREDIT, IT IS OPEN TO THE ITO TO HOLD THAT IT IS INCOME OF THE ASSESSEE AND NO FURTHER BURDEN LIES ON THE ITO TO SHOW THAT THAT INCOME IS FROM ANY PARTICULAR SOURCE. IT IS FOR THE ASSESSEE TO PROVE THAT EVEN IF THE CASH CREDIT REPRESENTS INCOME IT IS INCOME FROM A SOURCE WHICH HAS ALREADY BEEN TAXED.' 15. THE ANDHRA PRADESH HIGH COURT IN CIT VS. JANAB MOHD. SULEMAN [REFERRED CASE NO. 13 OF 1968 DT. 11TH NOV., 1970] HAS EXPRESSED THE SAME VIEW ON SIMILAR FACTS AND CIRCUMSTANCES. IN KARNAL MOTORS V S. CIT (2003) 180 CTR (RAJ) 166 IT WAS HELD THAT ADDITIONS UNDER S. 68 COULD NOT BE TELESCOPED WITH THE TRADING ADDITION WHERE THE ASSESSEE HAD NOT ADMITTED THAT UNEXPLAINED CASH CREDITS CAME OUT OF BLACK MONEY EARNED IN THE CURRENT YEAR OR IN AN EARLIER YEAR. IN OUR OPINION, A SEPARATE ADDITION UNDER S. 68 TOWARDS UNEXPLAINED CREDIT IS SUSTAINABLE IN SPITE OF ADDITION MADE TO THE DECLAR ED TRADING RESULTS IS A QUESTION OF FACT WHICH IS TO B E DECIDED BASED ON CIRCUMSTANCES IN EACH CASE. 16. THE BENEFIT OF TELESCOPING WAS ALSO CONSIDERED BY THE SUPREME COURT IN ANANTHARAM VEERASINGAIAH & CO. VS. CIT (1980) 16 CTR (SC) 187 : (1980) 123 ITR 457 (SC) APPROVING LAGADAPATI SUNNA RAMAIAH VS. CIT (1956) 30 ITR 593 (AP) OBSERVED THAT: 'THERE CAN BE NO ESCAPE FROM THE PROPOSITION THAT THE SECRET PROFITS OR UNDISCLOSED INCOME OF AN ASSESSEE EARNED IN AN EARLIER ASSESSMENT YEAR MAY CONSTITUTE A FUND, EVEN THOUGH CONCEALED, FROM WHICH THE ASSESSEE MAY DRAW SUBSEQUENTLY FOR MEETING EXPENDITURE OR INTRODUCING AMOUNTS IN HIS ACCOUNT BOOKS. BUT IT IS QUITE ANOTHER THING TO SAY THAT ANY PART OF THAT FUND MUST NECESSARILY BE REGARDED AS THE SOURCE OF UNEXPLAINED EXPENDITURE INCURRED OR OF CASH CREDITS RECORDED DURING A SUBSEQUENT ASSESSMENT YEAR. THE MERE AVAILABILITY OF SUCH A FUND CANNOT, IN ALL CASES, IMPLY THAT THE ASSESSEE HAS NOT EARNED FURTHER SECRET PROFITS DURING THE RELEVANT ASSESSMENT YEAR. NEITHER LAW NOR HUMAN EXPERIENCE GUARANTEES THAT AN ASSESSEE WHO HAS BEEN DISHONEST IN ONE ASSESSMENT YEAR IS BOUND TO BE HONEST IN A SUBSEQUENT ASSESSMENT YEAR. IT ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 18 IS A MATTER FOR CONSIDERATION BY THE TAXING AUTHORITY IN EACH CASE WHETHER THE UNEXPLAINED CASH DEFICITS AND THE CASH CREDITS CAN BE REASONABLY ATTRIBUTED TO A PRE-EXISTING FUND OF CONCEALED PROFITS OR THEY ARE REASONABLY EXPLAINED BY REFERENCE TO CONCEALED INCOME EARNED IN THAT VERY YEAR. IN EACH CASE, THE TRUE NATURE OF THE CASH DEFICIT AND THE CASH CREDIT MUST BE ASCERTAINED FROM AN OVERALL CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. EVIDENCE MAY EXIST TO SHOW THAT RELIANCE CANNOT BE PLACED COMPLETELY ON THE AVAILABILITY OF A PREVIOUSLY EARNED UNDISCLOSED INCOME. A NUMBER OF CIRCUMSTANCES OF VITAL SIGNIFICANCE MAY POINT TO THE CONCLUSION THAT THE CASH DEFICIT OR CASH CREDIT CANNOT REASONABLY BE RELATED TO THE AMOUNT COVERED BY THE INTANGIBLE ADDITION BUT MUST BE REGARDED AS POINTING TO THE RECEIPT OF UNDISCLOSED INCOME EARNED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. IT IS OPEN TO THE REVENUE TO RELY ON ALL THE CIRCUMSTANCES POINTING TO THAT CONCLUSION.' 17. THUS, AS EXPLAINED BY THE SUPREME COURT, INCOME FROM INTANGIBLE ADDITIONS IS AVAILABLE TO THE ASSES SEE FOR, INTER ALIA, INTRODUCING AMOUNTS IN HIS ACCOUNT BOOKS. IF ANY UNEXPLAINED CASH CREDITS CAN BE REASONABLY RELATED TO THE AMOUNT COVERED BY THE INTANGIBLE ADDITIONS MADE IN THE PAST OR IN THAT VE RY YEAR, NECESSARY SET OFF MAY BE GIVEN BY THE AUTHORITIES ON THAT ACCOUNT. IN EACH CASE, THE TRUE NATURE OF THE CASH CREDIT MUST BE ASCERTAINED FROM AN OVERALL CONSIDERATION OF THE PARTICULAR FACTS AN D CIRCUMSTANCES OF THE CASE. HOWEVER, WHERE IN THE EARLIER YEARS, THERE WAS DISALLOWANCE OF EXPENDITUR E ON THE GROUND THAT THERE WAS NO EVIDENCE THOUGH THE REQUISITE AMOUNT WAS IN FACT PAID, IT CANNOT BE SAI D THAT THE CORRESPONDING AMOUNT IS AVAILABLE TO THE ASSESSEE FOR USE LATER. 18. UNDER SECTION 68, THE BURDEN IS ON THE ASSESSEE TO PRIMA FACIE PROVE THE NATURE AND SOURCE OF THE CASH CREDIT FOUND IN HIS BOOKS AND THE EXPLANATION IN REGARD THERETO MUST NECESSARILY BE FACTUAL BUT NOT ARGUMENTATIVE. A VIEW THAT THE CASH CREDITS TO THE EXTENT OF THE PAST INTANGIBLE ADDITIONS STAND AUTOMATICALLY EXPLAINED WOULD PRACTICALLY DISPENSE ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 19 WITH THE NECESSITY OF THE ASSESSEE GIVING ANY EXPLANATION OF FACT UNDER SECTION 68 WHERE INTANGIB LE ADDITIONS WERE MADE IN THE EARLIER YEARS AND HENCE SUCH A VIEW IS UNTENABLE. IN THE CASE OF CIT VS. MANIK SONS (1969) 74 ITR 1 (SC) IT WAS HELD THAT ONLY IF THE UNEXPLAINED CASH CREDIT CAN REASONABLY BE RELATED TO THE AMOUNT COVERED BY THE INTANGIBLE ADDITION MADE IN THE PAST, OR IN THE VERY YEAR, NECESSARY SET OFF CAN BE ALLOWED. THE PRINCIPLE THA T IT IS THE ASSESSEE WHO SHOULD GIVE A SATISFACTORY EXPLANATION REGARDING CASH CREDITS IS IN NO WAY RENDERED INAPPLICABLE MERELY BECAUSE THE ASSESSEE WAS FOUND TO HAVE EARNED SOME UNDISCLOSED INCOME IN SOME EARLIER YEARS FOR WHICH ADDITIONS HAD BEEN MADE IN THE RELEVANT ASSESSMENTS. IF IT IS THE ASSESSEE'S CASE THAT THE CASH CREDITS FOUND IN HIS BOOKS CAME OUT OF THE ADDITION MADE TO HIS INCOME FOR AN EARLIER YEAR, IT IS UNDOUBTEDLY OPEN TO HIM TO PUT FORWARD SUCH A PLEA WHILE FURNISHING EXPLANATIO N REGARDING SUCH CASH CREDITS. WHILE THE FACT OF MAKI NG OF INTANGIBLE ADDITIONS IN THE EARLIER YEARS IS UNDOUBTEDLY A MATTER TO BE CONSIDERED BY THE ASSESSING OFFICER IN JUDGING WHETHER THE CASH CREDI TS ARE SATISFACTORILY EXPLAINED BY THE ASSESSEE, THE BURDEN OF PROOF RESTS SQUARELY ON THE SHOULDERS OF THE ASSESSEE TO ESTABLISH THE TRUTH AND TENABILITY OF THE EXPLANATION FURNISHED BY HIM. IN OTHER WORDS, THE ASSESSEE'S EXPLANATION MUST SATISFY THE INCOME- TAX AUTHORITIES THAT THE CASH CREDITS REPRESENT INTANGIBLE ADDITIONS MADE IN THE EARLIER YEARS. FO R WEIGHING THE ASSESSEE'S EXPLANATION, THE ASSESSEE'S CONDUCT, HIS EXPLANATION AT THE INITIAL STAGE AND T HE SHIFT, IF ANY, IN LATER STAGES AND ALSO THE MATERIA L, IF ANY, LINKING UP THE CASH CREDIT ENTRIES WOULD BE RELEVANT FACTORS. THE ASSESSEE, INSTEAD OF MERELY RAISING AN ARGUMENT, MUST SUPPORT HIS CLAIM BY PROPER EXPLANATION, AFFIDAVIT AND MATERIAL. THUS, THERE IS NO GENERAL OR ABSOLUTE RULE TO THE EFFECT THAT WHENEVER ADDITIONS TO PROFITS ARE MADE, THEY MUST BE REGARDED AS FUNDS REPRESENTED IN THE BOOKS OF ACCOUNT AS CASH CREDITS. THE QUESTION DEPENDS ON TH E FINDINGS OF FACT. IF THERE IS NO CONNECTION FOUND BETWEEN THE CASH CREDITS AND THE ADDITIONS MADE TO PROFITS, THE ASSESSEE WOULD NOT BE ENTITLED TO SET OFF CASH CREDITS AGAINST THE PAST INTANGIBLE ADDITION. 19. SINCE IT IS FOR THE ASSESSEE TO PROVIDE THE EXPLANATION FOR CASH CREDITS, WHEN THE ASSESSEE HAS ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 20 NOT PLEADED THAT THE CASH CREDITS CAME OUT OF THE PAST INTANGIBLE ADDITIONS, IT WOULD NOT BE OPEN TO THE TRIBUNAL TO HOLD THAT THE CASH CREDITS WOULD BE COVERED BY SUCH ADDITIONS [CIT VS. G. M. CHENNABASAPPA (1959) 35 ITR 261 (AP). THE OMISSION TO CLAIM SET OFF OF PAST INTANGIBLE ADDITI ONS AGAINST CASH CREDITS WOULD GIVE RISE TO A PRESUMPTI ON THAT THE FORMER AMOUNTS WERE NOT AVAILABLE FOR SET OFF. WHEN THE ALTERNATE PLEA THAT TANGIBLE ADDITIO NS IN THE PAST COULD TAKE CARE OF CASH CREDITS OF CURR ENT YEAR IS NOT TAKEN AT THE EARLIER STAGE AND NO MATERIALS ARE PLACED ON RECORD TO SUBSTANTIATE THE SAME, REJECTION OF SUCH PLEA WOULD BE JUSTIFIED. [R . DALMIA (DECD.) VS. CIT; (2002) 172 CTR 180 (DEL) : (2002) 255 ITR 401 (DEL)]. 20. THE AVAILABILITY OF FUNDS REPRESENTING THE INTANGIBLE ADDITIONS SHOULD BE QUANTIFIED NOT WITH REFERENCE TO WHAT THE ASSESSEE OFFERED FOR TAXATION BUT WHAT WAS ACTUALLY ADOPTED IN ASSESSMENTS FOR TAXATION. IN THE PRESENT CASE, THE ASSESSEE FAILED TO SHOW HOW THE ADDITION U/S. 68 IS RELATED TO ESTIMATED INCOME. 21. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEE'S CONTENTION ON TELESCOPING ON ADDITION TOWARDS UNEXPLAINED CREDIT OF RS. 1,10,07,392 ON THE ADDITION MADE TOWARDS BUSINESS INCOME IS REJECTED AND THE ADDITION MADE U/S. 68 IS SUSTAINED IN ITS ENTIRETY.' 20. ASSESSEE'S APPEAL IN ITA NO. 1214/HYD/2013 IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, ITA NO. 1213/HYD/2013 IS PARTLY ALLO WED AND ITA NO. 1214/HYD/2013 IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2014. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 12 TH FEBRUARY, 2014 TPRAO ITA. NOS. 1213 & 1214/HYD/2013 SRI KESHAVA BHAT VANGALA ============-============= 21 COPY FORWARDED TO: 1. SRI KESHAVA BHAT VANGALA, C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, H. NO. 3 -6-643, ST. NO. 9, HIMAYATHNAGAR, HYDERABAD-500 029. 2. THE ITO, WARD - 8(2), HYDERABAD. 3. THE CIT(A) - I II , HYDERABAD. 4. THE CIT - II , HYDERABAD 5. THE DR ' B ' BENCH, ITAT, HYDERABAD