G. Venkat Rao, Hyderabad V. ACIT, Circle-8(1), Hyderabad

ITA 1954/HYD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69966 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 23-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Gift; Search and seizure
• Section: 234B; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1954 & 1955/HYD/2011 ASSESSMENT YEAR : 2006-07 & 2007-08 G. VENKATA RAO HYDERABAD. PAN: ABRPG 3752D VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE - 8(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI P. SOMASEKHAR REDDY DATE OF HEARING : 04-11-2013 DATE OF PRONOUNCEMENT : 29 -11-2013 O R D E R PER BENCH: THESE APPEALS BY ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF CIT(A)-III, HYDERABAD. ITA NO. 1954/HYD/2011 FOR AY 2006-07 2. GROUND NO. 1 & 9 ARE GENERAL IN NATURE. GROUND N O. 2 REGARDING INITIATION OF PROCEEDINGS U/S 153C OF THE ACT, HAS NOT PRESSED BY THE LEARNED COUNSEL FOR ASSESSEE AT THE TIME OF HEARING BEFORE US, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. GROUND NOS. 3, 4, 5 & 6 ARE PERTAINING T O CASH CREDITS. 2 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO GROUND NO. 7 IS PERTAINING TO INTEREST FROM PARTNER SHIP FIRM. GROUND NO. 8 IS PERTAINING TO CHARGING OF INTEREST U/S 234 A, B & C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. 3. AS REGARDS GROUND NOS. 3, 4, 5 & 6 PERTAINING TO CASH CREDITS, DURING THE COURSE OF ASSESSMENT PROCEEDING S, FROM THE DETAILS FURNISHED BY ASSESSEE, THE AO NOTICED THAT ASSESSEE HAD SHOWN TO HAVE UNSECURED LOANS OF RS. 45,000/- FROM SRI M. RAMA RAO, RS. 1,25,000/- FROM SRI P.R. NAIDU, RS. 55,000 /- FROM SRI PBR CHOWDHURY & RS. 2,75,000/- FROM SRI P. NAGESWHA R RAO DURING THE PREVIOUS YEAR RELEVANT TO AY UNDER CONSI DERATION. THE AO ADDED THE SAID AMOUNTS AS INCOME OF ASSESSEE TRE ATING AS UNEXPLAINED CREDIT U/S 68 OF THE ACT, EVEN THOUGH, ASSESSEE FILED CONFIRMATION LETTERS FROM THE SAID PERSONS OBSERVIN G AS UNDER: I) IN CASE OF SRI M. RAMA RAO, WHO STATED IN HIS LE TTER THAT HE IS HAVING 2 ACRES OF AGRICULTURAL LAND, FROM WHI CH HE IS GETTING NET INCOME OF RS. 30,000/- ANNUALLY AND THE SAID AMOUNT WAS GIVEN OUT OF HIS SAVINGS FROM SUCH INCOM E, THE AO OBSERVED THAT THE LAND HOLDINGS OF THE SAID PER SON IS SMALL AND HE HAS NO CREDITWORTHINESS FOR ADVANCING SUCH AMOUNT. II) IN THE CASE OF SRI P.R. NAIDU, WHO HAS STATED T HAT HE IS A RETIRED EMPLOYEE FROM HINDUSTA AERNAUTICAL LTD. AND HAD GIVEN SUCH AMOUNT OUT OF HIS RETIREMENT BENEFITS, T HE AO DID NOT ACCEPT SUCH TRANSACTION IN THE ABSENCE OF T HE DETAILS OF HIS EARNINGS AND SAVINGS GIVEN BY THAT P ERSON. III)IN CASE OF SRI P.B. R. CHOUDHURY, THE AO NOTED THAT HE HAS REPEATED THE SOURCES FOR THE LOAN, AS MENTIONED BY HIM 3 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO IN THE CONFIRMATION LETTERS FILED FOR EARLIER ASSES SMENT YEARS 2002-03, 2003-04, 2004-05 & 2005-06 AND HELD THAT T HE CREDITWORTHINESS OF THE SAID PERSON IS DOUBTFUL. IV) WHEN SRI P. NAGESHWAR RAO STATED THAT HE IS HAV ING 6 ACRES OF LAND, FROM WHICH HE EARNS NET AGRICULTURAL INCOME OF RS. 1,00,000/- PER YEAR AND THE SAID AMOUNT WAS GIVEN OUT OF HIS SAVINGS FROM SUCH INCOME, THE AO OBSERVE D THAT IN ABSENCE OF THE DETAILS OF HIS FAMILY MEMBERS, DO MESTIC EXPENSES AND THE EXPENSES ON AGRICULTURAL OPERATION FURNISHED THE SAID CREDITOR, TREATED THE TRANSACTIO N AS NON- GENUINE. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E AO. 5. BEFORE US THE LEARNED COUNSEL SUBMITTED REGARDIN G THE LOAN RECEIVED FROM THE SAID FOUR PERSONS, AS UNDER: 1. SRI M. RAMA RAO: THE CREDITOR CONFIRMED HAVING PROVIDED ADVANCE OF RS. 45,000- THROUGH A DEMAND DR AFT. HE STATED THAT HE IS HAVING TWO ACRES OF AGRICULTUR AL LAND AT TAPESWARA VILLAGE IN EAST GODAVARI DISTRICT AND THE ANNUAL INCOME FROM THIS SOURCE WOULD BE ABOUT RS. 30,000/- PER ANNUM AND THE AMOUNT ADVANCED WAS OUT OF THE AGRICULTURAL SAVINGS. HE FURTHER STATED THAT THE AB OVE LOAN WAS REPAID TO HIM THROUGH CHEQUE NO. 876750 DT. 23.03.2010. 2. P.R. NAIDU; THE CREDITOR CONFIRMED HAVING PROVID ED ADVANCE OF RS. 1,25,000/- THROUGH A CHEQUE. HE FURT HER 4 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO STATED THAT THE ABOVE LOAN WAS REPAID TO HIM THROUG H CHEQUE NO. 876756, DT. 27.03.2010 BY ASSESSEE. HE FURTHER STATED THAT HE IS A RETIRED EMPLOYEE OF HIN DUSTAN AERONAUTICS LTD. AND PROVIDED THE ABOVE LOAN OUT OF HIS SALARY SAVINGS AND FROM OUT OF TERMINAL BENEFITS. H E ALSO ENCLOSED COPIES OF BANK ACCOUNTS EVIDENCING THE ABO VE PAYMENT. 3. PBR CHOWDHARY: A LETTER OF CONFIRMATION HAS BEEN FILED BEFORE THE AO WHEREIN THE CREDITOR STATED THAT HE A DVANCED AN AMOUNT OF RS. 20,000/- AND ANOTHER SUM OF RS. 35 ,000/- THROUGH BANK DEMAND DRAFTS AND RECEIVED BACK THE SA ME ON 22-02-2010 THROUGH CHEQUE NO. 876747. HE FURTHER STATED THAT HE IS RUNNING TYPE INSTITUTE IN NALAMVA RI VEEDHI IN MANDAPET MANDAL OF EAST GODAVARI DISTRICT AND OU T OF HIS SAVINGS HE ADVANCED THE SAID MONEY. 4. P NAGESWARA RAO: THE LOAN CREDITOR FURNISHED A CONFIRMATION LETTER WHEREIN HE STATED THAT HE ADVAN CED THE SAID AMOUNT THROUGH A DEMAND DRAFT FROM OUT OF THE AGRICULTURAL SAVINGS FROM SIX ACRES OF AGRICULTURAL LAND AT SLIMFARM, MOKANPALLY VILLAGE, NAVIPET MANDA, NIZAMA BAD DT. HE FURTHER STATED THAT HIS ANNUAL INCOME FROM T HE ABOVE SAID SOURCE WOULD BE ABOUT RS. 1,00,000/- PER ANNUM . HE ALSO ENCLOSED COPY OF PATTADAR PASS BOOK AND ALSO A CERTIFICATE FROM THE TAHSILDAR, NAVIPET WHEREIN IT WAS CERTIFIED THAT THIS CREDITORS AGRICULTURAL INCOME PER ANNUM WOULD BE ABOUT RS. 1,50,000/-. 5 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO 6. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF AO AND CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE FIND THAT ASSESSEE HAS DEMONSTRATED BEFORE THE L OWER AUTHORITIES AND EVEN BEFORE US THE IDENTITY AND CRE DITWORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION S AS THE TRANSACTIONS WERE DONE THROUGH BANKING CHANNEL. MOR EOVER, ASSESSEE REPAID THE LOANS TAKEN BY HIM FROM THE SAI D FOUR CREDITORS. THEREFORE, THE ADDITIONS MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE ARE NOT PROPE R AND THE SAME ARE HEREBY DELETED. GROUND NOS. 3,4, 5 & 6 ARE ALLOWED. 8. GROUND NO. 7 IS DIRECTED AGAINST THE ACTION OF C IT(A) IN SUSTAINING THE ADDITION OF RS. 63,975/- OUT OF RS. 1,11,665/- MADE BY THE AO. 9. THE AO WHILE COMPLETING THE ASSESSMENT ADDED RS. 1,11,665/- AS INTEREST RECEIPT FROM THE PARTNERSHIP FIRM M/S NVM SITARAMANJANEYA CONSTRUCTING DURING THE YEAR WHEREI N ASSESSEE IS A PARTNER. IN THE REGULAR RETURN OF INCOME FILE D, THE PARTNERSHIP FIRM CLAIMED INTEREST ON CAPITAL PAID TO THE PARTNE RS INCLUDING TO THE ACCOUNT OF ASSESSEE AN AMOUNT OF RS. 3,24,910/- , WHICH WORKED OUT @ 12% PER ANNUM. HOWEVER DURING THE COUR SE OF SEARCH AND SEIZURE OPERATIONS, THE AUTHORITIES FOUN D THE BOOKS OF ACCOUNT WHEREIN THE PARTNERSHIP FIRM CREDITED INTER EST TO PARTNERS AND SUCH AMOUNT OF INTEREST CREDITED IN THE NAME OF ASSESSEE AMOUNTED TO RS. 1,11,665/-, WHICH WAS WORKED OUT AT THE RATE OF 24% ON THE CAPITAL INTRODUCED BY ASSESSEE. THEREFOR E, THE AO 6 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO WHILE COMPLETING THE ASSESSMENT OF THE SAID PARTNER SHIP FIRM ALLOWED INTEREST TO PARTNERS AS CLAIMED AT 12% PER ANNUM. 10. BEFORE THE CIT(A), IT WAS CONTENDED THAT THE AO HAS NOT CONSIDERED THE INTEREST INCOME OFFERED BY ASSESSEE IN THE RETURN OF INCOME. IT WAS SUBMITTED THAT THE INTEREST OF PA RTNER IS TAXABLE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 28(V) OF THE ACT. ACCORDING TO THE PROVISO TO THE SAID SECTION, SUCH AN AMOUNT OF INTEREST, SALARY, BONUS OR COMMISSION NOT ALLOWED A S DEDUCTION U/S SECTION 40(B) IN THE CASE OF THE PARTNERSHIP FI RM IS NOT INCLUDIBLE AS INCOME OF THE PARTNER. THE CIT(A) WHI LE CONFIRMING THE ACTION OF THE AO IN MAKING THE ADDITION OF RS. 1,11,665/- AS INCOME, DIRECTED THE AO TO EXCLUDE THE INTEREST OF RS. 47,690/- RECEIVED BY ASSESSEE FROM PARTNERSHIP FIRM WHICH HA S BEEN SHOWN IN HIS RETURN OF INCOME FROM THE SAID ADDITIO N. ACCORDINGLY, THE CIT(A) SUSTAINED THE ADDITION OF R S. 63,975/-. 11, AT THE OUTSET, IT WAS SUBMITTED THAT ASSESSEE HAS N OT RECEIVED ANY ADDITIONAL INTEREST NOR THERE WAS ANY CLAIM IN THE HANDS OF THE FIRM. FURTHER, IT WAS SUBMITTED THAT A NY INTEREST PAID TO PARTNER WHICH WAS NOT ALLOWED AS DEDUCTION, CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE PARTNER. THE LE ARNED COUNSEL PLACED ON RECORD THE DECISION OF COORDINATE BENCH IN THE CASE OF G. VENKAT RAO AND G. MADHAVA RAO IN ITA NO. 1075 & 1076/HYD/2011, ORDER DATED 10-07-2012 WHERE ON SIMILAR SET FACTS ADDITIONS HAVE BEEN MADE AS INTER EST INCOME RECEIVED FROM THE FIRMS AND THE COORDINATE BENCH DE CIDED AS UNDER: 7 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO 8. WITH RESPECT TO THE ADDITION OF RS. 6,06,332/-, THE ASSESSEE SUBMITTED A COPY OF THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS INCOME FOR THE YEAR UNDER CONSIDERATION AN D THE PROFIT & LOSS ACCOUNT DOES NOT DEBIT ANY INTERE ST PAID TO THE PARTNERS. EVEN THE CAPITAL ACCOUNT DOES NOT HAVE ANY CREDIT UNDER THE HEAD INTEREST. INTEREST PAID TO PARTNERS, WHICH HAS BEEN DISALLOWE D IN THE HANDS OF THE PARTNERSHIP FIRMS CANNOT BE ASSESSED IN THE HANDS OF THE PARTNERS. IN THESE CIRCUMSTANCES, WE DEEM IT FIT TO SET ASIDE THE ISSU ES WITH RESPECT TO THE ADDITION OF RS. 3,54,655/- AND THE ADDITION OF RS. 6,06,332/- TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE CORRECT AMOUNT O F INTEREST RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRMS. ACCORDINGLY, GROUND NOS. 4 & 5 ARE ALLOWED FOR STATISTICAL PURPOSES. 12. IN VIEW OF THE DECISION OF THE COORDINATE BENCH , WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R TO BRING TO TAX IN THE HANDS OF ASSESSEE ONLY TO THE EXTENT OF INTEREST ALLOWED IN THE HANDS OF THE FIRM. THUS, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO. 8 IS CHARGING OF INTEREST U/S 234A, B & C OF THE ACT. SINCE CHARGING OF INTEREST UNDER THESE SECTION S IS CONSEQUENTIAL IN NATURE, THE AO IS DIRECTED ACCORDI NGLY. 14. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ITA NO.1955/HYD/2011 FOR AY 2007-08 15. GROUND NOS. 1 & 7 ARE GENERAL IN NATURE. GROUND NO. 2 IS REGARDING INITIATION OF PROCEEDINGS U/S 153C OF THE ACT, HAS NOT 8 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO PRESSED AND THE SAME IS DISMISSED AS NOT PRESSED. G ROUND NOS. 3,4 & 5 ARE PERTAINING TO CASH CREDITS AND GROUND N O. 6 IS CHARGING OF INTEREST U/S 23A, 234B AND 234C OF THE ACT. 16. AS REGARDS GROUND NOS. 3,4 & 5, THE REVENUE AUT HORITIES MADE THE ADDITION U/S 68 OF THE ACT, AS MADE IN AY 2006-07. 17. BEFORE US, THE LEARNED COUNSEL FOR ASSESSEE SUB MITTED REGARDING THE UNSECURED LOAN CREDITORS AS UNDER: 1. SRI VVR KALYANI: THE CREDITOR CONFIRMED THE LOAN PROVIDED TO ASSESSEE OF RS. 2,00,000/- VIDE CHEQUE NO. 762359 FOR RS. 1,00,000/- AND CHEQUE NO. 762360 FOR RS. 1,00,000/- DURING THE FY 2006-07. LETTER OF CONFIRM ATION FROM THE PARTY HAS BEEN PLACED AT PAGE 8 OF PAPER B OOK. SOURCE FOR THE SAID LENDING IS STATED TO BE AMOUNT RECEIVED ON LIFTING ON MARGARDARSHI CHIT. SHE FURTHER STATED THAT SHE RECEIVED BACK THE AMOUNT ON 31-10-2009 THROUGH CHEQ UE NO. 874186. SHE ALSO ENCLOSED COPIES OF SBI SAVINGS BANK ACCOUNT AND ALSO PASS BOOK OF MARGARDARSHI CHIT FUN D. 2. PBR CHOWDARY: THE LOAN CREDITOR HAS FILED A CONFIRMATION LETTER BEFORE THE AO STATING THAT HE A DVANCED THE UNSECURED LOAN TO ASSESSEE THROUGH DEMAND DRAFT NO. 569486 FOR RS. 41,000/- AND 757758 FOR RS. 15,000/- DURING THE FY 2006-07. LETTER OF CONFIRMATION FILED AT PAG E 14 OF THE PAPER BOOK. HE STATED THAT HE IS RUNNING A TYPE INSTITUTE BY NAME SHRI VIJAYALAKSHMI TYPE INSTITUTE AT NALAMA VARI VEEDHI, MANDAPET MANDAL, EAST GODAVARI DIST. HE FUR THER STATED THAT IN ADDITION TO THE INCOME FROM THE ABOV E SOURCE, 9 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO HIS WIFE IS HAVING ONE ACRE OF COCONUT GARDEN AT YE DIDA VILLAGE IN MANDAPET MANDAL, EAST GODAVARI DIST. AND FROM OUT OF THE SAVINGS FROM THE ABOVE SOURCES, HE ADVAN CED THE ABOVE UNSECURED LOAN TO ASSESEE. HE FURTHER STA TED THAT HE RECEIVED BACK THE AMOUNT OF RS. 2,00,000/- ON 22- 02-2010 THROUGH CHEQUE NO. 876747 FROM ASSESSEE. 3. GIFT FROM G. SATYA BABU: IT IS STATED THAT THIS PERSON GIFTED AN AMOUNT OF RS. 1,63,000/- TO ASSESSEE DURI NG THE FY 2006-07. LETTER OF CONFIRMATION IS PLACED AT PAG E 15 OF THE PAPER BOOK. SOURCES FOR THE GIFT ARE STAED TO B E THAT HE OWNS TWO ACRES OF AGRICULTURAL LAND AT TAPESWARAM V ILLAGE IN MANDAPET MANDAL, EAST GODAVARI DIST. AND DERIVES AN AGRICULTURAL INCOME OF RS. 30,000/- PER ANNUM. HE F URTHER STATED THAT HE RECEIVES A RENTAL INCOME OF RS. 4,00 0/- FROM A SHOP SITUATED AT SHOP NO. 22, GLOBAL ENCLAVE, BHAGYANAGAR COLONY, KUKATPALLY, HYDERABAD. HE MADE THE SAID GIFT FROM OUT OF THE SAVINGS FROM THE ABOVE SO URCES. 18. ON THE OTHER HAND, THE LEARNED DR PLACED RELIAN CE ON THE ORDERS OF REVENUE AUTHORITIES. 19. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE RE CORD. ASSESSEE FULFILLED THE CONDITIONS LAID DOWN U/S 68 OF THE ACT, THAT IDENTITY & CREDITWORTHINESS OF THE LOAN CREDITORS AND GENUINENESS OF THE TRANSACTIONS. THERE IS NOTHING O N RECORD TO DOUBT THE CREDITS. MOREOVER THE LOANS WERE ALSO REP AID. THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AND DEL ETE THE ADDITIONS MADE IN THIS REGARD. GROUND NOS. 3, 4 & 5 ARE ALLOWED. 10 ITA NO. 1954 & 1955/HYD/2011 G. VENKAT RAO 20. GROUND NO. 6 IS CHARGING OF INTEREST U/S 234A, 234B & 234C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE, THEREFORE, THE AO IS DIRECTED ACCORDINGLY. 21. IN THE RESULT, APPEAL IS ALLOWED. 22. TO SUM UP, APPEAL FOR AY 2006-07 IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FOR AY 2007-08 IS ALLOWED PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKO TAIAH) JUDICIAL MEMBER ACCOUNTA NT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2013. KV COPY TO:- 1) SHRI G. VENKAT RAO, C/O SHRI S. RAMA RAO, ADVOCA TE, FLAT NO. 102, SHRIYAS RESIDENCY, ROAD NO. 9, HIMAYATNAGAR, HYDERABAD. 2)ACIT, CIRCLE - 8(1), HYDERABAD. 3) CIT(A)-III, HYDERABAD. 4) CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.