The DCIT, Central Circle, Vijayawada, Vijayawada V. Sri Yakkala Mohana Rao, Piduguralla

ITA 205/VIZ/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2095 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-11-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Keywords: Unexplained investment; Gift
• Section: 69; 132

Judgement Text

ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.205/VIZAG/2012 ( / ASSESSMENT YEAR: 2005-06) DCIT CENTRAL CIRCLE VIJAYAWADA VS. YAKKALA MOHANA RAO PIDUGURALLA [PAN: ABUPR 8270Q ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI TH.LUCAS PETER, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 16.11.2015 / DATE OF PRONOUNCEMENT : 05.02.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A), GUNTUR DATED 31.01.2012 AND IT PERTAINS TO THE ASSESSMENT YEAR 2005-06. ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS A PARTNE R IN M/S. LAKSHMI TRADERS AND M/S. VINESH TRADERS HAS FILED ITS RETUR N OF INCOME ORIGINALLY ON 1.11.2005 ADMITTING AN INCOME OF RS.1,73,820/-. A SEARCH & SEIZURE OPERATION WAS CARRIED OUT ON 8.2.2006 AND SUBSEQUEN TLY SAME OPERATION WAS CARRIED OUT IN THE BUSINESS AND RESIDENTIAL PRE MISES OF SHRI RAYAPATI SUBBA RAO, RAYAPATI VENKATA KOTESWSARA PRASAD AND O THERS. SIMULTANEOUSLY, SEARCH & SEIZURE OPERATION U/S 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WAS CON DUCTED IN OTHER CASES OF THIS GROUP. IT IS NOTICED THAT SOME OF THE SEIZ ED DOCUMENTS AND OTHER MATERIALS ARE RELATING TO THE ASSESSEE. IN RESPONS E TO THE NOTICE ISSUED U/S 153C OF THE ACT, THE ASSESSEE FILED RETURN OF I NCOME ON 27.9.2007 ADMITTING INCOME OF ` 3,72,466/-. THE ASSESSING OFFICER FOUND THAT FROM THE SEIZED MATERIAL, THE ASSESSEE AND HIS FAMILY ME MBERS HAVE ADVANCED LOANS TO THE TUNE OF ` 33,75,563/-. BEFORE THE ASSESSING OFFICER IT WAS SUBMITTED THAT LOANS WERE ADVANCED O N PROMISSORY NOTES OUT OF THE PROCEEDS OF SALE OF GOLD AND BROKERAGE I NCOME EARNED FROM THE COTTON BUSINESS. WHILE COMPLETING THE ASSESSMEN T, THE A.O. HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND ACCO RDINGLY HE HAS WORKED OUT THE UNACCOUNTED INVESTMENT IN PROMOTES A ND ACCRUED INTEREST THEREON FOR THE ASSESSMENT YEAR 2005-06 O F ` 4,17,607/-. OUT OF THE UNACCOUNTED INVESTMENT OF ` 4,17,607/- FOR THE YEAR UNDER ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 3 CONSIDERATION, THE A.O. HAS MADE AN ADDITION OF ` 3,83,692/- BEING THE INVESTMENT MADE IN PROMOTES BY TREATING IT AS ASSES SEES UNEXPLAINED INVESTMENT U/S 69 OF THE ACT AND THE BALANCE ACCRUE D INTEREST OF ` 52,489/- WAS ALREADY SHOWN BY THE ASSESSEE IN THE R ETURN OF INCOME, NO ADDITION WAS MADE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND EXPLAINED IN DETAIL ABOUT THE SOURCE OF INVESTMENT MADE IN PRO-NOTES. THE LD. CIT(A) AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE, HE HAS DIRECTED THE A.O. TO EXAMINE THE C OPY OF THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 1997-98 AND ALSO DIR ECTED TO VERIFY THE AVAILABILITY OF 350 SOVEREIGNS OF GOLD, IF IT IS CO RRECT, THE INVESTMENT MADE IN PRO-NOTES GETS AUTOMATICALLY EXPLAINED SINC E SUFFICIENT CASH WAS AVAILABLE AS PER THE CASH FLOW STATEMENT AND THE AS SESSING OFFICER SHOULD DELETE THE ADDITIONS SO MADE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 5.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO AND HEARD THE AR IN PERSON. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT'S AR FILED COMMON WRITTE N SUBMISSIONS FOR SIX ASSESSMENT YEARS, WHICH WERE FILED BEFORE THE CIT (A)-1, HYDER ABAD, WHERE ORIGINALLY THE APPEALS WERE FILED AND HEARD. AS THE CASE WAS LATER TRANSFE RRED TO THE OFFICE OF THE CIT(A), GUNTUR, THE AR HAS FILED FURTHER WRITTEN SUBMISSION S ALONG WITH THE ABOVE INFORMATION. THE APPELLANT ALSO FILED CASH FLOW STA TEMENTS FOR THE ASSESSMENT YEARS 2000-01 TO 2006-07, SO AS TO EXPLAIN THE AVAILABILI TY OF CASH FOR INVESTMENT IN THE PROMISSORY NOTES. THE APPELLANT EXPLAINED INVESTMEN T IN PRO-NOTES YEAR-WISE FOR THE A.YS. 2001-02 TO 2005-06 REFERRING TO THE CASH FLOW STATEMENTS. REGARDING THE PRO- NOTES, THE APPELLANT SUBMITTED THAT THE PRO-NOTES S EIZED BY THE SEIZED DOCUMENT REF. NO. A/PO/YMR/1 INVOLVED AN AMOUNT OF 33,75,563/- WH ICH PERTAIN TO THE APPELLANT, HIS WIFE Y. PADMAVATHI, HIS BROTHER YAKKALA ANKA RAO AN D HIS WIFE Y. RAMASESHAMMA. THE INVESTMENTS MADE BY THE APPELLANT WAS 720,000/- FOR A.Y. 2001-02, Z2000 FOR ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 4 A.Y2003-04, ! 1,47,691/- FOR A.Y. 2004-05 AND 3,83. 692/- FOR THE A.Y.200506. THE APPELLANT SUBMITTED THAT THE INVESTMENTS IN THE PRO -NOTES ARE DULY EXPLAINED IN THE CASH FLOW STATEMENT FILED AND HENCE THE SAME WERE N OT OFFERED AS ADDITIONAL INCOME. THE APPELLANT SUBMITTED THAT THE CASH FLOW WAS ALSO FILED BEFORE THE ASST. DIRECTOR OF INCOME TAX (INV.) DURING THE POST SEARCH OPERATIONS . THE APPELLANT THEREFORE SUBMITTED TO CONSIDER THE CASH FLOW STATEMENT WHICH WAS FILED BEFORE THE AO ALSO WITH PARTICULAR REFERENCE TO ADDITIONAL INCOME OFFERED O N ACCOUNT OF BROKERAGE, RECEIPT ON COTTON SUPPLIES MADE BY THE FARMERS TO CCI @ 1.5% A ND SERVICE CHARGES OFFERED BY THE APPELLANT ON BANKING TRANSACTIONS FOR FACILITAT ING THE ENCASHMENT BY THE FARMERS AS ALSO THE SALE OF GOLD JEWELLERY IN THE FINANCIAL YE ARS 1999-00 AND 2004-05. 53. I HAVE GONE THROUGH THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE APPELLANT. IN SO FAR AS THE A.Y. 2005-06 IS CONCERNED, ONE OF THE AD DITIONS MADE BY THE AO RELATES TO INVESTMENTS IN PRO-NOTE AMOUNTING TO 73,83,692/-. T HIS INVESTMENT IS PART OF THE TOTAL PRO NOTES OF `33,75,563/- FOUND DURING THE COURSE O F SEARCH OPERATION. IT WAS SUBMITTED DURING THE ASSESSMENT PROCEEDING THAT THE TOTAL INV ESTMENTS IN PRO-NOTES BELONG TO ALL THE FAMILY MEMBERS AND WAS EXPLAINABLE BY THE CASH BOOK AND SALE OF GOLD JEWELLERY. THE AO HOWEVER, HAD NOT ACCEPTED THE CONTENTION OF THE SALE OF GOLD JEWELLERY AS WELL AS THE BROKERAGE INCOME. THE SAME HAS BEEN DISCUSSED I N PARA NO. 4.5 OF THE ASSESSMENT ORDER FOR A.Y. 2005-06. THE AO OBSERVED THAT THOUGH THE ASSESSEE HAS CLAIMED TO HAVE SOLD GOLD JEWELLERY IN THE FINANCIAL YEARS 1999-00 AND 2004-05, NO PROOF WAS FILED IN SUPPORT OF THE CLAIM. FURTHER, NO CAPITAL GAIN WAS OFFERED FROM THE SALE OF GOLD. THE ASSESSING OFFICER ALSO REJECTED THE CLAIM OF BROKER AGE INCOME STATING THAT THE SAME WAS INVESTED IN SAHARA INDIA DEPOSITS, QUARRY BUSIN ESS, KARTHIKEYA RICE MILL ETC., AND HENCE, APPELLANT'S STAND THAT THE PRO NOTES WERE IN VESTED FROM OUT OF SALE OF GOLD AND BROKERAGE INCOME CANNOT BE ACCEPTED 5.4. HOWEVER, IN COURSE OF THE APPELLATE PROCEEDING S, THE AR OF THE APPELLANT HAS FILED THE RECONCILIATION STATEMENT OF THE GOLD FOUN D DURING THE SEARCH OPERATION CORRELATING THE SAME WITH THE GOLD AVAILABLE DURING A.Y.1997-98 AND SOLD SUBSEQUENTLY IN DECEMBER 1999, JUNE 2004 AND JANUAR Y 2005. THE RECONCILIATION FILED BY THE APPELLANT IS AS BELOW. AVAILABLE DURING ASSESSMENT YEAR 1997-98 2800GMS (AS PER THE COPY OF THE RETURN ENCLOSED) LESS: SOLD DURING DEC.1999 1100GMS LESS: SOLD DURING DEC.2004 300GMS LESS: SOLD DURING JANUARY 2005 330GMS 1730GMS BALANCE AVAILABLE AND FOUND DURING THE SEARCH 107 0GMS WIFE SMT. YAKKALA PADMAVATHI. AVAILABLE DURING ASSESSMENT YEAR 1997-98 2800GMS (AS PER THE COPY OF THE RETURN ENCLOSED) ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 5 LESS: SOLD DURING APRIL 2002 680GMS LESS: SOLD DURING DEC.2004 420GMS LESS: GIFTED TO THEIR DAUGHTERS ON 1308GMS THEIR MARRIAGES 2408GMS BALANCE AVAILABLE AND FOUND DURING THE SEARCH 392 GMS TOTAL GOLD FOUND DURING SEARCH 1070+392 = 1462GMS. WITH REGARD TO SALE OF GOLD, THE APPELLANT REFERRE D TO THE DEPOSITION BEFORE THE ADIT (INV.) VIDE QUESTION NO.7 OF PAGE NO.2, TH E APPELLANT ALSO FILED COPY OF THE RETURN FOR THE A.Y. 1997-98 ALONG WITH THE ENCLOSUR ES IN HIS CASE AND HIS WIFE'S CASE. I FIND FROM THE ENCLOSURES THAT THE APPELLANT HAS SU BMITTED THE CAPITAL ACCOUNT FOR THE F.Y.1996-97 ALONG WITH A STATEMENT WHERE GOLD. OF 350 SOVEREIGNS WAS MENTIONED. SINCE, THE STATEMENT IS THE PART OF THE RETURN FOR A.Y. 1997-98, AS CLAIMED BY THE APPELLANT, THE AVAILABILITY OF GOLD OF 350 SOVEREIGNS (2800 GMS) OF THE APPELLANT IS PRIMA FACIE ACCEPTABLE. CONSIDERING TH E SAME AND CONSIDERING THE GOLD FOUND AT THE TIME OF SEARCH, THE SALE OF 1730 GMS O F GOLD DURING THE F.YS. 1999-00 AND 2004-05 IS PRIMA FADE BELIEVABLE. THE SALE OF G OLD IS REFLECTED IN THE CASH FLOW STATEMENT AS FILED BY THE APPELLANT. AS PER THE SAI D CASH FLOW STATEMENT, THE CASH AVAILABLE AT THE BEGINNING OF F.Y. 2004-05 WAS '11, 24,992/-. ACCORDINGLY, INVESTMENT OF '3,83,692/- IS EXPLAINABLE VITH REFERENCE TO THE CASH FLOW STATEMENT. HOWEVER, IT IS NOT KNOWN WHETHER THE AO HAS EXAMINED THE COPY OF T HE RETURN FOR A.Y. 1997-98 WHICH HAS BEEN FILED DURING THE APPELLATE PROCEEDIN GS. IN VIEW THEREOF, IT IS DIRECTED THAT THE AO MAY VERIFY THE RECORDS OF A.Y. 1997-98 AND IF THE ASSESS'S CONTENTION OF AVAILABILITY OF 350 SOVEREIGNS (STATED TO BE EQUIVA LENT TO 2800 GMS) OF GOLD IS CORRECT, THEN THE INVESTMENT MADE IN PRO-NOTE GETS AUTOMATICALLY EXPLAINED SINCE SUFFICIENT CASH WAS AVAILABLE AS PER THE CASH FLOW STATEMENT AND AO SHOULD DELETE THE ADDITION SO MADE. IN OTHER WORDS, THE GROUND OF APPEAL IS ALLOWED IN PRINCIPLE SUBJECT TO FACTUAL VERIFICATION BY THE AO AS DIRECT ED ABOVE. WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISM ISSED. 3. IN SO FAR AS ADDITION IN RESPECT OF 2% COMMISSIO N IS CONCERNED, THE LD. CIT(A) RESTRICTED DISALLOWANCE TO 0.75% COM MISSION BY CONSIDERING THE ASSESSEES OWN BROTHER SRI YAKKALA ANKA RAO AND HE HAS ALSO OBSERVED THAT THE VERY SAME ASSESSING OFFICER HAS ACCEPTED THE COMMISSION OFFERED BY ASSESSEES BROTHER AT 0.75%. ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 6 4. THE LD. CIT(A) BY OBSERVING THE ABOVE, HE HAS DE LETED THE ADDITION MADE BY THE A.O. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPEL LANT, GONE THROUGH THE ORDER OF THE AO AND HEARD THE AR IN PERSON AND PERUSED THE MATERIAL RECONCILING THE FACTS AND FIGURES. THE APPELLANT A ND HIS FAMILY MEMBERS ARE BROKERS, COMMISSION EARNERS IN THE COTTON TRADI NG BUSINESS. ONE OF THE INCOMES TO THE APPELLANT IS IN ACCOMMODATING HI S BANK ACCOUNT FOR EN- CASHING THE CHEQUES, DRAFTS, PAY ORDERS RECEIVED BY THE COTTON FARMERS UPON SALE OF THEIR PRODUCE TO CCI ALONE. SINCE FARM ERS ARE IN VILLAGES WHERE THERE ARE NO BANKING FACILITIES AND THE APPEL LANT AND HIS FAMILY INVOLVE WITH THE COTTON FARMERS REGULARLY, THEY NOR MALLY TAKE THE HELP OF THE APPELLANT AND HIS FAMILY MEMBERS IN ALL WORKS I N THE TOWN WITH PARTICULAR REFERENCE TO EN-CASHING THE FINANCIAL IN STRUMENTS. IN SUCH SERVICES, COMMON FROM 0.5% TO 1% IS CHARGED FROM TH E FARMERS BY THE APPELLANT FOR RENDERING NECESSARY SERVICES IN THE M ATTER OF ENCASHING. IN ESTIMATING INCOME FROM THIS ACTIVITY, THE AO HAS MA DE TWO MISTAKES, VIZ., ONE IS WITH REGARD TO VOLUME AND THE OTHER IS PERCE NTAGE OF RETURN. FOR THIS PURPOSE, THE AO HAS ADOPTED THE VOLUME OF ` 11,29,47,563/-, WHEREAS AS PER THE RECONCILIATION THE VOLUME CONNECTED WITH THE ACTIVITIES OF THE APPELLANT IN THIS REGARD IS ` 1,89,95,576/- ONLY. THE ONE AT ` 11,29,47,563/- PERTAINED TO THE ENTIRE MATERIAL FOU ND AND SEIZED, WHEREAS, THE VOLUME OF ` 89,95,576/- PERTAINED TO THE APPELLANT. THIS IS ONE MISTAKE MADE BY THE AO. OTHER MISTAKE IS PERCE NTAGE OF RETURNS. NORMALLY, AS MENTIONED SOMEWHERE, HEREIN ABOVE, IN THIS LINE OF ACTIVITY RETURNS RANGE FROM HALF TO ONE PERCENTAGE. BUT, HO WEVER, THE AO HAS ADOPTED SUCH PERCENTAGE AT 2% AND AS SUCH THERE IS A MERIT IN THE ARGUMENTS OF THE AR THAT SUCH A STEP WAS EXCESSIVE. AT THE SAME TIME, ANOTHER RELEVANT POINT BROUGHT ON RECORD IS THE CAS E OF APPELLANTS BROTHER SHRI YAKKALA ANKA RAO, IN WHOSE CASE UNDER THE SAME FACTS AND CIRCUMSTANCES THE SAME AO, WHO HAS CONCLUDED THE SE ARCH ASSESSMENTS ON THE SAME DAY HAS NOT DISTURBED THE RATE OF RETUR N AT 0.75%, WHILE IN THE CASE OF THE APPELLANT IT WAS ADOPTED AT 2%. NO COGENT REASONS WERE BROUGHT ON RECORD BY THE AO FOR ADOPTING DIFFERENT YARD STICKS UNDER THE SIMILAR CIRCUMSTANCES. THUS, THE ACTION OF THE AO IN ADOPTING PERCENTAGE OF RETURN AT 2% APPEARS TO BE ARBITRARY AND EXCESSI VE. SINCE, 0.75% WAS NOT DISTURBED IN THE CASE OF THE APPELLANTS BROTHE R UNDER SIMILAR CIRCUMSTANCES; I DO NOT HAVE ANY HESITATION IN DIREC TING THE AO TO ADOPT THE PERCENTAGE OF RETURN AT 0.75% INSTEAD OF 2% ADO PTED BY HIM. IN DOING SO THE INCOME THAT IS ASSESSABLE UNDER THIS H EAD COMES TO ` 1,42,467/-. IT MAY HOWEVER BE NOTED HERE THAT THE A PPELLANT HAS ALREADY ADMITTED IN THE RETURN FILED INCOME UNDER T HIS HEAD AT ` 1,32,495/- AND THUS THE ADDITION THAT HAS GOT TO B E SUSTAINED IS THE DIFFERENTIAL AMOUNT ` 9,972/- ONLY IN THE PLACE OF ` 21,26,456/- AND THE AO IS DIRECTED ACCORDINGLY. ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 7 5. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE A.O. HAS ADOPTED THE COMMISSION EARNED BY THE ASSESSEE AT 2% BY TAKING I NTO CONSIDERATION ALL THE OTHER COTTON BROKERS OF PIDUGURALLA. HOWEV ER, THE LD. CIT(A) BY TAKING INTO CONSIDERATION OF ASSESSEES BROTHER ONE MR. SRI YAKKALA ANKA RAO OFFERED THE INCOME AT 0.75% BEFORE THE A.O. AND THE VERY SAME ASSESSING OFFICER ACCEPTED THE SAME. ON THE BASIS OF THAT, THE LD. CIT(A) REDUCED 2% TO 0.75%. IT IS NOT CLEAR WHAT I S THE BUSINESS CARRIED BY THE ASSESSEES BROTHER AND IT IS ALSO NO T CLEAR WHY THIS PLEA WAS NOT TAKEN BY THE A.O. UNDER THESE FACTS AND CI RCUMSTANCES OF THE CASE, WE SET ASIDE THE ORDER PASSED BY THE COMMISSI ONER ON THIS COUNT AND REMIT THE MATTER BACK TO THE FILE OF A.O. TO EX AMINE THE ASSESSEES BROTHER SRI YAKKALA ANKA RAOS CASE AND DECIDE IN A CCORDANCE WITH LAW. THIS GROUND RAISED BY THE REVENUE IS ALLOWED PARTLY . 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 5 TH FEB16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 5.2.2016 VG/SPS ITA NO.205/VIZAG/2012 YAKKALA MOHANA RAO, PIDUGURALLA 8 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CENTRAL CIRCLE, VIJAYA WADA 2. / THE RESPONDENT SRI YAKKALA MOHANA RAO, 10-95/1 , NEAR ABC GRAMMER SCHOOL, JANAPADU ROAD, PIDUGURALLA 3. ) / THE CIT, GUNTUR 4. ) ( ) / THE CIT(A), GUNTUR 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM