Mr. N. Sridhar, Hyderabad V. JCIT(OSD), Range-12, Hyderabad

ITA 1401/HYD/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2619 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 1998-1999
• Appeal Filed On: 10-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Unexplained cash credit; Unexplained investment; Gift; Opportunity of cross examination; Tangible material; Reason to believe; Reassessment proceedings; Borrowed satisfaction
• Section: 143(3); 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1401/HYD/2012 ASSESSMENT YEAR: 1998-99 MR. N. SRIDHAR, HYDERABAD [PAN: ABNPN2619N] VS JT. COMMISSIONER OF INCOME TAX, RANGE-12, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 17-11-2017 DATE OF PRONOUNCEMENT : 12-01-2018 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-II, HYDERABAD, DATED 09-07-2012. 2. ASSESSEE FILED APPEAL ON 10-09-2012 WITH 20 GRO UNDS WHICH INCLUDE SUBMISSION AND CASE LAW. ASSESSEE FI LED REVISED FORM 36 ON 24-08-2017, REVISING SOME COLUMNS AND GR OUNDS AS WELL. THE REVISED GROUNDS ARE AS UNDER: REVISED GROUNDS OF APPEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX, (APPEA LS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE CIT(A) FAILED TO APPRECIATE THAT REOPENING OF A SSESSMENT UNDER SECTION 147 WAS BAD IN LAW; AND THUS OUGHT TO HAVE ANNULLED THE ASSESSMENT. I.T.A. NO. 1401/HYD/2012 :- 2 - : 3. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 22,30,000/- BROUGHT TO TAX AS UNEXPLAINED INVESTMENT. 4. CRAVE LEAVE TO URGE/RAISE ANY GROUND THAT MIGHT BE NECESSARY AT THE TIME HEARING. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE HAD FILED HIS RETURN OF INCOME ON 27-11-1998 DECLARING A TOTAL INCOM E OF RS. 55,000/- AND CLAIMING A REFUND OF RS. 5,000/-. THI S RETURN WAS PROCESSED U/S 143(1). HOWEVER, A NOTICE U/S. 148 OF THE INCOME TAX ACT [ACT] HAS BEEN ISSUED DT. 18-03-2005 ON THE R EASON THAT THE INCOME HAS ESCAPED ASSESSMENT. THE ASSESSING OFFI CER (AO) HAS COMPLETED THE ASSESSMENT U/S. 143(3) R.W.S. 147 V IDE ORDER DT. 31-03-2006 BY MAKING THE FOLLOWING ADDITIONS AND RAIS ING THE DEMAND. I. UNEXPLAINED INVESTMENT : RS. 22,30,000/- II. UNEXPLAINED INVESTMENT SAID TO BE FROM SALE OF GOLD AND SAVING : RS. 10,13,000/- 3.1. ASSESSEE HAD FILED A RECTIFICATION APPLICATION U/S. 154 DT. 12-04-2006 STATING THAT RS. 10,13,000/- WAS REFLECTE D IN THE BALANCE SHEET AND THE ADDITION MADE TO THIS ACCOUNT WAS UNWARRANTED. THE AO AFTER DULY CONSIDERING ASSESSEE S PETITION HAS REDUCED THE AMOUNT. 4. BEFORE THE LD.CIT(A), ASSESSEE RAISED TWO GROUNDS MAINLY ONE WAS THAT THE ISSUANCE OF NOTICE U/S. 148 AND REO PENING OF ASSESSMENT IS BAD IN LAW AND OTHER WAS THE ADDITION OF RS. 22,30,000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT. IT W AS THE CONTENTION OF ASSESSEE THAT THE REOPENING WAS AT THE INSTAN CE OF REPORT OF JCIT, BHUVANESWAR, THAT THE REASONS FOR REOP ENING WERE I.T.A. NO. 1401/HYD/2012 :- 3 - : NOT COMMUNICATED, THAT THE NOTICES WERE NOT SERVED PROPERL Y. NO ENQUIRIES WERE MADE AND THOSE REPORTS OF ENQUIRY WHIC H WERE RELIED WERE NOT FURNISHED TO ASSESSEE AND NO CROSS-EX AMINATION WAS PROVIDED. FURTHER, RELIANCE OF ENQUIRIES CONDUCTE D IN THE COMPANYS CASE DOES NOT ESTABLISH THE UNACCOUNTED NATURE OF AMOUNTS INVOLVED AND NO FRESH MATERIAL WAS AVAILABLE . IT WAS FURTHER CONTENDED THAT ASSESSEE HAD DISCLOSED THE INVESTM ENTS AND SOURCES IN THE RETURNS FILED ORIGINALLY ALONG WITH CON FIRMATIONS AND THESE RETURNS WERE ACCEPTED WITHOUT ANY SCRUTINY. IN THE PROCEEDINGS BEFORE LD.CIT(A), ASSESSEE FILED FRESH AFFIDAVITS FROM THE CREDITORS IN SUPPORT OF BORROWALS. LD.CIT(A) IN TH E DETAILED ORDER (WHICH WAS NOT EXTRACTED HEREIN ) HAS NEGATIVED THE ASSESSEE CONTENTIONS AND CONFIRMED THE ADDITIONS, HENCE THE PRESE NT APPEAL. 5. LD. COUNSEL EXPLAINED THAT ASSESSEE ALONG WITH OTH ER FAMILY MEMBERS (WHOSE APPEALS ARE SEPARATELY DEALT W ITH) HAS INVESTED IN A COMPANY (M/S SANKHYA INFOTECH LTD, BHUB ANESWAR) PROMOTED BY THEM AND THE INVESTMENT BY ASSESSEE WAS TO THE TUNE OF RS. 22,30,000/-. THE SOURCES OF THE AMOUNTS WER E DISCLOSED IN THE ORIGINAL RETURN FILED AND THE SAME WERE AS UNDER: NOTE: 1. DURING THE YEAR ENDING 31.3.1998 I HAVE I NVESTED IN SANKHYA INFOTECH LIMITED RS. 22.30 LAKHS SOURCE: RS. IN LAKHS SAVINGS & SALE OF GOLD 8.80 ADD: LOANS FROM FRIENDS 13.50 TOTAL 22.30 I.T.A. NO. 1401/HYD/2012 :- 4 - : 5.1. IT WAS SUBMITTED THAT THERE WAS NO ENQUIRY ABOUT THE SALE OF GOLD, BUT AO HAS TREATED THE SAME AS UNEXPLAI NED AND LD.CIT(A) HAS NOT EVEN DISCUSSED ABOUT THE SAME. 5.2. IT WAS SUBMITTED THAT ASSESSEE HAS BORROWED FROM TH E FOLLOWING PERSONS: SL.NO. NAME OF THE CREDITOR AMOUNT (RS) 1 BAPUJI 2,00,000 2 CHITTEMMA 1,00,000 3 KANAKAIAH 1,00,000 4 KANAKAYYA 50,000 5 KOTESWARAMMA 1,00,000 6 NAGA SRINIVASA RAO 1,00,000 7 RAMBABU 50,000 8 SATYAVATHI 50,000 9 TILAPALAMMA 1,00,000 10 VEERABABU 1,00,000 11 VEERA KOTESWARA RAO 1,00,000 12 VENKATA NARASIMHA RAO 50,000 13 VENKATESWARA RAO 2,00,000 14 VIJAYA RAMAKRISHNA 50,000 TOTAL 13,50,000 5.3. IT WAS FURTHER SUBMITTED THAT THE ENQUIRIES WERE ORIGINALLY CAUSED IN THE CASE OF COMPANY AND THERE, TH E PROMOTERS INVESTMENT WAS ENQUIRED BUT THE ADDITION WAS MADE AS UNEXPLAINED INVESTMENT IN MACHINERY. DURING THE ASSESS MENT PROCEEDINGS, THE DDIT, VIJAYAWADA MADE ENQUIRIES OF SOURCES OF SOURCE AND THAT TOO BEHIND THE BACK OF ASSESSEES PROMO TERS AFTER A LAPSE OF TIME AND NO CROSS-EXAMINATION WAS PROVIDED. ASSESSEES FILED DETAILED REPLIES IN THE CASE OF COMPANYS APPEA L AND LD.CIT(A) DELETED THE ADDITIONS SO MADE. ANTICIPATING AN ADVERS E ORDER, THE JCIT, BHUBANESWAR HAS WRITTEN A LETTER TO THE OFFICERS I N HYDERABAD TO REOPEN THE ASSESSMENTS OF PROMOTERS AND TH AT WAS I.T.A. NO. 1401/HYD/2012 :- 5 - : THE BASIS FOR ISSUANCE OF NOTICE. EVEN THOUGH ASSESSE E FILED THE RETURNS OF INCOME DISCLOSING THE INVESTMENTS AND SOURCE S, THE AO WHO HAS NO JURISDICTION, HAD REOPENED THE ASSESSMENT A ND WITHOUT FURTHER ENQUIRIES RELIED ON THE EARLIER REPORTS AND CO MPLETED THE ASSESSMENT. 5.4. REFERRING TO THE ORDER OF LD.CIT(A), IT WAS SUBM ITTED THAT THE FACT IS THAT THE REASONS FOR REOPENING WERE NOT COMMUNICATED BY AO AND COMMUNICATED ONLY DURING THE PRESENT APPEAL PROCEEDINGS RECENTLY, THAT TOO IN THE FORM OF PA PER BOOK FILED BEFORE THIS FORUM AND REFERRED TO THE LETTER OF AO GIVEN TO CIT(A) THAT NO SATISFACTION WAS RECORDED. 5.5. ON MERITS, REFERRING TO THE ORDER OF LD.CIT(A), BHUBANESWAR IN THE COMPANYS APPEAL, IT WAS SUBMITTE D THAT THERE ARE NO ENQUIRIES IN THE CASE OF ASSESSEE (SHRI N. SR IDHAR) AND EVEN IN THE ENQUIRIES CONDUCTED IN THE OTHER CASES, THERE W AS NO DENIAL OF INVESTMENT. REGARDING THE STATEMENT OF SHRI KANAKAIA H [PARA 6.5 OF CIT(A)] RELIED ON BY DEPARTMENT, IT WAS SUBMITT ED THAT HIS STATEMENT WAS NOT SUBJECTED TO CROSS-EXAMINATION AND HIS LATER AFFIDAVIT FILED BEFORE THE LD.CIT(A) HAS NOT BEEN CONTR OVERTED. REGARDING THE STATEMENT OF SHRI G. SRINIVAS (PARA 6.4) , IT WAS SUBMITTED THAT ASSESSEE HAD BORROWED IN FY. 1997-98 AND THE CYCLONE OF 1999 HAS NO EFFECT ON THE FACT OF BORROWA LS. THE SAID STATEMENT IN FACT SUPPORTS THE ASSESSEE THAT THERE WAS PRAW N CULTURE AND THE PERSONS HAVE SOURCES TO INVEST. SUBSE QUENTLY, THEY MAY HAVE SUFFERED FINANCIAL LOSSES AND MIGRATED, BUT THE STATEMENT DOES NOT DENY THE BORROWALS IN FY. 1997-98. T HE ORDER OF LD.CIT(A) IS THEREFORE DEVOID OF FACTS AND SHOULD BE SET ASIDE. I.T.A. NO. 1401/HYD/2012 :- 6 - : 5.6. REGARDING THE ISSUE OF REOPENING, THE SUMMARY OF CONTENTIONS ARE AS UNDER: NO TANGIBLE MATERIAL IN THE RETURNS OF INCOME FILED ORIGINALLY IN ALL THE CASES, NOTES WERE APPENDED TO THE ROI ABOUT INV ESTMENT IN SHARES OF SANKHYA INFOTECH, BHUVANESHWAR. DETAILS OF LOANS T AKEN AND CONFIRMATION LETTER ETC. WERE FILED IN CASE OF RAMA KRISHNA, PARVATHAVARDINI, INDIRA RAMANI, N. SRIDHAR AND N. G AYATRI. EXCEPT THESE NOTES, EVIDENCES AND THE LETTER RECEIVED FROM ADDLN . CIT, BHUVANESHWAR, TO TAKE ACTION U/S. 147 THERE IS NO TANGIBLE MATERI AL THAT INCOME HAS ESCAPED ASSESSMENT. RELIED ON JUDGMENT OF DELHI H IGH COURT IN THE CASE OF CIT VS. ATUL KUMAR SWAMI WHERE REFERENCE TO NOTE S FILED ALONG WITH ORIGINAL RETURN OF INCOME ARE MADE . THE ENTIRE REASONS RECORDED FOR RE- OPENING OF ASSESSMENT IS BORROWED SATISFACTION AN D NOT THAT OF THE ASSESSING OFFICER. REASONS FOR RE-OPENING NOT COMMUNICATED IN ANY OF T HE CASES FATAL TO RE-ASSESSMENT NOT FURNISHING OF REASONS OR ITS NON-COMMUNICATION IS FATAL TO REASSESSMENT PROCEEDINGS. PLS. SEE CASE LAW RELIED UPON AS UNDER SR. NO. CASE LAW ITR PAGE COURT I. CIT VS. TECUMSEH PRODUCT 361 429 AP & TELANGANA II. CIT VS. TREND ELECTRONICS 379 456 MUMBAI III. CIT VS. VIJAYA TALKIES & DISTRIBUTORS 398 13 DELHI IV. CIT VS. KOTHARI MILLS 377 581 KARNATAKA 6. LD.DR, HOWEVER, DEFENDED THE ORDER OF THE AO/CIT( A) VEHEMENTLY. REGARDING THE LETTER OF AO DENYING THE REC ORDING OF REASONS, IT WAS STATED THAT THE LETTER IS NOT CORRECT AND HOW THE SAME REACHED ASSESSEE IS NOT KNOWN. WHILE ADMITTING THA T THE REASONS RECORDED WERE TRACED AND PROVIDED TO ASSESSEE RECENTLY (IN PG.17, IN THE FORM OF PAPER BOOK FILED), IT WAS SUB MITTED THAT THE ENQUIRIES WERE CONDUCTED AND ASSESSEE IS AWARE OF AL L THE PROCEEDINGS AND THERE WAS NON-CO-OPERATION FROM ASSE SSEE. HE I.T.A. NO. 1401/HYD/2012 :- 7 - : REFERRED TO VARIOUS ORDERS- THAT OF LD.CIT(A), BHUBAN ESWAR, THE ORDER OF AO AND CIT(A)- TO SUPPORT THE AOS ACTION. 7. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS AND DOCUMENTS PLACED ON RECORD AND PRECEDENTS RELIED. BEFORE ADVERTING TO THE ADJUDICATION OF ISSUES, THE FO LLOWING FACTS ARE TO BE NOTED: A) ASSESSEE FILED THE RETURN OF INCOME ON 27-11-1998 WITH THE JURISDICTION OF ASST. COMMISSIONER OF INCOME TAX, CIR CLE-4(2), ADMITTING INCOMES AND STATING THE SOURCES OF INVESTMENT O F RS. 22,30,000/- IN M/S. SANKYA INFOTECH LTD., AND NECESSA RY CONFIRMATIONS WERE ENCLOSED TO THE RETURN. THIS WAS AC CEPTED U/S. 143(1) AND NO SCRUTINY WAS TAKEN UP; B) THE COMPANY M/S. SANKYA INFOTECH LTD., WAS ASSESSE D AT BHUBANESWAR AND ENQUIRIES WERE CONDUCTED IN SOME PRO MOTERS CASES, BUT NOT IN ASSESSEE CASE; C) IN THE COMPANY APPEAL, LD.CIT(A), BHUBANESWAR HAS DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS/FINDINGS: IN THIS CASE, THE AO HAS MADE CERTAIN ENQUIRIES THR OUGH THE DDTI (LNV.), HYDERABAD AND VIJAYAWADA REGARDING THE SOU RCES OF INVESTMENT TOWARDS SHARE CAPITAL CONTRIBUTED BY FOUR SHAREHOLDERS NAME LY, (I) SHRI N. RAMAKRISHNA RAO, (II) SMT N. PARAVATHAVARHINI, (III) SMT. N. GA YATRI AND (IV) SMT. N. INDIRA RAMANI. THE AO HAS RELIED UPON THE REPORT OF THE D DLT(LNV.), HYDEMBAD AND THE STATEMENTS RECORDED BY HIM ON OATH FROM SHRI BA BU RAO, SHRI SURYANARAYANA AND SHRI G. KANAKAIAH TO STATE THAT T HE LOANS WERE BOGUS AND THAT THE AGENT WHO ARRANGED THE LOANS HAD OBTAINED SIGNATURES ON THE LOAN CONFIRMATION LETTERS AFTER BRIBING THE AGRICULTURIS TS. OF COURSE THIS REPORT WAS NOT CONFRONTED TO THE APPELLANT BY THE AO, BUT THE SAME HAD BEEN CONFRONTED IN COURSE OF THE REMAND PROCEEDING. THE APPELLANT-COMP ANY HAVE ALSO CITED FROM I.T.A. NO. 1401/HYD/2012 :- 8 - : THE SAME REPORT TO CONTEND THAT SHRI G. KANAKAIAH T OGETHER WITH HIS FAMILY MEMBERS HAVE GIVEN MONEY TO SHRI BABU RAO, WHO HAS GIVEN THE MONEY 10 THE APPELLANT-COMPANY AND THAT THE FARMER-CREDITORS HAV E STATED THAT THEY HAVE SIGNED THE LOAN CONFIRMATION LETTERS. THE AO HAS RE LIED UPON THE SAID REPORT TO QUESTION THE CREDITWORTHINESS OF THE FARMERS ON THE GROUND THAT, THE LAND WAS DROUGHT PRONE AREA FOR THE LAST FIVE TO SIX YEARS A ND SUFFICIENT INCOME WAS NOT GENERATED. THE APPELLANT-COMPANY HAS QUOTED FROM TH E SAME REPORT TO ASSERT THAT FROM 1986 TO 1996, PRAWN WAS BEING CULTIVATED IN THE LAND WHERE THE YIELD PER ACRE WAS RS.1 LAKH PER ANUM. THE AO HAS DRAWN A TTENTION TO THE DISCREPANCIES BETWEEN THE PLOT/SURVEY NUMBERS AND T HE EXTENT OF LAND AREA GIVEN BY THE CULTIVATORS AND AS APPEARING IN THE LAND REC ORDS. THIS DISCREPANCY HAS BEEN ATTEMPTED TO BE EXPLAINED BY THE APPELLANT-COM PANY BY ATTRIBUTING THE SAME TO NON-MUTATION OF LAND AND TYPOGRAPHICAL AND UNINTENTIONAL ERROR ETC., ALTHOUGH THE VERACITY OF THE ALLEGATION HAS BEEN AD MITTED IN FEW CASES. THE DIFFERENCE REGARDING THE EXTANT OF LAND AREA WAS AT TRIBUTED TO CAUSES LIKE SALE/GIFT OR SHARING OF LAND SUBSEQUENTLY. BUT, BE THAT AS IT MAY, THE ENQUIRY REPORT DOES NOT INDICATE THAT THE SOURCES OF SOURCE , I.E., THE LOANS ADVANCED BY THE FARMERS TO THE DIRECTORS/SHAREHOLDERS; WERE TOT ALLY BOGUS OR THAT THEY COMPLETELY LACK CREDITWORTHINESS. BUT, THERE APPEA RS TO BE SOME SUBSTANCE IN THE ASSERTION OF THE AO/JT.CIT THAT CERTAIN ELEMENT S LIKE THE GENUINENESS OF THE TRANSACTIONS AND COMPLETE CREDITWORTHINESS OF THE F ARMERS WAS NOT CONCLUSIVELY ESTABLISHED. THESE MATTERS NEVERTHELESS REQUIRE FUR THER ENQUIRY AS ONLY SIXTEEN OUT OF SEVENTY FIVE FARMER-CREDITORS, WHO HAVE ADVA NCED LOANS TO THE FOUR SHARE HOLDERS HAVE BEEN EXAMINED. NO ENQUIRY HAS BEEN CON DUCTED IN RESPECT OF LOANS AVAILED BY THE TWO PROMOTER-DIRECTORS; NAMELY SHRI N. SRINIVAS AND SHRI N. SRIDHAR. THEREFORE THE AO OR THE CONCERNED AOS CAN CONDUCT FURTHER ENQUIRIES AND IF IT IS FOUND THAT THE LOANS GIVEN BY THE FARM ERS WERE NEITHER CREDIBLE NOR GENUINE; THE ADDITIONS COULD BE MADE IN THE HANDS O F THE SHAREHOLDERS WHO HAVE SUBSCRIBED TO THE SHARES OF THE APPELLANT-COMPANY. THE SOURCES OF FUNDS IN SUCH CASES CAN BE TACKLED BY THE AO IN THE HANDS OF THE SUBSCRIBERS TO THE EQUITY SHARES WHO HAVE AVAILED THE LOANS. THEREFORE, THE AO IS FREE TO CONDUCT FURTHER ENQUIRIES IN THE CASE OF INDIVIDUAL SHARESHOLDERS A S PER THE EXTANT PROVISIONS OF LAW AND CONSIDER THESE AMOUNTS IN THEIR HANDS IN VI EW OF THE DISCUSSIONS IN PARA 4.1 AND 4.2 AND THE JUDICIAL DECISIONS CITED SUPRA . D) BEFORE THE ORDER OF LD.CIT(A), BHUBANESWAR WAS PA SSED, THE JCIT HAS REPORTED HIS FINDINGS TO THE OFFICERS AT HYDE RABAD WITH A REQUEST TO REOPENING THE ASSESSMENTS FOR PROTECTING THE INTEREST OF REVENUE. AS PER THE PAPER BOOK FILED BY THE DEPT (PA GE 15), THERE I.T.A. NO. 1401/HYD/2012 :- 9 - : WAS A DIRECTION BY ADDL. CIT, RANGE-12, TO ACIT TO SUB MIT PROPOSAL FOR INITIATING ACTION U/S. 147 IMMEDIATELY, BY THE LETT ER DT. 07-03- 2005; E) THE REOPENING BY THE AO, ASST. COMMISSIONER OF IN COME TAX, CIRCLE-12(1), WAS CONSEQUENTIAL TO THE ABOVE LETTER AND AO RECORDED THE SATISFACTION AS UNDER: ORDER SHEET A.Y. 1998-99 IN THIS CASE THE INFORMATION HAS BEEN RECEIVED FROM THE JCIT, RANGE-2, BHUBANESWAR, IN THE FORM OF A LETTER DT.23 .02.2005. AS PER THE LETTER THE GIST OF THE INFORMATION RECEIVED IS AS UNDER. THE ASSESSEE IS A PROMOTER OF THE COMPANY BY NAME M /S SANKHYA INFOTECH LTD., BHUBANESWAR. THE ASSESSEE IN TRODUCED THE AMOUNT OF RS.22,30,000/- AS SHARE APPLICATION MONEY DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 1998-99. IN THE CASE OF THE ASSESSMENT OF THE COMPANY, THE MONEY INTRODUCED BY THE ASSESSEE HAVE BEEN EXAMINED AND INQUIRIES WERE ALSO CONDUCTE D BY THE DDI(INV.) UNIT-I(2) HYDERABAD, AND ALSO THE DDI(INV .) VIJAYAWADA, REVEALS THE FACT THAT THE SOURCES OF INTRODUCTION O F MONEY BY THE ASSESSEE ARE THROUGH LOANS FROM FARMERS ETC. THE IN QUIRIES REVEALED THAT THE TRANSACTIONS OF LOANS FROM THE FARMERS ARE NOT GENUINE AND THEY ARE ONLY PAPER TRANSACTIONS AND IN FACT THAT T HE MONEY LENDERS DO NOT OWN THE LAND SHOWN IN THE AFFIDAVITS PRODUCE D BY THEM BEFORE THE CIT(A), BHUBANESWAR. THUS, THE SUM BROUG HT THE ASSESSEE AS SHARE APPLICATION MONEY ARE UNEXPLAINED CASH CREDITS IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEA R 1998-99. THEREFORE, I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX AS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC.147 FOR THE ASSESSMENT YEAR 1998-99 TO THE EXTENT OF RS. 22,30, 100 AS THE AMOUNT INTRODUCED BY THE ASSESSEE. SINCE THE ASSES SMENT INVOLVED IS FOR THE ASSESSMENT YEAR 1998-99, SANCTION FOR IS SUANCE OF NOTICE U/S. 148 IS SOUGHT FROM THE ADDL. CIT, AS REQUIRED U/S. 151(2). PROPOSAL U/S. 148 ACCORDINGLY IS SUBMITTED TO THE A DDL.CIT. I.T.A. NO. 1401/HYD/2012 :- 10 -: F) ASSESSEE RECEIVED NOTICE U/S. 148 DT. 18-03-2005, BUT THE REASONS RECORDED WERE NOT COMMUNICATED EITHER DURING ASSESSMENT PROCEEDINGS OR DURING APPEAL PROCEEDINGS. IN FACT THE LETTER OF ACIT, CIRCLE-12(1), DT. NIL FILED BY ASSESS EE HAS THIS NOTING; OFFICE OF THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 12(1), HYDERABAD PAN NO ABNPN2619N TO, THE COMMISSIONER OF INCOME TAX (APPEALS-II) HYDERABAD, SIR, SUB: APPELLATE PROCEEDINGS IN THE CASE OF SRI N. SR IDHARA.Y.1998- 99 SUBMISSION OF REPORT REG. REF: CIT(APPEALS-II), HYD, LETTER NO. 0079&0081/CIT -(A)-II/06-07 DT: 26-11-2007 KIND REFERENCE IS INVITED TO THE ABOVE. I HAVE GONE THROUGH THE WRITTEN SUBMISSIONS FILED B Y THE ASSESSEE AND THE ENTIRE RECORD, ALSO THE ORDER SHEET MAINTAI NED FOR THE YEAR UNDER CONSIDERATION AND FOUND THAT NO WHERE IN THE ORDER SHEET(S) REASONS FOR ISSUING NOTICE(S) ISSUED U/S. 148 IS NO TED, THOUGH THE ASSESSEE HAS REQUESTED REASONS FOR INITIATING ACTIO N U/S. 147(A) AND RE-OPENING THE ASSESSMENT HAS NOT BEEN RECORDED. N O EVIDENCE OF ISSUING ANY NOTICE(S) TO THE LOAN CREDITORS OR POST AL COVERS RETURNED UN-SERVED IS AVAILABLE ON RECORD. NO EVIDENCE IS A VAILABLE ON RECORD ASKING THE ASSESSEE TO PRODUCE THE LOAN CREDITORS F OR CROSS- EXAMINATION. THE CONTENTS OF AFFIDAVIT TALLIES WITH THE LOAN CON FIRMATION LETTERS SUBMITTED DURING THE COURSE OF HEARING. THE AMOUNT OF LOAN TAKEN I.T.A. NO. 1401/HYD/2012 :- 11 -: AS PER RECORD IS RS. 13.50 LAKHS, BUT NOT RS. 15.00 LAKHS AS STATED IN THE ASSESSMENT ORDER DATED 31.03.2006. SUBMITTED YOURS FAITHFULLY SD/- (D. PRAKASH RAO) ASST. COMMISSIONER OF INCOME TAX, RANGE-12, HYDERABAD G) EVEN THOUGH CONFIRMATION WAS FILED EARLIER, NO FUR THER ENQUIRIES WERE CAUSED, NOR THE EARLIER REPORTS WERE G IVEN TO ASSESSEE AND OPPORTUNITY OF CROSS EXAMINATION WAS NOT PROVIDED; H) THOUGH THE SOURCE OF SALE OF GOLD WAS SHOWN TO AN EXTENT OF RS. 8,30,000/-, NO ENQUIRIES WERE CAUSED ON THAT ISS UE. ASSESSEE DID NOT OFFER ANY CAPITAL GAINS/LOSS ON SALE OF GOLD . THIS ASPECT WAS NOT EXAMINED AT ALL; I) AO AND CIT(A) RELIED ON THE ENQUIRY REPORTS OF YEA R 2001 IN THE COMPANYS CASE WITHOUT ANY FURTHER ENQUIRY OR ALLO WING CROSS- EXAMINATION; J) THE AFFIDAVITS FILED BY ASSESSEE BEFORE CIT(A), H YD. HAS BEEN SENT TO AO BUT WHAT ENQUIRIES WERE CAUSED AND WHAT FIND INGS WERE ARRIVED HAS NOT BEEN BROUGHT ON RECORD, EVEN THOUGH TH E LETTER OF AO, EXTRACTED ABOVE, DO INDICATE THAT AO HAS MORE OR LE SS ACCEPTED THE AFFIDAVITS; K) AN ADDITION OF RS. 15 LAKHS WAS MADE EVEN THOUGH THE LOAN AMOUNTS WERE ONLY RS. 13.50 LAKHS DURING THE YEAR; I.T.A. NO. 1401/HYD/2012 :- 12 -: 8. NOW, COMING TO THE MERITS OF THE ADDITION, THE FINDI NGS OF AO AND CIT(A) ARE NOT BASED ON FACTS. NO ENQUIRY W AS CONDUCTED IN ASSESSEES CASE AND THOSE ENQUIRIES CONDUCTED IN S OME OF THE OTHER PROMOTERS CASES CANNOT BE RELIED IN THE ABSENCE OF CROSS- EXAMINATION. THE STATEMENT OF SHRI KANAKAIAH (SUPPOSED TO BE A MEDIATOR) WAS BEHIND THE BACK OF ASSESSEE AND ASSESS EE NEVER CLAIMED THAT HE IS THE MEDIATOR. THE CONFIRMATION AND A FFIDAVITS GIVEN LATER HAVE NOT BEEN DISPROVED. THE STATEMENT OF SHRI G. SRINIVAS IN FACT CONFIRMS THAT THERE WAS PRAWN CULTIVA TION AND RYOTS GOT AFFECTED DUE TO CYCLONE IN 1999, MUCH LATER TO THE ADVANCE OF MONIES. SUBSEQUENT PROBLEM BY FARMERS COU LD BE REASON FOR ASSESSEES INABILITY TO GET THEM PRODUCED B EFORE AO IN THE PROCEEDINGS, BUT IT DOES NOT PROVE THAT THE CLAIM OF C REDITS IS NOT GENUINE. THE RELIANCE ON CIT(A), BHUBANESWAR ORD ER BY THE PRESENT CIT(A), HYDERABAD IS ALSO MISPLACED. IN FAC T, THE ORDER OF CIT(A) HAS THIS TO STATE: BUT, BE THAT AS IT MAY, THE ENQUIRY REPORT DOE S NOT INDICATE THAT THE SOURCES OF SOURCE, I.E., THE LOANS ADVANCE D BY THE FARMERS TO THE DIRECTORS/SHAREHOLDERS; WERE TOTALLY BOGUS OR THAT THEY COMPLETELY LACK CREDITWORTHINESS. BUT, THERE APPEARS TO BE SOME SUB STANCE IN THE ASSERTION OF THE AO/JT.CIT THAT CERTAIN ELEMENTS LI KE THE GENUINENESS OF THE TRANSACTIONS AND COMPLETE CREDITWORTHINESS OF T HE FARMERS WAS NOT CONCLUSIVELY ESTABLISHED. THESE MATTERS NEVERTHELES S REQUIRE FURTHER ENQUIRY AS ONLY SIXTEEN OUT OF SEVENTY FIVE FARMER- CREDITORS, WHO HAVE ADVANCED LOANS TO THE FOUR SHARE HOLDERS HAVE BEEN EXAMINED. NO ENQUIRY HAS BEEN CONDUCTED IN RESPECT OF LOANS AVAILED BY T HE TWO PROMOTER- DIRECTORS; NAMELY SHRI N. SRINIVAS AND SHRI N. SRID HAR. THEREFORE, THE AO OR THE CONCERNED AOS CAN CONDUCT FURTHER ENQUIRIES AND IF IT IS FOUND THAT THE LOANS GIVEN BY THE FARMERS WERE NEITHER CREDIBL E NOR GENUINE; THE ADDITIONS COULD BE MADE IN THE HANDS OF THE SHAREHO LDERS WHO HAVE SUBSCRIBED TO THE SHARES OF THE APPELLANT-COMPANY. THE SOURCES OF FUNDS IN SUCH CASES CAN BE TACKLED BY THE AO IN THE HANDS OF THE SUBSCRIBERS TO THE EQUITY SHARES WHO HAVE AVAILED THE LOANS. THER EFORE, THE AO IS FREE TO CONDUCT FURTHER ENQUIRIES IN THE CASE OF INDIVIDUAL SHAREHOLDERS AS PER THE EXTANT PROVISIONS OF LAW AND CONSIDER THESE AMOUNTS IN THEIR HANDS IN I.T.A. NO. 1401/HYD/2012 :- 13 -: VIEW OF THE DISCUSSIONS IN PARA 4.1 AND 4.2 AND THE JUDICIAL DECISIONS CITED SUPRA. THUS, THE OBSERVATION OF CIT(A) INDEED DOES NOT STATE THAT THE SOURCES ARE TOTALLY BOGUS AND AO WAS IN FACT, ASKED TO MAKE FURTHER ENQUIRIES. SINCE NO ENQUIRIES WORTH WERE MAD E, THE ORDER OF CIT(A) BHUBANESWAR CANNOT BE RELIED ON, FOR DENYI NG THE GENUINENESS OF THE CREDITS. SINCE SO MUCH TIME HAS LA PSED AND THE AFFIDAVITS FURNISHED DT. 25-10-2007 HAVE NOT BEEN DISP ROVED, THE CONTENTIONS OF ASSESSEE IN THIS REGARD HAS MERIT. I AM OF THE OPINION THAT REVENUE WRONGLY RELIED ON THE REPORTS IN TH E CASE OF COMPANY AND ON THE ORDER OF CIT(A), BHUBANESWAR AND HAS NOT MADE ANY ENQUIRY IN ASSESSEE CASE TO DISPROVE THE CRE DITS CLAIMED. IN THE CIRCUMSTANCES, I DIRECT THE AO TO ACCEPT THE CREDITS AS SUCH, AS GENUINE. IN FACT, THE BORROWALS ARE ONLY TO THE EX TENT OF RS. 13.50 LAKHS. ADDITION OF RS 22.30 LAKHS, BEING THE EN TIRE INVESTMENT IN THAT COMPANY WITHOUT EXAMINING THE OTHER S OURCES IS NOT CORRECT AND HENCE DELETED. 9. THAT LEAVES US THE MATTER OF REOPENING. EVEN THOUGH THE SAME IS ACADEMIC NOW, IN VIEW OF THE ACCEPTANCE OF ISSUE OF CREDITS ON MERIT, IT IS TO BE PLACED ON RECORD THAT THE CONTENTIONS ON THE ISSUE HAVE MERIT. FIRST OF ALL, ASSESSEE HAS D ISCLOSED THE INVESTMENT AND ENCLOSED THE CONFIRMATIONS TO THE ORIGIN AL RETURN WHICH WAS ACCEPTED. THERE WAS A DIRECTION BY ADDL. C IT, RANGE-12 TO REOPEN THE ASSESSMENT. ANOTHER OFFER (WHOSE JURISDI CTION IS NOT EXAMINED) HAS ISSUED THE NOTICES, EVEN THOUGH ASSESSEE WAS ASSESSED EARLIER. THE REASONS FOR REOPENING WERE NO T COMMUNICATED VIOLATING THE DIRECTIONS OF HON'BLE SUPREM E COURT IN I.T.A. NO. 1401/HYD/2012 :- 14 -: THE CASE OF GKN DRIVE SHAFT, [259 ITR 19] (SC). THE CONTENTIONS EXTRACTED IN ASSESSEE COUNSELS SUBMISSIONS AND THE CASE LAW RELIED, SUPPORT THE CONCLUSION THAT THE REOPENING ITSE LF IS BAD IN LAW. 10. ON THESE REASONS, THE ORDER OF AO AND CIT(A) CA NNOT BE UPHELD. THE GROUNDS ARE ALLOWED. 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY, 2018 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 12 TH JANUARY, 2018 TNMM I.T.A. NO. 1401/HYD/2012 :- 15 -: COPY TO : 1. MR. N. SRIDHAR, C/O. SHRI K.C. DEVDAS, CHARTERED ACCOUNTANTS, R.P. ROAD, SECUNDERABAD. 2. THE JT. COMMISSIONER OF INCOME TAX, RANGE-12, HYDERABAD. 3. CIT (APPEALS)-II, HYDERABAD. 4. CIT-I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.