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

ITA 1959/HYD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69963 (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; Search and seizure
• Section: 234B; 68; 28

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. 1959 & 1960/HYD/2011 ASSESSMENT YEAR : 2006-07 & 2008-09 G. MADHAVA RAO HYDERABAD. PAN: ABKPG3371R 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. 1959/HYD/2011 FOR AY 2006-07 2. GROUND NO. 1 & 8 ARE GENERAL IN NATURE. GROUND N O. 2 REGARDING INITIATION OF PROCEEDINGS U/S 153C OF THE ACT, WAS NOT PRESSED BY THE LEARNED COUNSEL FOR ASSESSEE AT THE TIME OF HEARING BEFORE US, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. G ROUND NOS. 3, 4, & 5 ARE PERTAINING TO CASH CREDITS. GROUND NO. 6 IS PERTAINING TO INTEREST FROM PARTNERSHIP FIRM. GROUND NO. 7 IS PE RTAINING TO CHARGING OF INTEREST U/S 234 A, B & C OF THE ACT, WHICH IS C ONSEQUENTIAL IN NATURE. 2 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO 3. AS REGARDS GROUND NOS. 3, 4, & 5 PERTAINING TO C ASH CREDITS, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FROM T HE DETAILS FURNISHED BY ASSESSEE, THE AO NOTICED THAT ASSESSEE HAD SHOWN TO HAVE TAKEN UNSECURED LOANS OF RS. 50,000/- RS. 74,3 65/- AND RS. 1,99,920/- FROM THREE PERSONS M. LALITHA, M. GOPALA RAO AND SRIKANTH RESPECTIVELY DURING THE PREVIOUS RELEVANT TO AY UND ER CONSIDERATION. THE AO ADDED THE SAID AMOUNTS TO INCOME OF ASSESSEE TREATING AS UNEXPLAINED CREDIT U/S 68 OF THE ACT, EVEN THOUGH, ASSESSEE FILED CONFIRMATION LETTERS FROM THE SAID PERSONS, ON THE GROUND THAT THEY HAVE NOT PROVED THEIR CREDITWORTHINESS BY FILING SU FFICIENT DOCUMENTARY EVIDENCE. 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 THREE PERSONS, AS UNDER: 1. M. LALITA: THE CREDITOR CONFIRMED HAVING PROVIDE D ADVANCE OF RS. 50,000/- VIDE CHEQUE ON 20-03-2006. SHE CATEGOR ICALLY CONFIRMED THAT SHE KNOWS SRI MADHAVA RAO FOR THE LA ST 25 YEARS. SHE EXPLAINED THE SOURCES AS REMITTANCES FRO M USA SENT BY HER SON. LETTER OF CONFIRMATION IS PLACED AT PAG E 9 OF PAPER BOOK. 2. SRI M. GOPALA RAO: HE FILED A CONFIRMATION LETTE R STATING THAT HE KNOWS ASSESSEE FOR THE LAST 25 YEARS. HE ALSO ST ATED THAT HE ADVANCED RS. 39,365/- THROUGH BANK ACCOUNT ON 02-01 -2006 AND RS. 35,000/- THROUGH BANK ACCOUNT ON 29-03-2006 . THE SOURCES HAVE BEEN STATED AS ACCUMULATIONS FROM HER SALARY SAVINGS AS SHE WAS IN SERVICE FOR MORE THAN 30 YEAR S. LETTER OF CONFIRMATION IS PLACED AT PAGE 10 OF PAPER BOOK. 3. SRI SRIKANTH: A LETTER OF CONFIRMATION HAS BEEN FILED BEFORE THE AO WHEREIN THE CREDITOR STATED THAT HE ADVANCED AN AMOUNT OF RS. 1,00,000/- THROUGH BANK ACCOUNT ON 23-09-2006 A ND ANOTHER SUM OF RS. 99,920/- ON 27-09-2006 THROUGH B ANK 3 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO ACCOUNT AND RECEIVED BACK THE SAME ON 15-02-2007 TH ROUGH CHEQUE NO. 901126. HE FURTHER STATED THAT HE WORKED AS SOFTWARE ENGINEER IN SEVERAL PRIVATE ORGANSATIONS A ND OUT OF HIS SALARY SAVINGS HE ADVANCED THE SAID MONEY. 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 LOWE R AUTHORITIES AND EVEN BEFORE US THE IDENTITY AND CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTIONS AS THE TRANSACTIONS DONE THROUGH BANKING CHANNEL. MOREOVER, ASSESSEE REPAID PART OF LOANS TAKEN BY HIM FROM THE SAID THREE CREDITORS. THEREFORE, THE A DDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE SAME IS HEREBY DELETED. GROUND NOS. 3,4, & 5 ARE AL LOWED. 8. GROUND NO. 6 IS DIRECTED AGAINST THE ACTION OF C IT(A) IN SUSTAINING THE ADDITION OF RS. 38,923/- OUT OF RS. 75,465/- MADE BY THE AO. 9. THE AO WHILE COMPLETING THE ASSESSMENT ADDED RS. 75,465/- AS INTEREST RECEIPT FROM THE PARTNERSHIP FIRM M/S NVM SITARAMANJANEYA CONSTRUCTIONS DURING THE YEAR WHEREIN ASSESSEE IS A PARTNER STATING THAT ASSESSEE HAD NOT OFFERED THE SAID AMOUNT FOR T AXATION. IN THE REGULAR RETURN OF INCOME FILED, THE PARTNERSHIP FIR M CLAIMED INTEREST ON CAPITAL PAID TO THE PARTNERS INCLUDING TO THE ACCOU NT OF ASSESSEE AN AMOUNT OF RS. 3,24,910/-, WHICH WAS WORKED OUT @ 12 % PER ANNUM. HOWEVER DURING THE COURSE OF SEARCH AND SEIZURE OPE RATIONS, THE AUTHORITIES FOUND THE BOOKS OF ACCOUNT WHEREIN THE PARTNERSHIP FIRM CREDITED INTEREST TO PARTNERS AND SUCH AMOUNT OF IN TEREST CREDITED IN THE NAME OF ASSESSEE AMOUNTED TO RS. 1,11,665/-, WH ICH WAS WORKED OUT AT THE RATE OF 24% ON THE CAPITAL INTRODUCED BY ASSESSEE. 4 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO THEREFORE, THE AO WHILE COMPLETING THE ASSESSMENT O F THE SAID PARTNERSHIP FIRM ALLOWED INTEREST TO PARTNERS AS CL AIMED AT 12% PER ANNUM ON THE CAPITAL. AO HOWEVER BROUGHT THE AMOUNT TO TAX AS PER THE NOTINGS IN BOOKS OF ACCOUNT SEIZED IN SEARCH. 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 PARTN ER 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 AS DEDUCTION U/S SE CTION 40(B) IN THE CASE OF THE PARTNERSHIP FIRM IS NOT INCLUDIBLE AS INCOME OF THE PARTNER. THE CIT(A) WHILE CONFIRMING THE ACTION OF THE AO IN MAKING THE ADDITION OF RS. 75,465/-/- AS INCOME, DIRECTED THE AO TO EXCLUDE THE INTEREST OF RS. 36,542/- RECEIVED BY ASSESSEE F ROM PARTNERSHIP FIRM WHICH HAS BEEN SHOWN IN HIS RETURN OF INCOME F ROM THE SAID ADDITION. ACCORDINGLY, THE CIT(A) SUSTAINED THE ADD ITION OF RS. 38,923/-. 11. AT THE OUTSET, IT WAS SUBMITTED THAT ANY INTEREST P AID TO PARTNER WHICH WAS NOT ALLOWED AS DEDUCTION, CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE PARTNER. THE LEARNED COUNS EL 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/2 011, ORDER DATED 10-07-2012 WHERE ON SIMILAR SET OF FACTS THE COORDINATE BENCH DECIDED AS UNDER: 8. WITH RESPECT TO THE ADDITION OF RS. 6,06,332/-, THE ASSESSEE SUBMITTED A COPY OF THE RETURN OF INCOME F OR THE ASSESSMENT YEAR 2008-09. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THERE IS INCOME FOR THE YEAR UNDER CONSIDERATION AND THE PROFIT & LOSS ACCOUNT D OES NOT DEBIT ANY INTEREST PAID TO THE PARTNERS. EVEN T HE CAPITAL ACCOUNT DOES NOT HAVE ANY CREDIT UNDER THE HEAD 5 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO INTEREST. INTEREST PAID TO PARTNERS, WHICH HAS B EEN DISALLOWED IN THE HANDS OF THE PARTNERSHIP FIRMS CA NNOT 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 ASSE SSING OFFICER TO DETERMINE THE CORRECT AMOUNT OF INTEREST RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRMS. ACCORDINGLY, GROUND NOS. 4 & 5 ARE ALLOWED FOR STAT ISTICAL PURPOSES. 12. IN VIEW OF THE DECISION OF THE COORDINATE BENCH , WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO B RING TO TAX IN THE HANDS OF ASSESSEE ONLY TO THE EXTENT OF INTEREST AL LOWED IN THE CASE OF THE FIRM. THUS, THIS GROUND OF APPEAL IS AL LOWED FOR STATISTICAL PURPOSES. 13. GROUND NO. 7 IS CHARGING OF INTEREST U/S 234A, B & C OF THE ACT. SINCE CHARGING OF INTEREST UNDER THESE SECTIONS IS CONSEQUENTIAL IN NATURE, THE AO IS DIRECTED ACCORDINGLY. 14. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ITA NO.1960/HYD/2011 FOR AY 2008-09 15. GROUND NOS. 1 & 8 ARE GENERAL IN NATURE. GROUND NOS. 2, 3 & 4 ARE PERTAINING TO CASH CREDITS AND GROUND NO. 5 & 6 ARE PERTAINING TO INTEREST RECEIVED FROM PARTNERSHIP FIRMS. GROUND N O.7 IS CHARGING OF INTEREST U/S 23A, 234B AND 234C OF THE ACT. 16. AS REGARDS GROUND NOS. 2 , THE REVENUE AUTHORIT IES 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: 6 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO 1. SRI M. GOPALA RAO: THE LOAN CREDITOR FURNISHED A CONFIRMATION LETTER WHEREIN HE STATED THAT HE ADVAN CED RS. 1,07,100/- ON 14-042007, RS. 1,54,850/- ON 22-04-20 07 AND RS. 80,000/- ON 28-04-2007 THROUGH BANK ACCOUNT. HE STA TED THAT HE RETIRED AS BRANCH MANAGER, BATA SHOW ROOM, BHEL TOWNSHIP, HYDERABAD AND WORKED AS SUCH FOR 30 YEARS AND THE AMOUNTS ADVANCED WERE HIS ACCUMULATED SAVINGS. HIS PAN IS ABMPM 7889 A. LETTER OF CONFIRMATION IS PLACED AT P AGE 6 OF THE PAPER BOOK. 2. SRI APPA RAO: THE LOAN CREDITOR STATED THAT GAV E LOAN OF RS. 1,70,000/- AS HE WAS RUNNING A TAILORING SHOP IN A SMALL WAY AT BHEL TOWNSHIP AND OUT OF THE FAMILY SAVINGS HE ADVA NCED THE ABOVE MONEY TO ASSESSEE. 3. K. KALAVATHI: THE LOAN CREDITOR STATED THAT SHE GAVE RS. 2,46,464/- AS SHE WAS RUNNING A TAILORING SHOP IN A SMALL WAY AT BHEL TOWNSHIP AND OUT OF THE FAMILY SAVINGS THE ABO VE MONEY HAS GIVEN TO ASSESSEE. SHE FURTHER STATED THAT SHE ADVANCED THE ABOVE MONEY TO ASSESSEE ON 26-05-2007 THROUGH B ANK ACCOUNT. 18. ON THE OTHER HAND, THE LEARNED DR PLACED RELIAN CE ON THE ORDERS OF REVENUE AUTHORITIES. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT ASSESSEE HAS DEMONSTRATED BEFORE THE LOWE R AUTHORITIES AND EVEN BEFORE US THE IDENTITY AND CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTIONS AS THE TRANSACTIONS DONE THROUGH BANKING CHANNEL. THEREFORE, THE ADDITION MADE BY TH E AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE SAME IS HEREBY DELETED. GROUND NOS. 2,3 & 4 ARE ALLOWED. 20. GROUND NO.5 IS PERTAINING TO ADDITION OF RS . 2,46,464/- REPRESENTING INTEREST RECEIVED FROM NVM SEETHARAMAN JANEYA 7 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO CONSTRUCTIONS AND GROUND NO. 6 IS PERTAINING TO ADD ITION OF RS. 4,26,348/- REPRESENTING INTEREST RECEIVED FROM SVK SEETHARAMANJANEYA CONSTRUCTIONS. 21. THE AO NOTED THAT THE SEIZED MATERIAL VIDE ANNE XURE A/DNR/08 SHOWS THAT ASSESSEE HAD RECEIVED INTEREST FROM THE FIRM OF M/S NVM CONSTRUCTIONS AMOUNTING TO RS. 2,46,464/- AND RS. 4 ,26,348/- VIDE ANNEXURE A/DNR/04 FROM THE FIRM OF SVK S S CONSTRUC TIONS. HE FURTHER NOTED THAT THESE TWO INTEREST AMOUNTS WERE NOT SHOWN BY ASSESSEE IN THE RETURNS FILED FOR AY2008-09 AND ACC ORDINGLY, HE ADDED THESE AMOUNTS TO THE INCOME RETURNED. 22. ON APPEAL, BEFORE THE CIT(A) IT WAS SUBMITTED T HAT AS PER THE PROVISIONS OF SECTION 28 OF THE ACT, AN AMOUNT OF I NTEREST SALARY ETC., WHICH IS NOT ALLOWED AS A DEDUCTION U/S 40(B) IN TH E CASE OF THE PARTNERSHIP FIRM, THE SAME IS NOT INCLUDIBLE AS INC OME OF THE PARTNERS. HE, THEREFORE, STATED THAT THE AO WAS NOT JUSTIFIED IN TREATING THE ENTIRE INTEREST AMOUNTS AS INCOME OF ASSESSEE. THE SUBMISSIONS OF ASSESSEE WERE NOT FOUND FAVOUR WITH THE CIT(A) AND HE CONFIRMED THE ACTION OF THE AO. 23. ISSUE3 IS SIMILAR TO THE ONE CONSIDERED AT PARA 12 ABOVE. AT THE OUTSET, IT WAS SUBMITTED THAT ANY INTEREST PAID TO PARTNER WHICH WAS NOT ALLOWED AS DEDUCTION, CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE PARTNER. THE LEARNED COUNSEL PLACED O N RECORD THE DECISION OF COORDINATE BENCH IN THE CASE OF G. VENK AT RAO AND G. MADHAVA RAO IN ITA NO. 1075 & 1076/HYD/2011, ORDER DATED 10- 07-2012 WHERE ON SIMILAR SET OF FACTS THE COORDINAT E BENCH DECIDED AS UNDER: 8. WITH RESPECT TO THE ADDITION OF RS. 6,06,332/-, THE ASSESSEE SUBMITTED A COPY OF THE RETURN OF INCOME F OR THE ASSESSMENT YEAR 2008-09. THE LEARNED COUNSEL FO R 8 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO THE ASSESSEE SUBMITTED THAT THERE IS INCOME FOR THE YEAR UNDER CONSIDERATION AND THE PROFIT & LOSS ACCOUNT D OES NOT DEBIT ANY INTEREST PAID TO THE PARTNERS. EVEN T HE CAPITAL ACCOUNT DOES NOT HAVE ANY CREDIT UNDER THE HEAD INTEREST. INTEREST PAID TO PARTNERS, WHICH HAS B EEN DISALLOWED IN THE HANDS OF THE PARTNERSHIP FIRMS CA NNOT 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 ASSE SSING OFFICER TO DETERMINE THE CORRECT AMOUNT OF INTEREST RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRMS. ACCORDINGLY, GROUND NOS. 4 & 5 ARE ALLOWED FOR STAT ISTICAL PURPOSES. 24. IN VIEW OF THE DECISION OF THE COORDINATE BENCH , WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO B RING TO TAX IN THE HANDS OF ASSESSEE ONLY TO THE EXTENT OF INTEREST AL LOWED IN THE CASE OF THE FIRM. THUS, GROUND NOS. 5 & 6 ARE ALLO WED FOR STATISTICAL PURPOSES. 25. GROUND NO. 7 IS CHARGING OF INTEREST U/S 234A, B & C OF THE ACT. SINCE CHARGING OF INTEREST UNDER THESE SECTIONS IS CONSEQUENTIAL IN NATURE, THE AO IS DIRECTED ACCORDINGLY. 26. IN THE RESULT, APPEAL IS ALLOWED IS ALLOWED FOR STATISTICAL PURPOSES. 27. TO SUM UP, BOTH THE APPEALS UNDER CONSIDERATION ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RA MAKOTAIAH) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2013. KV 9 ITA NO. 1959 & 1960/HYD/2011 SHRI G. MADHAVA RAO COPY TO:- 1) SHRI G. MADHAVA RAO, C/O SHRI S. RAMA RAO, ADVOC ATE, FLAT NO. 102, SHRIYAS RESIDENCY, ROAD NO. 9, HIMAYATNAG AR, 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.