M/s. Florence Estates & Constructions Ltd, Hyderabad V. ITO, Ward-1(2), Hyderabad

ITA 1941/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66610 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 18-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Unexplained investment; Opportunity of being heard; Corroborative evidences
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO .1941/HYD/11 ASST . YEAR 2005-06 M/S. FLORENCE ESTATES & CONSTRUCTIONS LTD., HYDERABAD. PAN:AAACF8549E V/S. THE INCOME-TAX OFFICER, WARD-1(2), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI K.A. SAI PRASAD RESPONDENT BY : SMT.VIDISHA KALRA DATE OF HEARING 31 - 10 - 2012 DATE OF PRONOUNCEMENT 20 - 12 - 2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THE ASSESSEE HAS FILED THIS APPEAL BEING AGGRIEVED BY THE ORDER DATED 15-9-2011 OF THE CIT (A)-II, HYDERABAD PASSED IN ITA NOS. 0278 AND 0279/CIT(A)-II/2007-08 PERTAINING TO THE A SSESSMENT YEARS 2005-06 AND 2006-07. 2. GROUND NO.1 RELATES TO CIT (A) CONFIRMING AN ADDIT ION OF RS.1,00,000/- ON ACCOUNT OF PAYMENT OF SALARY TO SRI K . NARASIMHA REDDY. ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 2 3. BRIEFLY, THE FACTS ARE WHILE EXAMINING THE BOOKS O F ACCOUNTS OF THE ASSESSEE THE AO NOTICED THAT AN AMOUNT OF RS.1,00,000/- W AS SHOWN AS CLOSING BALANCE ON THE DEBIT SIDE IN RESPECT OF SRI NAR ASIMHA REDDY. HOWEVER, THE SAID AMOUNT WAS NOT DISCLOSED IN THE RETURN OF INCOME. IN ABSENCE OF PROPER EXPLANATION THE AO TREATED IT AS UNEXPLAINED INVESTMENT AND ADDED TO THE CAPITAL OF THE ASSESSEE. THE ADDITION WAS CHALLENGED IN APPEAL BEFORE CIT (A). IN COURSE OF HEAR ING BEFORE THE CIT (A) THE ASSESSEE SUBMITTED THAT RS.1,00,000/- WAS PAID TO SHRI K. NARASIMHA REDDY WHO IS AN EMPLOYEE OF THE COMPANY AND WHILE CLOSING THE BOOKS OF ACCOUNTS A JOURNAL ENTRY WAS MADE TO ADJUST THE SAID AMOUNT TOWARDS PAYMENT OF SALARY TO K. NARASIMHA REDDY . THE CIT (A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE BY OBSER VING THAT THERE IS NO REASON WHY THE ASSESSEE DID NOT SHOW IT AS SALA RY IN THE BOOKS EARLIER WHEN IT WAS PAID TO K. NARASIMHA REDDY AND LATER ADJUSTED TOWARDS SALARY ACCOUNT IN THE FINAL ACCOUNTS. TH E CIT (A) FURTHER OBSERVING THAT THE ASSESSEE DID NOT PRODUCE ANY E VIDENCE TO SUBSTANTIATE WHO WAS K. NARASIMHA REDDY, WHAT DUTIES HE PERFORMED AND WHY HE WAS PAID THE SAID AMOUNT CONFIRMED THE ADD ITION. 4. THE LEARNED AR REITERATING THE CONTENTIONS RAISED B EFORE THE CIT (A) SUBMITTED THAT K. NARASIMHA REDDY IS AN EMPLOYEE O F THE ASSESSEE AND THE AMOUNT WAS PAID TO HIM TOWARDS SALARY THROUGH CHEQUE. IN THIS REGARD THE LEARNED AR REFERRED TO THE COPY OF TH E LEDGER ACCOUNT OF K. NARASIMHA REDDY. 5. THE LEARNED DR SUBMITTED THAT IN ABSENCE OF ANY EV IDENCE SUBMITTED BY THE ASSESSEE TO PROVE THE FACT OF PAYMENT OF SALARY THE ADDITION IS JUSTIFIED. ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 3 6. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. THOUGH THE ASSESSEE HAS CLAIMED THE SAID AMOUNT TO HAVE BEEN PAID AS SALARY TO K. NARASIMHA REDDY IT H AS NOT PRODUCED ANY EVIDENCE BEFORE THE LOWER AUTHORITIES TO ESTABLISH THE FACT THAT THE SAID K. NARASIMHA REDDY IS AN EMPLOYEE OF THE ASSESSEE. EVEN BEFORE US ALSO THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO PROVE THE FACT THAT K. NARASIMHA REDDY IS AN EMPLOYEE OF THE ASSESSEE. E VEN, IF AT ALL IT WAS PAID TOWARDS SALARY TO K. NARASIMHA REDDY, THER E WAS NO REASON WHY IT WAS NOT SHOWN AS PAYMENT OF SALARY IN THE BOOKS I NITIALLY. IN THESE CIRCUMSTANCES WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE LOWER AUTHORITIES, WHICH IS UPHELD. TH E GROUND RAISED BY THE ASSESSEE IS DISMISSED. 7. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED ADDITION O F RS.2,50,000/- ON ACCOUNT OF PAYMENT OF RENT. 8. BRIEFLY, THE FACTS ARE DURING THE ASSESSMENT PROCEEDIN G THE AO NOTICED AS PER THE TERMS AND CONDITIONS OF THE RENT AGRE EMENT THE ASSESSEE WAS REQUIRED TO PAY ADVANCE OF RS.7 LAKHS I.E., RS. 5 LAKHS IN CASH AND RS.2 LAKHS IN CHEQUE. WHEREAS THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.4,50,000/- AS RENTAL DEPOSIT. THOUGH THE ASSESSEE SUBMITTED AN EXPLANATION, THE AO REJECTED IT AND ADDE D THE DIFFERENTIAL AMOUNT OF RS.2,50,000 AS UNEXPLAINED INVESTMENT U/S 69A OF THE ACT. THE ADDITION WAS CHALLENGED BY THE ASSESSEE BEFORE THE CI T (A). DURING THE APPEAL HEARING BEFORE THE CIT (A) THE ASSE SSEE CONTENDED THAT ACTUALLY AN AMOUNT OF RS.4,50,000/- BY CHEQUES T OWARDS ADVANCE TO THE OWNER OF A LEASED PREMISES AND WAS DULY REFLECTED IN THE BALANCE SHEET AS RENT DEPOSIT. IN SUPPORT OF THE CONTENTION TH E ASSESSEE ALSO SUBMITTED A COPY OF THE RENT AGREEMENT DATED 10-12-20 04 AND A ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 4 CONFIRMATION TOWARDS PAYMENT OF RS.4,50,000/- FROM THE LESSOR. THE CIT (A) DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE BY OB SERVING THAT WHILE CONFIRMATION LETTER WAS SIGNED BY SHRI K. A NNAYYA. , G.P. HOLDER OF SRI RAGHAVENDRA RAO, WHEREAS AS PER THE REN T AGREEMENT THE OWNER IS K. RAJENDRA RAO REPRESENTED BY GPA HOLDER SH RI K. ANNAYYA. THE CIT (A) FURTHER OBSERVED THAT WHILE THE RENTAL A GREEMENT DATED 10- 12-2004 DID NOT MENTION ABOUT ANY PAYMENT MADE AS ON THAT DATE BUT ONLY MENTIONED THAT THE LESSEE HAS CONSENTED TO DEPOSIT A N ADVANCE OF RS.7,00,000. IT WAS FURTHER OBSERVED THAT THE CONFIRMA TION LETTER DOES NOT REVEAL THE MODE OF PAYMENT. ON THE AFORESAID OB SERVATION, THE CIT (A) CONFIRMED THE ADDITION OF RS.2,50,000/-. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IT IS EVIDENT FROM THE ORDERS OF THE LOWER AUTHORITIE S THAT THE ADDITION OF RS.2,50,000/- HAS BEEN MADE SOLELY ON THE BASIS OF THE AMOUNT OF RS.7,00,000/- MENTIONED IN THE RENT AGREEMENT. THOU GH THE ASSESSEE HAS SUBMITTED A CONFIRMATION LETTER FROM THE LESSOR I N SUPPORT OF HIS CLAIM THAT ONLY AN AMOUNT OF RS.4,50,000/- HAS BEEN P AID BUT SUCH EXPLANATION HAS BEEN REJECTED WITHOUT PROPERLY EXAMIN ING IT. THE OBSERVATION OF THE CIT (A) THAT THE NAME OF OWNER OF THE PROPERTY AS PER THE CONFIRMATION LETTER AND AS MENTIONED IN RENTA L AGREEMENT ARE DIFFERENT, IS ALSO FOUND TO BE FACTUALLY INCORRECT. FUR THER, WHEN THE CIT (A) HAS HERSELF MENTIONED THAT THE ASSESSEE HAS SHOWN IN THE BALANCE SHEET THE AMOUNT OF RS.4,50,000/- TO HAVE BEEN PAID B Y CHEQUES, SHE WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES EXPLANATION WITHOUT PROPER VERIFICATION BY OBSERVING THAT THE MODE OF PAYMENT H AS NOT BEEN MENTIONED IN THE CONFIRMATION LETTER. WHEN THE ASSESSEE HAS OFFERED AN EXPLANATION WITH SUPPORTING EVIDENCE THE SAME IS REQUI RED TO BE EXAMINED BY THE AUTHORITIES IN AN OBJECTIVE AND JUDI CIOUS MANNER. THE ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 5 EXPLANATION CANNOT BE DISCARDED IN A MECHANICAL MANNER. BEFORE MAKING THE ADDITION, THE AUTHORITIES BELOW WERE REQU IRED TO BRING CORROBORATIVE EVIDENCE TO PROVE THAT THE ASSESSEE HAS ACTUA LLY PAID THE AMOUNT AS MENTIONED IN THE RENT AGREEMENT. MERELY BE CAUSE THE RENT AGREEMENT PROVIDES FOR PAYMENT OF ADVANCE OF RS.7,00, 000/- IT CANNOT BE PRESUMED THAT THE SAID AMOUNT HAS BEEN ACTUALLY PAI D. NO ADDITION CAN BE MADE ON PRESUMPTION AND SURMISES WITHOUT BRINGING SUFFICIENT MATERIAL ON RECORD TO ESTABLISH THE FACT THAT THE ASSESSE E HAS ACTUALLY PAID THE AMOUNT OF RS.7,00,000/-. THE LEAST, THE AUTH ORITIES COULD HAVE DONE IS TO EXAMINE THE LANDLORD WHICH CERTAINLY WOULD HAVE REVEALED THE ACTUAL PAYMENT MADE BY THE ASSESSEE. IN THIS VIEW OF THE MATTER, WE REMIT THE ISSUE BACK TO THE AO WHO SHALL TAKE A DECISI ON IN THE MATTER AFTER MAKING NECESSARY ENQUIRY AND ONLY AFTER A FFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. GROUND NO.3 RELATES TO CIT (A) SUSTAINING ADDITION OF RS.12,50,000/- OUT OF THE TOTAL ADDITION OF RS.1,23, 27,700/- MADE BY THE AO. 10. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PROCEED ING THE AO FOUND THAT THE ASSESSEE HAS MADE CASH DEPOSITS IN CURRENT A CCOUNTS OF DIFFERENT BRANCHES OF ING VYSYA BANK TOTALING TO RS.1,2 3,27,700. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN THE SOURCE OF DEPOSITS WITH SUPPORTING EVIDENCE. THE AO NOT BEING SAT ISFIED WITH THE EXPLANATION OF THE ASSESSEE ADDED THE AMOUNT OF RS.1,23, 27,700/- TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDI TION IN APPEAL BEFORE THE CIT (A). THE CIT (A) AFTER EXAMI NING THE EVIDENCES PRODUCED BEFORE HER AT THE TIME OF HEARING OF APPEA L DIRECTED THE AO TO VERIFY THE NATURE OF CASH DEPOSITS AS THEY APPEARED T O BE ON ACCOUNT ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 6 OF SHARE APPLICATION MONEY. THE AO AFTER VERIFYING T HE CASH BOOK AND BANK ACCOUNT OF THE ASSESSEE FOUND THAT THE CASH DEPOSITS MAD E IN THE BANK ACCOUNTS OF ING VYSYA BANK WERE FROM CASH WITHDRAWAL S MADE FROM THE SAME ACCOUNT AND AS WELL AS FROM CASH INTRODUCED I N THE CASH BOOK IN THE FORM OF SHARE APPLICATION MONEY. THE AO FURTHER FOUND THAT DURING THE YEAR UNDER DISPUTE THE ASSESSEE HAS RECEI VED SHARE APPLICATION MONEY OF RS.32,50,000/-. OUT OF THIS AN A MOUNT OF RS.15,00,000/- WAS INVESTED BY SRI G.P. REDDY,MANAGING DIRECTOR AND RS.5,00,000 BY HIS WIFE SMT. G. PADMAVATHI. SO FAR A S THE BALANCE AMOUNT OF RS.12,50,000/- IS CONCERNED THE ASSESSEE STATED TH AT IT WAS INVESTED BY 22 OTHER PERSONS. THE AO ACCEPTED THE AMOU NT OF RS.20,00,000/- INVESTED BY SRI G.P. REDDY AND SMT. G. PADMAVATHI AS EXPLAINED AS THE CONCERNED PERSONS HAVE ALSO DISCLOSED THE INVESTMENTS IN THEIR RESPECTIVE INCOME TAX RETURNS AND ASSE SSMENTS HAVE BEEN COMPLETED IN THEIR CASE U/S 143(3) READ WITH SECTION 147 OF THE ACT ACCEPTING SUCH INVESTMENT. SO FAR AS THE INVESTMEN T OF RS.12,50,000/- MADE BY OTHER 22 PERSONS ARE CONCERNED, THE AO TO VERIFY THE GENUINENESS OF THE INVESTMENT REQUESTED THE ASSESSEE TO PRODUCE THE CONCERNED PERSONS FOR EXAMINATION BEFORE HI M. SINCE THE ASSESSEE FAILED TO PRODUCE THE CONCERNED PERSONS, THE AO REP ORTED THAT THE INVESTMENT OF RS.12,50,000/- REMAINED UNEXPLAINED . THE CIT (A) TAKING INTO CONSIDERATION THE REMAND REPORT AND ALSO T HE FACT THAT THE ASSESSEE DID NOT SATISFACTORILY PROVE THE SOURCE OF SUCH DEP OSIT SUSTAINED THE ADDITION OF RS.12,50,000/-. 11. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PERUSE D THE MATERIALS ON RECORD. WHEN A CREDIT APPEARS IN THE BOOK S OF ACCOUNTS OF THE ASSESSEE, ONUS IS ON THE ASSESSEE TO PROVE IDENTITY OF CR EDITOR, GENUINENESS OF SUCH CREDIT AND ALSO CREDITWORTHINESS. IT I S EVIDENT THAT, ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 7 THOUGH THE ASSESSING OFFICER IN COURSE OF THE REMAND PROCEE DING HAS SPECIFICALLY ASKED THE ASSESSEE TO PRODUCE THE 22 PERSONS WHO STATED TO HAVE INVESTED IN SHARE APPLICATION, THE ASSESSEE DID NOT P RODUCE THEM FOR VERIFYING THE GENUINENESS OF THEIR INVESTMENT BY G IVING EVASIVE REPLY. EVEN BEFORE THE CIT (A) THE ASSESSEE NEITHER P RODUCED THE OTHER 22 PERSONS WHO STATED TO HAVE INVESTED IN SHARE APPLICATION NOR PRODUCED ANY OTHER SUPPORTING EVIDENCE TO PROVE THAT T HE AMOUNT OF RS.12,50,000/- WAS ACTUALLY INVESTED BY 22 PERSONS. IN AFORESAID VIEW OF THE MATTER, THE CIT (A) WAS JUSTIFIED IN SUSTAINING THE ADDITION OF RS.12,50,000/-. THE GROUND RAISED BY THE ASSESSEE IS DISMI SSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STAND S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 20-12-2012. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/- 20 TH DECEMBER, 2012 COPY FORWARDED TO: 1. C/O CH. PARTHASARATHY & CO., 1 ST FLOOR, SOWBHAGYA AVENUE, STREET NO.1, ASHOKNAGAR, HYDERABAD. 2. 3. 4. ITO, WARD-1(2), HYDERABAD. COMMISSIONER OF INCOME-TAX (APPEALS) II, HYDERABAD. CIT CONCERNED, HYDERABAD. 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. JMR * ITA NO.1941 OF 2011 FLORENCE EST ATES & CONSTRUCTIONS LTD. 8