Sri Bhavansi Anjaneyulu, Guntur V. The DCIT, Circle-1(1), Guntur

ITA 154/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50292 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 08-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH L PETER
• Keywords: Unexplained cash credit; Gift; Additional evidence; Capital receipt
• Section: 68

Judgement Text

ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 154 /VIZAG/ 20 10 ASSESSMENT YEAR : 2004 - 05 SRI BHAVAN A SI ANJA NEYULU GUNTUR VS. DCIT CIRCLE - 1(1) GUNTUR (APPELLANT) (RESPONDENT) PAN NO.ACJPB 0329C APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI TH.L. PETER, CIT(DR) ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH ON FA CTS AND IN LAW. 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE AMOUNTS RE CEIVED FROM FIRST TEK TECHNOLOGIES, USA OF RS.30,40,446/- ARE N OT PROPERLY EXPLAINED. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLANT DISCHARGED THE ONUS OF PROVING THE CR EDITS AND, THEREFORE, THE CREDITS SHOULD NOT HAVE BEEN TREATED AS UNEXPLAINED. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MAD E BY THE ASSESSING OFFICER OF RS.32,49,177/- BEING THE GIFTS RECEIVED FROM SRI B. SATYA KUMAR, APPELLANTS SON WHO IS AN NRI. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THE APPELLANTS SON HAS SUB STANTIAL SOURCES IN USA AND HE IS A RESIDENT OF USA. 4. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT SRI B. SATYA KUMAR CONFIRMED THE FACT OF HAVING SENT 72.000 US $ AMOUN TING TO RS.32,49,177/- IN INDIAN CURRENCY. 5. THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS.9 1,610/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GAIN ON FOREIGN EXCHANGE FLUCTUATION. THE LD. CIT(A) OUGHT TO HAVE SEEN THA T SUCH AMOUNT IS NOT LIABLE FOR TAXATION. 6. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.37 LAKHS MADE ON ACCOUNT OF UNEXPLAINED CREDITS BEING RECOVE RIES OF LOANS FROM THE FARMERS. THE LD. CIT(A) OUGHT TO HAVE SEE N THAT THE SAID AMOUNT WAS PAID BY THE APPELLANT IN THE IMMEDIATELY PRECEDING YEAR AND THE AMOUNT RECEIVED REPRESENTS ONLY A REPA YMENT OF ADVANCE EARLIER GIVEN. ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 2 7. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MAD E BY THE ASSESSING OFFICER OF RS.4,64,918/- AS REPRESENTING THE UNACCOUNTED INTEREST ON ADVANCES TO FARMERS. 8. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2,16,300/- MADE TOWARDS UNACCOUNTED INTEREST FROM FINANCE BUSI NESS. 9. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF H EARING. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RE CORD. GROUND NO.1 IS OF GENERAL IN NATURE AND NEEDS NO INDEPENDENT ADJUDICA TION. 3. GROUND NO.2 RELATE TO AN ADDITION OF RS.30,40,44 6/- RECEIVED FROM FIRST TEK TECHNOLOGIES, USA U/S 68 OF THE ACT AFTER TREAT ING IT TO BE UNEXPLAINED CREDIT. THE FACTS BORNE OUT IN THIS REGARD FROM TH E ORDERS OF AUTHORITIES BELOW ARE THAT ON VERIFICATION THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS RECEIVED 66,000 US $ EQUIVALENT TO RS.30,40,466/- F ROM M/S. FIRST TEK TECHNOLOGIES INC., A COMPANY IN WHICH ASSESSEES SO N WAS THE PRESIDENT. COPIES OF CHEQUES WERE ALSO FILED BEFORE THE A.O. INITIALLY, THIS AMOUNT WAS CLAIMED TO BE A GIFT RECEIVED FROM THE COMPANY BUT LATER ON IT WAS CLARIFIED THAT IT WAS RECEIVED AS AN ADVANCE FOR RENDERING CE RTAIN SERVICES. ON VERIFICATION OF THESE CHEQUES, THE A.O. FOUND THAT AMOUNT RECEIVED FROM THE FOREIGN COMPANY WERE SUPPOSEDLY FOR VARIOUS SERVICE S SUCH AS EMPLOYEE REFERRAL SERVICE, WEBSITE DEVELOPMENT SERVICES, ETC . THE ASSESSEE WAS EXAMINED BY THE A.O. AND ASSESSEE HAS DEPOSED DURIN G THE COURSE OF EXAMINATION THAT THIS AMOUNT WAS TREATED AS A LOAN IN THE ASSESSEES ACCOUNT. HE COULD NOT FURNISH THE WRITTEN DOCUMENT TO SHOW THAT THE AMOUNT RECEIVED FROM THE FOREIGN COMPANY WAS AN ADVANCE FO R RENDERING CERTAIN SERVICES. THE ASSESSING OFFICER TREATED THIS RECEI PT OF RS.30,40,466/- AS UNEXPLAINED CREDIT AND MADE THE ADDITION OF THE SAM E U/S 68 OF THE ACT. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSION THAT M/S. FIRST TEK TECHNOLOGIES INC. WA S CARRYING ON AN ACTIVITY OF SOFTWARE DEVELOPMENT AND I.T. CONSULTANCY BESIDE S CORPORATE TRAINING AND ASSESSEES SON WAS THE PRESIDENT OF THE COMPANY. I T WAS STATED THAT THE COMPANY INTENDED TO COMMENCE ITS BUSINESS IN INDIA SO AS TO SUPPORT ITS U.S. BUSINESS FOR WHICH THE SAID AMOUNTS WERE PAID TO TH E ASSESSEE. FURTHER, IT ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 3 WAS STATED THAT COMPANY HAD ENTERED INTO A WRITTEN AGREEMENT WITH THE ASSESSEE. HOWEVER, THE ASSESSEE COULD NOT COMMENCE THE ACTIVITIES FOR VARIOUS REASONS AND THEREFORE UTILIZED THE AMOUNTS FOR VARIOUS PURPOSES OF HIS OWN. SINCE HE HAD NO IDEA THAT HOW HIS SON WOULD F INALLY SETTLE THE AMOUNT I.E. WHETHER HE WOULD GIFT THE AMOUNT OR TREAT IT A S A LOAN TO THE ASSESSEE OR WOULD WANT IMMEDIATE REPAYMENT OF THE SAME, THE ASS ESSEE TEMPORARILY SHOWED THIS AMOUNT AS A GIFT RECEIPT. LATER ON IT WAS CONFIRMED THAT THE AMOUNT HAD TO BE REPAID IN CASE OF NON PERFORMANCE AS PER THE AGREEMENT. THE ASSESSEE FURTHER STATED THAT DUE TO PAUCITY OF TIME DURING THE ASSESSMENT PROCEEDINGS, NEITHER A COPY OF THE AGREE MENT ENTERED INTO WITH THE COMPANY NOR A CONFIRMATION FROM THE COMPANY COU LD BE FILED. THESE WERE HOWEVER OBTAINED FROM THE ASSESSEES SON AND W ERE FILED AS AN ADDITIONAL EVIDENCE DURING THE APPELLATE PROCEEDING S. IT WAS FURTHER CONTENDED BEFORE THE CIT(A) THAT THE AMOUNTS WERE R ECEIVED THROUGH THE BANKING CHANNELS AND THE COMPANY IS INCORPORATED IN USA AND IS CARRYING ON THE BUSINESS OF SOFTWARE AND OTHER ACTIVITIES. THE ASSESSEES SON IS A PRESIDENT OF THE COMPANY AND THE COMPANY ENTERED IN TO AN AGREEMENT WITH THE ASSESSEE AND AS PER THE AGREEMENT, THE AMOUNT W AS PAID BY THE COMPANY FOR INCURRING EXPENDITURE ON THEIR BEHALF I N INDIA. THEREFORE, NO ADDITION U/S 68 WAS WARRANTED. 5. THE ADDITIONAL EVIDENCE WERE FORWARDED TO THE AS SESSING OFFICER FOR VERIFICATION AND REPORT. THE ASSESSING OFFICER SUB MITTED HIS REPORT DATED 26.10.2009 STATING THEREIN THAT THE FOREIGN COMPANY WHICH IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND I.T. CONSULTAN CY HAD ENTERED INTO AN AGREEMENT WITH THE ASSESSEE WHO WAS STUDIED UP TO P UC ONLY AND LITERALLY HAS NO KNOWLEDGE ABOUT SOFTWARE DEVELOPMENT MAINTEN ANCE AND OTHER TECHNICAL KNOWLEDGE. THE ASSESSEE HAS DEPOSED DURI NG HIS EXAMINATION THAT NO WRITTEN AGREEMENT WAS FILED. THE CIT(A) RE-EXAM INED THE ISSUE IN THE LIGHT OF THE REPORT SUBMITTED BY THE A.O. AND BEING NOT CONVINCED WITH THE EXPLANATIONS FURNISHED BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ADDITIONS. ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 4 6. NOW THE ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSIONS THAT UNDISPUTEDLY AN AMOUNT OF RS.30,40 ,466/- WAS RECEIVED BY THE ASSESSEE FROM FIRST TEK TECHNOLOGY INC., A USA COMPANY IN WHICH THE ASSESSEES SON WAS THE PRESIDENT. THE MOVEMENT OF FUND FROM THE FOREIGN COMPANY TO THE ASSESSEES ACCOUNT WAS NOT DOUBTED/D ISPUTED BY THE REVENUE. THE ASSESSEE HAS FILED THE COPY OF AN AGR EEMENT BETWEEN THE COMPANY AND THE ASSESSEE TO SHOW THAT THIS AMOUNT W AS GIVEN AS AN ADVANCE FOR RENDERING PARTICULAR SERVICES. IT WAS ALSO MENTIONED IN THE AGREEMENT IF THE SERVICES WERE NOT RENDERED THE AMO UNT IS TO BE REPAID BACK TO THE COMPANY. THEREFORE, IN CASE THE ASSESSEE FA ILS TO RENDER THE SERVICES, THE ENTIRE AMOUNT CAN BE TREATED AS A LOAN IN THE H ANDS OF THE ASSESSEE. BUT FROM ANY ANGLE, THE IMPUGNED AMOUNT CANNOT BE TREAT ED TO BE THE UNEXPLAINED CREDIT. THE LD. COUNSEL FOR THE ASSESS EE FURTHER INVITED OUR ATTENTION TO THE COPY OF AGREEMENT APPEARED AT PAGE NO.134 TO 136 OF THE COMPILATION OF THE ASSESSEES. THE CONFIRMATION ON BEHALF OF THE FOREIGN COMPANY IS ALSO PLACED ON RECORD WHICH IS APPEARING AT PAGE NO.131 TO 133 OF THE COMPILATION OF THE ASSESSEES. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS NOT GIVEN SUFFICIENT TIME TO FURNISH THE RELEVANT EVIDENCE WITH REGARD TO THE RECEIPT OF THE AFORESAI D AMOUNT AND THE CONFIRMATION OF THE FOREIGN COMPANY. BUT THE ASSES SEE HAS FILED ALL THIS EVIDENCE BEFORE THE CIT(A) AND CIT(A) CALLED FOR A REMAND REPORT THEREON. THE SAID FACTS WERE STATED DURING THE COURSE OF STA TEMENT RECORDED DURING THE ASSESSMENT PROCEEDINGS. 7. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO INVITE D OUR ATTENTION TO THE CORRESPONDENCE EXCHANGED BETWEEN THE ASSESSING OFFI CERS AND THE DIRECTOR, FOREIGN TAX & TAX RESEARCH DIVISION OF CBDT IN SUPP ORT OF HIS CONTENTION THAT REVENUE AUTHORITIES HAVE INDEPENDENTLY MADE AN ENQUIRY ABOUT THE GENUINENESS OF THESE TRANSACTIONS. THE RELEVANT CO RRESPONDENCE IS AVAILABLE AT PG.NO.182 TO 195 OF THE COMPILATION OF THE ASSES SEES. THE LETTER WRITTEN BY THE JOINT SECRETARY, MINISTRY OF FINANCE WITH RE GARD TO THE VERIFICATION WAS ALSO RESPONDED FROM THE CONCERNED AUTHORITIES OF US A AND THE INFORMATION SOUGHT WERE ALSO FURNISHED BY THE INDIAN AGENCIES B UT NOTHING HAS BEEN BROUGHT OUT ON RECORD BY THE REVENUE IN SUPPORT OF THEIR CONTENTION THAT THE ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 5 AMOUNT RECEIVED BY THE ASSESSEE FROM THE FOREIGN CO MPANY IS NOT A GENUINE TRANSACTION. WITH REGARD TO THE CREDITWORTHINESS O F THE COMPANY, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASS ESSEES SON WAS WORKING WITH THEM FOR THE LAST SO MANY YEARS AND HE WAS THE PRESIDENT THERE OF. SINCE THE AFORESAID TRANSACTION IS AN OVERSEAS TRAN SACTION AND WAS MADE THROUGH BANKING CHANNELS, ITS GENUINENESS SHOULD NO T BE DOUBTED. SINCE THE ASSESSEE HAS PLACED ALL RELEVANT EVIDENCE TO DISCHA RGE ITS ONUS PRIMARILY LAY UPON HIM THE AFORESAID AMOUNT SHOULD NOT BE TREATED TO BE AN UNEXPLAINED CREDIT IN THE HANDS OF THE ASSESSEES. 8. THE LD. D.R. BESIDES PLACING A HEAVY RELIANCE UP ON THE ORDER OF THE CIT(A) HAS SUBMITTED THAT THE ASSESSEE HAS TAKEN A STAND IN THE BEGINNING THAT IT HAD RECEIVED A GIFT FROM THE COMPANY. WHEN HE WAS QUESTIONED ABOUT THE GENUINENESS OF THE GIFT AS THE COMPANY COULD NO T GIVE A GIFT TO AN INDIVIDUAL, THE ASSESSEE TOOK A STAND THAT IT RECEI VED AN AMOUNT AS AN ADVANCE FOR RENDERING CERTAIN SERVICES. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS STATED THAT NO WRITTEN AGREEMENT WAS E XECUTED BUT BEFORE THE CIT(A), A COPY OF AGREEMENT WAS FILED. THE COPY OF THE AGREEMENT BEARS THE DATE OF 14.2.2008. MEANING THEREBY, IT WAS AN AFTE R THOUGHT AGREEMENT. THE LD. D.R. FURTHER CONTENDED THAT NO EVIDENCE HAS BEEN PLACED ON RECORD TO PROVE THE CREDITWORTHINESS AND THE IDENTITY OF T HE CREDITORS. THEREFORE, THE REVENUE HAS RIGHTLY TREATED THIS AMOUNT TO BE UNEXP LAINED U/S 68 OF THE ACT. 9. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT ASSESSEE HAS RECEIVED 66,000 US $ EQUIVALENT TO RS.30,40,466/- FROM M/S. FIRST TEK TE CHNOLOGIES INC., A USA COMPANY IN WHICH THE ASSESSEES SON WAS THE PRESIDE NT, THROUGH BANKING CHANNELS. BEFORE THE ASSESSING OFFICER, ASSESSEE C OULD NOT FILE THE CONFIRMATIONS AND THE RELEVANT EVIDENCE IN THIS REG ARD BUT IT WAS FILED BEFORE THE CIT(A) AND CIT(A) CALLED A REMAND REPORT FROM T HE ASSESSING OFFICER. THE CONFIRMATION OF THE PAYMENT OF THE AFORESAID AMOUNT WAS ALSO FILED BEFORE THE CIT(A) AS WELL AS BEFORE US IN WHICH THE COMPAN Y HAS CONFIRMED THE PAYMENT OF THE AFORESAID AMOUNT TO THE ASSESSEES FO R RENDERING CONSULTANCY SERVICES. THE ASSESSING OFFICER HIMSELF HAS OBSERV ED THAT ON PERUSAL OF ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 6 CHEQUES IT APPEARS THAT PAYMENTS WERE GIVEN AGAINST RENDERING VARIOUS SERVICES, SUCH AS, WEB SITE DEVELOPMENT AND EMPLOYE ES REFERRAL. THE REVENUES OBJECTION IS THAT THE ASSESSEE DID NOT HA VE A PROPER QUALIFICATION OR ANY EXPERIENCE TO RENDER THE DESIRED SERVICES. THE REFORE, THE AGREEMENT MAY NOT BE GENUINE. IN THIS REGARD, WE ARE OF THE VIEW THAT ONLY FOR THIS REASON THE TRANSACTIONS OR THE AGREEMENT CANNOT BE HELD TO BE NON-GENUINE IN AS MUCH AS THE ASSESSEES SON WAS PRESIDENT IN T HE COMPANY WHO HAS GIVEN THE ADVANCE TO THE ASSESSEES AND THERE IS NO BAR THAT ASSESSEE CANNOT ENGAGE OR HIRE SERVICES OF QUALIFIED PERSONS IN THI S FIELD. A COPY OF CHEQUES AND THE AGREEMENT CLEARLY SHOWS THAT THE AMOUNTS GI VEN TO THE ASSESSEE WAS AN ADVANCE FOR RENDERING PARTICULAR SERVICES. IT I S ALSO MADE CLEAR IN THIS AGREEMENT THAT IF THE ASSESSEE DOES NOT RENDER SERV ICES, THE ENTIRE AMOUNT IS TO BE REFUNDED OR REPAID BACK TO THE COMPANY. ONE MORE REVENUES OBJECTION IS THAT THE DESIRED SERVICES WERE NEVER R ENDERED BY THE ASSESEES. IF THAT BE THE CASE, THE ENTIRE AMOUNT OF ADVANCE W ILL BECOME A LOAN LIABILITY OF THE ASSESSEES AND ASSESSEE IS REQUIRED TO REPAY THE SAME TO THE COMPANY. IF THE ASSESSEE DOES NOT PAY THE SAME AND LIABILITY IS CEASED, THE ENTIRE LOAN WOULD BE TREATED AS AN INCOME OF THE ASSESSEES ON C ESSATION OF LIABILITY U/S 41(1) OF THE ACT. BUT FOR THESE REASONS THE AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE TREATED TO BE THE NON-GENUINE UNLESS AND UNTIL IT IS BROUGHT ON RECORD BY THE REVENUE THAT THE AMOUNT RECEIVED BY T HE ASSESSEE DOES NOT BELONG TO THE COMPANY AND IT WAS ASSESSEES OWN MON EY WHICH WAS CIRCULATED THROUGH OVERSEAS TRANSACTIONS. 10. WE HAVE ALSO CAREFULLY EXAMINED THE CORRESPONDE NCE EXCHANGED BETWEEN THE ASSESSING OFFICER WITH THE DIRECTOR, FO REIGN TAX & TAX RESEARCH DIVISION, CBDT AND THE INVESTIGATING AGENCY OF USA WITH THE JOINT SECRETARY, MINISTRY OF FINANCE, CBDT AND OTHER RELEVANT CORRES PONDENCE AND WE FIND THAT THE ASSESSING OFFICER HAS MADE ITS EFFORTS TO VERIFY THE GENUINENESS OF THESE TRANSACTIONS FROM THE CONCERNED AGENCY OF THE USA THROUGH CBDT. BUT NOTHING HAS BEEN BROUGHT OUT ON RECORD BY THE REVEN UE TO PROVE THESE TRANSACTIONS TO BE NON-GENUINE. THE COMPANY HAS AL SO FILED THE CONFIRMATIONS OF THE PAYMENT OF THIS AMOUNT TO THE ASSESSEES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS EXPLAINED TO THE ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 7 ASSESSING OFFICER UNDER WHAT CIRCUMSTANCES HE HAS T REATED THIS AMOUNT TO BE GIFT. ONCE THE FACTS ARE CLARIFIED THE ASSESSING O FFICER HIMSELF HAS MADE AN ATTEMPT TO VERIFY THE GENUINENESS OF THE TRANSACTIO NS OF THIS AMOUNT. AN AFFIDAVIT OF THE ASSESSEES SON WITH RESPECT TO THE SE TRANSACTIONS WERE ALSO FILED BEFORE THE CIT(A). FROM A CAREFUL PERUSAL OF THESE EVIDENCE IN THE LIGHT OF RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT UNDIS PUTEDLY, THE ASSESSEE HAS RECEIVED THE AFORESAID AMOUNT FROM A FOREIGN COMPAN Y THROUGH BANKING CHANNELS AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO ESTABLISH THESE TRANSACTIONS TO BE NON-GENUINE. ONCE THE ASS ESSEE HAS RECEIVED A PARTICULAR AMOUNT FROM A FOREIGN COMPANY THROUGH BA NKING CHANNELS IT BECOMES HIS LIABILITY AND ASSESSEE IS REQUIRED EITH ER TO RENDER THE SERVICES AS PER THE AGREEMENT AND IF HE FAIL TO DO SO, HE HAS T O REPAY THE SAME. IF HE DOES NOT REPAY THE AFORESAID AMOUNT OR CLEARED THE LIABILITY, THE SAID AMOUNT WOULD BE AN INCOME OF THE ASSESSEES IN THOSE YEARS IN WHICH THE LIABILITY IS CEASED TO EXIST U/S 41(1) OF THE ACT. IN THE LIGHT OF THIS PROPOSITION, WE ARE OF THE VIEW THAT THE ENTIRE AMOUNT RECEIVED BY THE ASS ESSEES CANNOT BE TREATED TO BE THE UNEXPLAINED CREDIT IN THE HANDS OF THE AS SESSEES. WE ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE AD DITION. 11. GROUND NOS.2&3 RELATE TO AN ADDITION OF RS.32,4 9,177/- AND IN THIS REGARD THE FACTS BORNE OUT FROM THE ORDER OF THE LO WER AUTHORITIES ARE THAT THE ASSESSEE HAS ALSO RECEIVED A SUM OF RS.32,49,177/- AS GIFT FROM HIS SON WHO IS WORKING IN USA AS A PRESIDENT OF FIRST TEK TEHNO LOGIES INC. THE ASSESSING OFFICER ON VERIFICATION HAS NOTICED THAT APART FROM THIS 72000 US $ GIFTED TO THE ASSESSEE IN THIS YEAR, THE DONOR HAD ALSO GIFTE D AN AMOUNT OF 24000 US $, 18000 US $ & 50000 US $ IN EARLIER 3 ASSESSMENT YEARS. THE ASSESSING OFFICER HAS DOUBTED THE RECEIPT OF GIFT AND MADE AN ADDITION OF THE SAME U/S 68 OF THE ACT AFTER TREATING IT TO BE UNEXPLAINED. BEFORE THE CIT(A), THE ASSESSEE HAS STATED THAT THE ASSESSEES SON HAD GON E TO USA FOR FURTHER STUDIES IN 1996 WHICH HE COMPLETED IN 1998. THERE AFTER, HE TOOK UP HIS EMPLOYMENT IN 1999. THE ASSESSEES SON HAS ALSO TA KEN A LOAN OF 2 LAKH US $ AND OUT OF THE SAID LOAN AND ITS ANNUAL INCOME, T HE AFORESAID AMOUNTS WERE GIFTED TO THE ASSESSEE. THE ASSESSEE HAS EXPLAINED THE SOURCE OF GIFT MADE IN EARLIER YEARS ALSO. HE HAS FILED THE CONFIRMATION LETTERS AND AFFIDAVITS OF HIS ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 8 SON AND ALSO A COPY OF BANK ACCOUNT TO SUBSTANTIATE AND TO PROVE THE GENUINENESS OF THE GIFT BUT THE CIT (A) WAS NOT CON VINCED WITH THE EVIDENCE PLACED BEFORE HIM AND HE CONFIRMED THE ADDITIONS. 12. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS INVITED OUR ATTENTION TO THE CONFIRMATION LETTERS O F THE DONORS AND THE COPIES OF THE INCOME TAX RETURNS AND THE BANK ACCOUNTS OF THE DONOR I.E. SON OF THE ASSESSEES. THE AFFIDAVITS OF THE ASSESSEES SON MR . SATYA KUMAR, ALSO FILED. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTEN DED THAT AFTER THE HIGHER STUDIES, SON OF THE ASSESSEE GOT AN EMPLOYMENT IN U SA AND WHATEVER INCOME HE HAS EARNED, HE HAS BEEN SENDING TO HIS FATHER AS A GIFT. HE HAS ALSO TAKEN A LOAN OF 2 LAKH US $ AND HAS SENT TO THE ASSESSEE AS A GIFT. THE COPY OF THE BANK ACCOUNTS IN SUPPORT OF THE AVAILABILITY OF THE FUNDS AT DIFFERENT POINTS OF TIME IS PLACED AT PG.NO.154 TO 170. THE LD. COUNSE L FOR THE ASSESSEE FURTHER CONTENDED THAT SINCE THE ASSESSEE HAS PLACED ALL RE LEVANT EVIDENCE IN SUPPORT OF THE GENUINENESS OF THE TRANSACTIONS, CREDITWORTH INESS AND IDENTITY OF THE DONOR, THE AFORESAID TRANSACTIONS OF GIFT SHOULD NO T BE DOUBTED. 13. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED TH AT THE ASSESSEES HAS BEEN RECEIVING THE GIFT IN EARLIER YEARS ALSO AND T HE SOURCE OF GIFT WAS NOT PROPERLY EXPLAINED TO THE ASSESSING OFFICER. THERE FORE, THE REVENUE HAS RIGHTLY TREATED THIS AMOUNT TO BE AS AN UNEXPLAINED IN THE HANDS OF THE ASSESSEES. 14. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS IN THE LIGHT OF RELEVANT EVIDENCE PLACED ON RECORD AND THE ORDERS OF LOWER AUTHORITIES, WE FIND THAT BEFORE THE ASSESSING OFFI CER, SUFFICIENT TIME WAS NOT GIVEN TO THE ASSESSEE TO PLACE THE RELEVANT EVIDENC E. BUT THE ASSESSEE HAS PLACED ALL THE RELEVANT EVIDENCE I.E. THE CONFIRMAT ION LETTERS OF THE DONOR, BANK ACCOUNTS OF THE DONOR, AFFIDAVITS OF THE DONOR , ETC. BEFORE THE CIT(A) AND THE CIT(A) CALLED A REMAND REPORT THEREON. IN THESE AFFIDAVITS AND CONFIRMATION LETTERS, THE ASSESSEES SON HAS CONFIR MED THE GIFT OF AFORESAID AMOUNT. WITH REGARD TO THE SOURCE OF GIFT, HIS SON HAS EXPLAINED THROUGH HIS AFFIDAVITS THAT HE HAS TAKEN A LOAN OF 2 LAKH US $ AND THE GIFT WAS GIVEN OUT ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 9 OF THE SAVINGS AND THE LOANS. WE HAVE ALSO EXAMINE D THE BANK ACCOUNTS OF THE SON OF THE ASSESSEE AND WE FIND THAT THERE ARE REGULAR TRANSACTIONS IN HIS BANK ACCOUNT AND MOST OF THE TIME HE WAS HAVING SUF FICIENT BALANCE. THE BANK ACCOUNTS SHOWS THE CREDITWORTHINESS OF THE DO NOR. THE DONOR HAS ALSO FILED AN INCOME TAX RETURN IN THE USA. THIS IS A G IFT WHERE AS ASSESSEES SON HAS GIFTED A SUBSTANTIAL AMOUNT TO HIS FATHER AND T HIS TYPE OF CASE SHOULD NOT BE DOUBTED. BECAUSE IN OUR SOCIETY WHENEVER CHILDR EN GOES ABROAD FOR EMPLOYMENT, THEY USED TO SEND THEIR SAVINGS TO THEI R PARENTS THROUGH GIFT. SINCE THE TRANSACTIONS ARE OVERSEAS TRANSACTIONS, I T SHOULD NOT BE DOUBTED UNLESS AND UNTIL SOME CONTRARY IS BROUGHT ON RECORD . IN THE INSTANT CASE THOUGH THE ASSESSING OFFICER HAS MADE ITS ALL EFFOR TS TO GET THE TRANSACTIONS VERIFIED, BUT HE COULD NOT BRING ANYTHING ON RECORD TO DOUBT THE SAME. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE GE NUINENESS OF THE GIFT RECEIVED BY THE ASSESSEE FROM HIS SON SHOULD NOT BE DOUBTED. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND D ELETE THE ADDITION MADE IN THIS REGARD. 15. GROUND NO.5 RELATE TO AN ADDITION OF RS.91,610/ -. THIS AMOUNT REPRESENTS THE GAIN ON FOREIGN EXCHANGE FLUCTUATION . IN THIS REGARD, IT WAS CONTENDED BY THE ASSESSEE THAT SINCE THE AMOUNTS WE RE RECEIVED IN FOREIGN CURRENCY AS A CAPITAL RECEIPT, THE GAIN FOREIGN EXC HANGE FLUCTUATION WOULD ALSO BE CAPITAL RECEIPT AND WAS ACCORDINGLY NOT TAXABLE. IN THIS REGARD, WE ARE OF THE VIEW THAT ONCE WE HAVE TREATED THE RECEIPT OF G IFT FROM HIS SON IS TO BE GENUINE, THE GAIN ON FOREIGN EXCHANGE FLUCTUATION W ITH THAT REGARD SHOULD ALSO BE TREATED AS A CAPITAL RECEIPT AND IS NOT LIA BLE FOR TAXATION. BUT, SO FAR AS THE GAIN ON FOREIGN EXCHANGE FLUCTUATION WITH RE GARD TO THE RECEIPT FROM M/S. FIRST TEK TECHNOLOGIES INC. IS CONCERNED, THE AMOUNT WAS CONSIDERED TO BE THE LOAN LIABILITY IN THE HANDS OF THE ASSESSEES . IN THAT CASE, THE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION SHALL BE AD DED TO THE LIABILITIES AND THAT AMOUNT WOULD ONLY BE TREATED AS INCOME ON ITS CESSATION. WE ACCORDINGLY MODIFY THE DIRECTION OF CIT(A). ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 10 16. GROUND NO.6 RELATE TO AN ADDITION ON RS.37 LAKH S MADE ON ACCOUNT OF UNEXPLAINED CREDIT BEING RECOVERIES OF LOANS FROM F ARMERS. THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE HAS SHOWN CREDIT OF RS.37 LAKHS AS RECOVERIES OF LOAN/ADVANCE FROM FARMERS. THE ASSES SEE HAD FURNISHED A STATEMENT ALONG WITH THE RETURN FILED FOR A.Y. 2004 -05 SHOWING THAT OUT OF THE GIFTS RECEIVED FROM HIS SON FROM A.Y. 2001-02 ONWAR DS, THE ASSESSEE HAD INCURRED CERTAIN EXPENDITURES AND INVESTED IN THE F INANCE BUSINESS. THERE AFTER THE SURPLUS OF RS.37 LAKHS AVAILABLE OUT OF T HE GIFTS RECEIVED WERE ADVANCED TO THE FARMERS IN A.Y. 2003-04 ON INTEREST AT 6% PER ANNUM. THE A.O. NOTICED THAT THE ASSESSEE HAD NOT FILED CAPITA L ACCOUNTS FOR THE ASSESSMENT YEAR 2001-02 AND 2002-03. ON VERIFICATI ON FROM CAPITAL ACCOUNTS IN THE FIRM IN WHICH HE WAS A PARTNER, THE A.O. NOT ICED SUBSTANTIAL DISCREPANCIES BETWEEN THE INVESTMENT AND EXPENDITUR ES. AFTER ANALYZING THE INFORMATION, THE A.O. ARRIVED AT A CONCLUSION THAT THE ASSESSEE HAD A SURPLUS OF RS.2,52,000/- ONLY IN THE A.Y. 2003-04 AS AGAINS T THE AMOUNT OF RS.37 LAKHS CLAIMED BY HIM. HE ACCORDINGLY MADE AN ADDIT ION OF THE SAME. BESIDES, HE HAS ALSO ESTIMATED THE INTEREST INCOME ON RS.37 LAKHS FOR THE WHOLE YEAR AT 24% AND MADE THE ADDITION OF THE DIFF ERENCE. 17. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) BUT DID NOT FIND FAVOUR WITH HIM. 18. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSI ON THAT HE HAS FILED A COPY OF LEDGER ACCOUNT AND ALSO THE STATEMENT BEFOR E THE A.O. SHOWING THE RECEIPT OF THE GIFTS AND THE LOAN GIVEN TO VARIOUS FARMERS. HE HIMSELF HAS OFFERED AN INTEREST @ 6% ON THIS RS.37 LAKHS BUT TH E ASSESSING OFFICER HAD TREATED THE ENTIRE AMOUNT OF RS.37 LAKHS TO BE UNEX PLAINED AND ALSO ESTIMATED THE INTEREST ON THIS RS.37 LAKHS AT 24%. BOTH THE ACTION OF THE ASSESSING OFFICER ARE CONTRARY TO EACH OTHER. IF R S.37 LAKHS IS TREATED TO BE AN INCOME OF THIS YEAR ON ACCOUNT OF UNEXPLAINED CR EDIT, THE INTEREST @ 24% CANNOT BE WORKED OUT. BY ESTIMATING THE INTEREST A T 24% IN PLACE OF 6%, THE ASSESSING OFFICER HAS ACCEPTED THE CONTENTIONS OF T HE ASSESSEE THAT RS.37 LAKHS WAS GIVEN ON LOAN TO VARIOUS FARMERS IN THE A SSESSMENT YEAR 2003-04. ONCE THE INTEREST IS WORKED OUT ON THIS LOAN TO VAR IOUS FARMERS, THE ADDITION ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 11 OF THE SAME CAN ONLY BE MADE IN THE ASSESSMENT YEAR 2003-04 AND NOT IN THE YEAR 2004-05. THE ASSESSING OFFICER CANNOT BLOW HO T AND COLD IN THE SAME BREATH. EVEN THE CIT(A) HAS NOT EXAMINED THIS ASPE CT AND HAS CONFIRMED THE ORDER OF THE A.O. 19. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED TH AT RS.37 LAKHS WAS NOT SHOWN AS OPENING CAPITAL BALANCE OF THE IMPUGNE D ASSESSMENT YEAR. THIS AMOUNT MIGHT HAVE BEEN INTRODUCED IN THE BEGIN NING OF THE YEAR AND THERE AFTER GIVEN ON LOAN TO VARIOUS FARMERS ON WHI CH INTEREST AT 24% WAS WORKED OUT BY THE A.O. HE HOWEVER SUPPORTED THE OR DER OF THE CIT(A). 20. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDER OF THE LOWER AU THORITIES, WE FIND THAT THE ASSESSEE HAS RAISED A CLAIM THAT ENTIRE AMOUNT OF R S.37 LAKHS WAS GIVEN IN LOAN IN THE ASSESSMENT YEAR 2003-04 AND HE HAS OFFE RED THE INTEREST @ 6% THEREON FOR THE WHOLE YEAR. THE ASSESSING OFFICER HAS ENHANCED THE INTEREST FROM 6% TO 24%. MEANING THEREBY BY ENHANCING THE I NTEREST HE HAS ACCEPTED THE VERSION OF THE ASSESSEE OF ADVANCEMENT OF LOAN TO VARIOUS FARMERS. IF THAT BE THE CASE, HOW THE ENTIRE AMOUN T CAN BE CALLED TO HAVE BEEN INTRODUCED IN THE IMPUGNED ASSESSMENT YEAR. B OTH THE ACTION OF THE ASSESSING OFFICER ARE SELF-CONTRADICTORY. IF THE A SSESSEE HAS INTRODUCED THIS AMOUNT OF RS.37 LAKHS IN THIS YEAR, THE INTEREST FO R THE WHOLE YEAR @ 24% CANNOT BE WORKED OUT ON ITS ADVANCEMENT AS A LOAN. WHEN THE ASSESSING OFFICER HAS ESTIMATED THE INTEREST AT 24% ON THIS E NTIRE AMOUNT FOR THE WHOLE YEAR, THIS AMOUNT COULD NOT BE INTRODUCED IN THE IM PUGNED ASSESSMENT YEAR FOR WHICH NO ADDITION IS CALLED FOR. IN THE LIGHT OF THIS SITUATION, WHEN THE ASSESSING OFFICER HIMSELF HAS ESTIMATED THE INTERES T AT 24% FOR THE WHOLE YEAR, THE ENTIRE AMOUNT OF RS.37 LAKHS CANNOT BE TR EATED AS UNEXPLAINED CREDIT IN THE IMPUGNED ASSESSMENT YEAR. WE THEREFO RE, DO NOT FIND ANY MERIT IN THIS ADDITION. ACCORDINGLY, WE SET ASIDE THE OR DER OF THE CIT(A) AND DELETE THE ADDITION. ITA NO154/V/2010 BHAVANSI ANJANEYULU, GUNTUR. 12 21. GROUND NO.8 RELATE TO AN ADDITION OF RS.2,16,30 0/-. IN THIS REGARD, IT IS NOTICED THAT THE A.O. HAS MADE AN ADDITION OF RS.2, 16,300/- AS UNDISCLOSED INTEREST ON AMOUNTS INVESTED IN ITS FINANCE BUSINES S. THE A.O. DISCLOSED INTEREST AT 6% ON THE AMOUNT ADVANCED BUT THE REVEN UE AUTHORITIES HAS ESTIMATED THE INTEREST AT 24% ON THE AMOUNTS. THE DIFFERENCE WAS ADDED BY THE ASSESSING OFFICER. IN THIS REGARD, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AS HE HAS ESTIMATED THE INTEREST AT THE RATE PREVAILING IN THE MARKET IN FINANCE BUSINESS. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A). 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5.7.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACC OUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 5 TH JULY, 2011 COPY TO 1 P. MURALI KRISHNA, B.COM. B.L., M/S. P. NAGESWARA R AO & CO. AUDITORS, ANJUMAN BUILDING, LALAPET, GUNTUR-522 003. 2 THE ACIT, CIRCLE - 1(1), GUNTUR 3 THE CI T, GUNTUR 4 THE CIT (A) , GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM