ITO, Hyderabad V. Krishna Sai Constructions, Hyderabad

ITA 1233/HYD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3110 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 03-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHAARYA
• Keywords: Income from undisclosed sources; Opportunity of being heard; Corroborative evidences; Set aside
• Section: 68; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.1233/HYD/2008 : ASSTT. YEAR : 2003-2004 INCOME TAX OFFICER,WARD 7(1), HYDERABAD ITA NO.1244/HYD/2008 KRISHNA SAI CONSTRUCTIONS, HYDERBAD PAN AAFFK8709H VS. KRISHNA SAI CONSTRUCTIONS, HYDERABAD PAN AAFFK8709H ASST.YEAR: 2003-04 INCOME TAX OFFICER, WAD 7(4), HYDERABAD. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI K.V.N.CHAARYA, DR RESPONDENT BY : SHRI A.SRINIVAS, CA O R D E R PER CHANDRA POOJARI , ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS) VI, HYDERABAD DT.3 1-3-2003 PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE RAISED A AGROUND THAT THE CIT(A) ERRED I N CONFIRMING THE DISALLOWANCE OF RS.2,50,000 FOUND IN THE CAPITAL ACC OUNT OF SHRI KESHAVA REDDY. 2 3. THE REVENUE RAISED THE FIRST GROUND THAT THE CIT(A ) ERRED IN DELETING THE ADDITION ON ACCOUNT OF CAPITAL INTRODUCED BY THE FOLLOWING PERSONS AS FOLLOWS THOUGH THERE WAS NO SUFFICIENT EVIDENCE . 1. SHRI P.SHASHIDHAR REDDY 3,50, 000 2. T.PRAMILAMMA 4,25,000 3. K.SHIVARAMI REDDY 6 ,00,000 4. K.MADHURI 3,75,000 3.1. GROUND NO.2 RAISED BY THE REVENUE RELATE TO THE DELETION OF THE ADDITION OF RS.1,32,875 MADE ON ACCOUNT OF INTEREST ON CAPITAL INTRODUCED BY THE PARTNERS. THIRD GROUND RELATES TO T HE DELETION OF RS.1,02,398 ON ACCOUNT OF DISALLOWANCE OF 20% OF EXPEN DITURE TOWARDS SAND, MATERIAL AND LABOUR. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE FILED ALL MATERIAL INFORMATION BEFORE THE ASSESSING OFF ICER. HE FURTHER SUBMITTED THAT SHRI P.SHASHIDHAR REDDY IS AN INCOME TA X ASSESSEE AND HE HAS DECLARED AN INCOME OF RS.11,04,801 FOR THE ASSESSM ENT YEAR 2000-01. HE HAS SOLD A HOUSE PROPERTY FOR A CONSIDERATIO N OF RS.36 LAKHS IN THE YEAR 2000-01 AND THE SAME MONEY WAS USED AS RESOURCE FOR HIS INVESTMENT IN THIS FIRM. 5. REGARDING THE CAPITAL CONTRIBUTION BY SMT.PAMEELA MMA, IT WAS SUBMITTED THAT SHE HAS BEEN CARRYING ON AGRICULTURAL OPE RATIONS UPTO THE YEAR 1996 AND THE SAID LAND WAS DISPOSED OF DURING THE YEAR 1996 FOR A CONSIDERATION OF RS.4.14 LAKHS AND OUT OF THIS SALE PROCEEDS SHE MADE THE INVESTMENT IN THIS FIRM. 6. REGARDING INVESTMENT MADE BY SHRI SIVARAMIREDDY, IT WAS SUBMITTED THAT THIS WAS MADE OUT OF HIS PAST SAVINGS A ND AMOUNT 3 BORROWED FROM HIS BROTHER WHO IS AN NRI WORKING IN U SA, THE INVESTMENT WAS MADE IN THIS FIRM. HE SUBMITTED THAT SHR I SIVARAMIREDDY FURNISHED COPIES OF HIS BANK ACCOUNT AND HI S BROTHERS NRI BANK ACCOUNT BEFORE THE ASSESSING OFFICER. 6.1 REGARDING THE INVESTMENT BY SMT.MADHURI, LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHE HAS BEEN FILING HER RETURN OF INCOME FROM 2002-03 TO 2004-05. IT WAS SUBMITTED THAT THE INVESTM ENT IN THE FIRM WAS MADE FROM THE STHREEDHAN RECEIVED BY HER FROM H ER PARENTS AT THE TIME OF HER MARRIAGE. 7. REGARDING THE INVESTMENT BY SHRI KESHAVA REDDY, IT WAS SUBMITTED THAT HE HAS BEEN CARRYING ON AGRICULTURAL OPE RATIONS AND THE INVESTMENT WAS MADE OUT OF HIS ACCUMULATED SAVINGS. FURT HER, HE RELIED ON THE DECISION IN THE CASE OF KALYAN MEMORIAL & CHARIT ABLE TRUST V. ACIT 121 ITD 525 (AGRA) () AND ON THE DECISION IN TH E CASE OF ACIT VS SARV PRAKASH KAPOOR (119 ITD 197)(AGRA) . 8. REGARDING THE DISALLOWANCE OF INTEREST, IT WAS SUBMIT TED THAT THERE WAS NO QUESTION OF DISALLOWANCE OF INTEREST SINCE THE INTE REST WAS RELATING TO THE PARTNERS CAPITAL CONTRIBUTION. AS REGA RDS THE DISALLOWANCE OF EXPENDITURE, IT WAS SUBMITTED THAT THE DISALLOWANCE WAS MADE ON THE BASIS OF ESTIMATION WITHOUT PINPOINTING THE EXACT DISCREP ANCIES. 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THERE IS NO SUFFICIENT EVIDENCE REGARDING THE AVAILABILITY OF SOURCES TO THE PARTNERS FOR THEIR CAPITAL CONTRIBUTION TO THE FIRM. HE SUBMITTED THAT THE TRIBUNAL HAD CONSIDERED IDENTICAL ISSU E IN THE CASE OF M/S DURGA WINES V. ITO IN ITA NO.25/HYD/2002 DT.14-9-2 007, WHEREIN IT WAS HELD THAT WHENEVER THERE WAS A SUCH CREDIT EVEN IF IT IS IN THE CAPITAL ACCOUNT OF THE PARTNER, IT IS THE DUTY OF THE A SSESSEE TO EXPLAIN 4 HE SAME SATISFACTORILY. IN CASE THE EXPLANATION WAS NOT SU PPORTED BY ANY MATERIAL EVIDENCE, THEN THE DEEMING FICTION CREAT ED BY SEC.68 OF THE INCOME TAX ACT, 1961 (THE ACT) WOULD COME INTO OPERATIO N. IN VIEW OF THIS DECISION OF THE TRIBUNAL, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH IT WAS THE CAPITAL CONTRIBUTED BY THE PARTNERS, IT NEEDS TO BE EXPLAINED SATISFACTORILY TO THE ASSESSING OFFI CER, WHICH THE ASSESSEE FAILED TO DO. 9.1.REGARDING THE DISALLOWANCE OF INTEREST RECEIVED BY THE PARTNERS IT WAS SUBMITTED THAT THE SAME IS CONSEQUENTIAL IN NATURE AS THE CAPITAL CONTRIBUTION IS NOT GENUINE AND THE INTEREST TO BE DISA LLOWED. AS REGARDS THE EXPENSES, HE SUBMITTED THAT THE ASSESSEE FAILED TO PRO DUCE THE BOOKS OF ACCOUNT AND OTHER SUPPORTING EVIDENCE FOR EXAMI NATION. AS SUCH, THE ASSESSING OFFICER DISALLOWED 20% OF SUCH EXPENDITUR E, SINCE IT S DISPROPORTIONATE AS COMPARED TO THE QUANTUM OF WORK I N PROGRESS. 10. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIAL ON RECORD. AS PER SEC.68 OF THE ACT, THE ASSESSEE IS REQUIRED TO EXPLAIN THE IDENTITY, CAPACITY AND GENUINENESS OF THE CREDIT ENTRY EXISTING IN THE BOOKS OF ACCOUNT. THE PROVISIONS OF THIS SECTION APPLY TO PARTNER SHIP FIRMS ALSO. THERE IS NO DISTINCTION BETWEEN THE CAPITAL CONTRIBUTED BY THE PARTNER OR THIRD PARTY. IF THE CASH CREDIT, EVEN THOUGH IN THE CAPITAL ACCOUNT OF THE PARTNER, IS NOT SATISFACTORILY EXPLAINED, THE ASSESSING O FFICER IS JUSTIFIED TO TREAT IT AS INCOME FROM UNDISCLOSED SOURCES. IF THE EXP LANATION IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE, THEN THE DEEMIN G FICTION CREATED BY SEC.68 IS SQUARELY APPLICABLE. SIMPLY BECAUSE T HE AMOUNT IS CREDITED IN THE BOOKS OF THE PARTNERSHIP FIRM, IT CANNO T BE SAID THAT IT IS NOT THE UNDISCLOSED INCOME OF THE ASSESSEE AND THAT IN ALL CASES, IT HAS TO BE ASSESSED AS INCOME OF THE PARTNERS. THE ABOVE POINT OF DESCRIPTION IS FORTIFIED BY THE RAJASTHAN HIGH COURT IN THE CASE OF CIT V KISHORILAL SANTOSHILAL (216 ITR 9 (RAJ) WHICH WAS FOLL OWED BY THE 5 TRIBUNAL IN THE CASE OF M/S DURGA WINES, CITED BY THE LE ARNED DEPARTMENTAL REPRESENTATIVE. IT IS THE ONUS OF THE FI RM TO PROVE THE CAPACITY OF THE PARTNER TO INVEST THAT AMOUNT IN THE F IRM AS THEIR CAPITAL. IF THE ASSESSEE IS ABLE TO PROVE THE CREDITWORTHINESS OF TH OSE PARTNERS, THEN THE ONUS CAST UPON THE ASSESSEE WOULD BE DISCHARGED. THE JURISDICTIONAL HIGH COURT IN THE CASE OF R.B.MITTAL V. C IT 246 ITR 283 (AP), HELD THAT IN ORDER TO DISCHARGE THE ONUS CAST ON T HE ASSESSEE U/S 68 THE ASSESSEE HAS TO ESTABLISH NOT ONLY THE IDENTITY OF THE CREDITORS AND THE CONFIRMATION OF THE CREDITOR BUT ALSO THE CAPAC ITY OF THE CREDITORS TO ADVANCE THE MONEY AS WELL AS THE GENUINENESS OF THE T RANSACTION. IN THE INSTANT CASE, THE CREDITS WERE IN THE NAME OF THE P ARTNERS IN THEIR CAPITAL ACCOUNT. THUS, THE ONUS IS ON THE ASSESSEE TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. WHEN THE PARTNERS CONFIRM THE INVESTMENT BY WAS OF CONFIRMATION LETTERS, T HE BURDEN CAST ON THE ASSESSEE TO PROVE THE IDENTITY OF THE PARTNERS HA S BEEN DISCHARGED. THEN ONE OF THE CONDITIONS REQUIRED U/S 68 OF THE ACT IS SATISFIED TO THAT EXTENT BUT THE CREDITWORTHINESS OF THE PARTNERS AND THE GENUINENESS OF THE TRANSACTION IS FURTHER REQUIRED TO BE PROVED BY THE ASSESSEE FIRM. IN THE PRESENT CASE, THE ASSESSMENT WAS COMPLETE D U/S 144 OF THE ACT. THE ASSESSING OFFICER OBSERVED FROM THE CAPITAL ACCOUNT OF THE PARTNERS THAT THERE ARE CASH INTRODUCTIONS IN THE SE ACCOUNTS TO THE TUNE OF RS.20 LAKHS. VIDE HIS LETTER DT.27-2-2006, TH E ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE FOR INTRODUCTION OF CASH IN PARTNERS ACCOUNT. THE ASSESSEE EXPLAINED THE SOURCE AS INCOME FROM AGRICULTURE AND IN SOME CASES AS WITHDRAWAL FROM BUSINESS. BUT THE ASSE SSEE FAILED TO ADDUCE ANY SORT OF EVIDENCE TO SHOW THE HOLDING OF T HE AGRICULTURAL LAND OR ACCOUNT COPY OF BANK ACCOUNT TO PROVE THE SOURCES. AS SUCH, THE ASSESSING OFFICER MADE AN ADDITION OF RS.20 LAKHS ON THIS A CCOUNT. BEFORE THE CIT(A) DURING THE COURSE OF APPELLATE PROCE EDINGS, THE ASSESSEE FURNISHED INFORMATION REGARDING THESE CREDITS ALO NG WITH CERTAIN EVIDENCE TO EXPLAIN THE GENUINENESS OF THE TRAN SACTION. THE 6 INFORMATION WAS FORWARDED TO THE ASSESSING OFFICER CALLING FOR A REMAND REPORT. REGARDING THE INVESTMENT MADE BY SHR SHASHID HAR REDDY, THE ASSESSING OFFICER POINTED OUT THAT NO EVIDENCE SUCH AS MAINT ENANCE OF BOOKS OF ACCOUNT AND WITHDRAWALS OF CASH ETC. WAS PRODUCE D INDICATING THE AVAILABILITY OF CASH WITH HIM OUT OF EARLIER YEA RS ACCUMULATIONS. AS PER FACTS ON RECORD, SHRI SHASHIDHR REDDY DECLARED A TOTAL INCOME OF RS.11,04,801 FOR THE ASSESSMENT YEAR 2000-01 ON SALE OF H OUSE PROPERTY FOR A CONSIDERATION OF RS.36 LAKHS. BEING SO, IN THE CASE OF SHRI SHASHIDHAR REDDY, WE ARE OF THE OPINION THAT THIS PAR TNER IS HAVING CAPACITY TO INVEST THE IMPUGNED AMOUNT AS CAPITAL AND A S SUCH THIS ADDITION IS NOT AT ALL JUSTIFIED. ACCORDINGLY, WE CONF IRM THE ORDER OF THE CIT(A) DELETING THE SAID ADDITION. CONSEQUENTLY, THE PAYMENT OF INTEREST ON CAPITAL TO THAT EXTENT IS ALSO JUSTIFIED. 11. IN THE CASE OF SMT.PRAMEELAMMA, IT WAS STATED THAT SHE HAS SOLD HER AGRICULTURAL PROPERTY IN THE YEAR 1996 FOR A CONSI DERATION OF RS.4.14 LAKHS. SALE OF PROPERTY IS NOT DISPUTED. HOWEVER, THE PROPERTY WAS SOLD IN 1996 FOR A CONSIDERATION OF RS.4.14 LAKHS AND THE A MOUNT WAS SAID TO HAVE BEEN INVESTED IN THE FIRM IN THE YEAR 2002-03 RELEVANT TO THE ASSESSMENT YEAR 2003-04. WE ARE UNABLE TO UNDERSTAND HO W THE SAID SALE CONSIDERATION WAS KEPT ALL ALONG FROM THE YEAR 199 6 TO TILL DATE OF INVESTMENT IN TACT. IF THE ASSESSEE IS ABLE TO PROVE THE AVAILABILITY OF THE SAID AMOUNT FOR INVESTMENT, THE ADDITION CAN BE DE LETED. OTHERWISE, THE SAID AMOUNT CANNOT BE TREATED AS EXPLAINED BY THE FIRM. CONSEQUENTLY, THE SAME RATIO IS APPLICABLE TO INTEREST PART ALSO. IN OUR OPINION, THIS ISSUE REQUIRES TO BE REEXAMINED AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE FILE O F THE ASSESSING OFFICER DISPOSAL AFRESH AFTER AFFORDING REASONABLE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. 7 12. NOW COMING TO SHRI SIVARAMIREDDY, IT WAS SUBMITTED THAT THE INVESTMENT WAS MADE OUT OF PAST SAVINGS AND AMOUNT RECEI VED FROM HIS NRI BROTHER. THE ASSESSING OFFICER STATED IN THE REMAND REPORT THAT SHRI K.SIRAMREDDY WITHDREW CASH OF RS.3.63 LAKHS ON 1-6-2002 FROM BANK ACCOUNT AND WITHDREW RS.1,69,784 IN THE FOR OF BANKER S CHEUE ON 29-4- 2002. HOWEVER, THE CT(A) HELD THAT HE HAS RECEIVED RS. 5,35,460 FROM HIS NRI BROTHER AND THERE IS A CONTRADICTION BETWEEN TH E OBSERVATION OF THE ASSESSING OFFICER IN HIS REMAND PORT AND THE FINDINGS OF THE CIT(A). IN OUR OPINION, THOROUGH EXAMINATION OF HIS BANK ACCO UNT IS REQUIRED AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, THIS ISSUE I S SET ASIDE TO THE FILE OF THE ASSESSING OFFICER DISPOSAL AFRESH AFTER AF FORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. COMING TO THE INVESTMENT OF RS.3.75 LAKHS MADE BY SMT.MADHAVI, IT IS SUBMITTED THAT SHE HAD FILED HER RETURN OF INCOM E FROM 2002-03 TO 24-05. FURTHER, IT WAS STATED THAT SHE HAS INVESTED THI S AMOUNT FROM OUT OF HER STHREEDHAN. THE QUANTUM OF STHREEDHAN SAID TO BE RECEIVED BY HER IN THE YEAR 1994 WAS RS.2.75 LAKHS. THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE REGARDING THE AVAILABILITY OF T HIS STHREEDHAN AND THE MODE IN WHICH THE SAID AMOUNT WAS KEPT. THERE IS NO EVIDENCE FURNISHED BY HER BEFORE THE CIT(A). WE ARE UNABLE T O UNDERSTAND THE BASIS ON WHICH THE CIT(A) CAME TO THE DECISION THAT SHE HA S RECEIVED STHREEDHAN OF RS.2.75 LAKHS AND THE SAME WAS AVAILABL E TO HER TO INVEST IN THE FIRM IN THIS AY AFTER LAPSE OF 7 YEARS. IN THE INTERESTS OF JUSTICE, WE SET ASIDE THIS ISSUE ALSO TO THE FILE OF THE ASSE SSING OFFICER FOR DISPOSAL AFRESH AND THE ASSESSEE SHALL PROVE THE AVAILABIL ITY OF THE THIS FUND TO INVEST IN THE FIRM. CONSEQUENTLY THE INTEREST AMOUNT PAID ON CAPITAL IS TO BE DECIDED THEREAFTER. ACCORDINGLY, THI S ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER DISPOSAL AFRESH AFTER AF FORDING REASONABLE OPPORTUNITY OF BEING HEARD O THE ASSESSEE. 8 14. NOW, COMING TO THE CREDIT FOUND IN THE NAME OF SH R KESHAVA REDDY OF RS.2.5 LAKHS, IT WAS STATED THAT THIS INVESTMEN T WAS MADE BY HIM IN THE FIRM OUT OF HIS PAST SAVINGS AND FAMILY FUND S. BUT, HOWEVER, THERE WAS NO EVIDENCE REGARDING THE AVAILABILITY OF T HE AMOUNT IN ANY FOR. IN THE ABSENCE OF ANY EVIDENCE PRODUCED BY HIM, WE FAIL TO UNDERSTAND HOW SHR KESHAVA REDDY IS ABLE TO INVEST THIS AMOUNT. ACCORDINGLY, THIS ADDITION IS SUSTAINED. 15. COMING TO THE DELETION OF DISALLOWANCE ON ACCOUNT O F EXPENDITURE INCURRED, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE BEFORE THE ASSESSING OFFICER. THE ASSESSMENT WAS COMPLETED U/S 144 OF THE ACT. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION WITHOUT VERIFICATION BY THE ASSESSING OFFICER. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO T HE FILE OF THE ASSESSING OFFICER DISPOSAL AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD O THE ASSESSEE. THE ASSESSEE SHALL PRODUCE NECE SSARY VOUCHERS AND BOOKS OF ACCOUNT IN SUPPORT OF THE EXPENDI TURE CLAIMED. 15.1. THE INTEREST DISALLOWANCE TO BE CONSIDERED BY ASSESSI NG OFFICER AFTER DECIDING THE ISSUE RELATING TO THE CAPITAL CONTR IBUTION. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED AND T HAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON: 18 .6.2009. SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER. DT/- 18 -6-2010. *VNR 9 COPY FORWARDED TO: 1. M/S KRISHNA SAI CONSTRUCTIONS, SIDDHARTHA APTS., PLOT NO.22, FLAT NO.2, MEHDIPATNAM, HYDERABAD. 2 ITO, WARD 7(1), HYDERABAD 3. 4 CIT(A)-, VI, HYDERABAD CIT, HYDERABAD. 5. THE D.R., ITAT, HYDERABAD.