D. Nagarjuna Rao, Hyd, Hyderabad V. ACIT, Circle-8(1), Hyderabad

ITA 2061/HYD/2011

• Counselvise Citation: 206122514 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Unexplained investment; Salary income; Onus to prove
• Section: 153A; 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 NOS. 2061, 2062, 2087, 1100, & 1101/HYD/2011 ASSESSMENT YEARS : 2002-03, 2003-04, 2004-05, 2005- 06 & 2006-07 D. NAGARJUNA RAO HYDERABAD. PAN: ABPPD 7429Q 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. SINCE IDENTICAL ISSUES ARE I NVOLVED, THESE APPEALS WERE CLUBBED AND HEARD TOGETHER AND, THEREF ORE, WE DISPOSE OF THESE APPEALS BY WAY OF THIS CONSOLIDATED ORDER. ITA NO. 2061/HYD/2011 FOR AY 2002-03. 2. GROUND NO. 1 & 17 ARE GENERAL IN NATURE. GROUND NOS. 2 TO 14 ARE PERTAINING TO CASH CREDITS. GROUND NO. 15 IS PERTAINING TO ADDITION BY INCREASING THE NET PROFIT BY 0.5%. GROU ND NO. 16 IS 2 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO PERTAINING TO CHARGING OF INTEREST U/S 234 A, B & C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. 3. AS REGARDS GROUND NOS. 2 TO 14 PERTAINING TO CAS H CREDITS, THE AO MADE TWO ADDITIONS OF RS. 3,80,000/- AND RS. 4,0 0,000/- TOWARDS UNEXPLAINED CREDITS MADE U/S 68 OF THE ACT IN RESPE CT OF 13 UNSECURED LOANS, SHOWN IN THE ACCOUNTS OF M/S SITHARAMANJANEY A FLOUR MILL AND M/S SITHARAMANJANEYA GRAINS & GENERAL STORES, EVEN THOUGH, ASSESSEE FILED CONFIRMATION LETTERS FROM THE SAID P ERSONS, ON THE GROUND THAT THEY HAVE NOT PROVED THEIR CREDITWORTHI NESS BY FILING SUFFICIENT DOCUMENTARY EVIDENCE. 4. ON APPEAL, BEFORE THE CIT(A) IT WAS SUBMITTED TH AT ASSESSEE HAD PROVIDED EACH CREDITORS ADDRESS AND HIS SOURCE OF INCOME FOR ADVANCING SUCH AMOUNTS TO HIM, THEREFORE HE HAD DIS CHARGED THE ONUS TO PROVE THE CREDIT IN EACH CASE. AFTER CONSID ERING THE SUBMISSIONS, THE CIT(A) CONFIRMED THE ADDITIONS MAD E BY THE AO U/S 68 OF THE ACT. 5. BEFORE US THE LEARNED COUNSEL REFERRING TO THE S UBMISSIONS MADE BY THE LOAN CREDITORS IN THEIR CONFIRMATION LE TTERS, SUBMITTED AS UNDER: 1. SRI D. UMA MAHESWARA RAO: LETTER OF CONFIRMATION IS PLACED AT PAGE 32 OF THE PAPER BOOK WHEREIN IT WAS STATED THAT THE LOAN WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSE E IN THE NAME OF SRI SEETHARAMANJANEYA FOUR MILL. THE AMOUNT S WERE RECEIVED THROUGH CHEQUE ON 09-01-2002 RS. 50,000/- AND ON 26-02-2002 RS. 70,000/-. REPAYMENT WAS MADE THROUGH CHEQUE. CREDITOR STATED THAT HE WAS WORKING AT KING DOM OF SAUDI ARABIA FOR MORE THAN 12 YEARS AND AMOUNT WAS ADVANCED FROM OUT OF HIS SALARY SAVINGS. 2. D. PADMA: LETTER OF CONFIRMATION IS PLACED AT PA GE 33 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF 3 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL. SHE CONFIRMED THE LOAN OF RS. 35,000/-. SHE ALSO STATED THAT THE AMOUNT WAS REPAID. THE SOURCE OF ADVANCE IS INCOME FROM BUSINESS OF PURCHASE AND SALE OF SAREES. 3. P. SUBBA RAO: LETTER OF CONFIRMATION IS PLACED A T PAGE 34 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL. THE CREDITOR CONFIRMED THE LOAN PROVIDED TO ASSESSEE RS . 1,00,000/- DURING THE PREVIOUS YEAR RELEVANT TO AY 2002-03. HE STATED THAT HE WAS DERIVING INCOME FROM SALARY AND HE WAS WORKI NG IN PRIVATE ORGANIZATIONS FOR MORE THAN 25 YEARS. HE ST ATED THAT HE PROVIDED THE LOAN FROM OUT OF HIS SAVINGS. IN THE L ETTER OF CONFIRMATION HE ALSO CONFIRMED THAT THE LOAN WAS RE PAID BY ASSESSEE VIDE CHEQUE NO. 164980 DATED 22-12-2006. 4. B. SRINIVAS: LETTER OF CONFIRMATION IS PLACED AT PAGE 35 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL. THE CREDITOR CONFIRMED HAVING PROVIDED ADVANCE OF RS. 5 0,000/- DURING THE PREVIOUS YEAR 2002-03. HE STATED THAT HE WORKED IN KUWAIT FOR MORE THAN 10 YEARS AND THE LOAN WAS PROV IDED FROM OUT OF SALARY INCOME DEPOSITED IN NRI BANK ACCOUNT NO. 52190621 AND HE HAS GIVEN POWER OF ATTORNEY TO HIS BROTHER BSK CHANDRASEKHAR RAO TO LOOK AFTER HIS AFFAIRS IN INDIA. 5. B.S.K. CHANDRASEKHAR RAO: LETTER OF CONFIRMATION IS PLACED AT PAGE 35 OF PAPER BOOK. THE AMOUNT WAS CREDITED I N THE REGULAR BOOKS OF ACCOUNT. HE IS THE POWER OF ATTORN EY HOLDER OF SRI B. SRINIVASA RAO. 6. P. SATYA PRASAD: LETTER OF CONFIRMATION IS PLACE D AT PAGE 36 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL. THE CREDITOR CONFIRMED HAVING PROVIDED ADVANCE OF RS. 5 5,000/- DURING THE PREVIOUS YEAR RELEVANT FOR THE AY 2002-0 3. HE WAS WORKING AS A DEVELOPMENT OFFICER IN LIC OF INDIA FO R MORE THAN 4 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 20 YEARS FOR MORE THAN 25 YEARS. HE GAVE THE AMOUNT FROM OUT OF HIS SALARY SAVINGS. HE STATED THAT THE AMOUNT WA S REPAID VIDE CHEQUE NO. 164981 DATED 22-12-2006. 7. N. SRINU: LETTER OF CONFIRMATION IS PLACED AT PA GE 37 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL. TH E CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 1,00,400/- IN ALL, OUT OF WHICH RS. 55,000/- WAS DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. HE STATED THAT HE IS WORKING AS A LECTURER AT BESTHAVARIPETA AND DERIVED INCOME FROM SALARY. HE CONFIRMED THAT THE AMOUNT WAS REPAI D VIDE CHEQUE NO. 158585 DATED 28-03-2007. 8. P. SATYA PRASAD: LETTER OF CONFIRMATION IS PLACE D AT PAGE 43 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA GRAIN S AND GENERAL STORES. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 1,11,300/- IN ALL, OUT OF WHICH RS. 55,000/- WAS DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. HE WAS WORKING AS A DEVELOPMENT OFFI CER IN LIC OF INDIA FOR MORE THAN 20 YEARS. IN THE LETTER OF C ONFIRMATION HE ALSO CONFIRMED THAT THE AMOUNT REPAID VIDE CHEQUE N O. 156588 DATED 22-01-2007. 9. G.K. SUBBAIAH: LETTER OF CONFIRMATION IS PLACED AT PAGE 38 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA GRAIN S AND GENERAL STORES. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 1,13,200 IN ALL, OUT OF WHICH RS. 55,000/- W AS DURING THE PREVIOUS YEAR RELEVANT FOR THE AY UNDER CONSIDERATI ON. HE STATED THAT HE WAS CARRYING ON THE CLOTH BUSINESS A T PRAKASAM DIST. AND PROVIDED THE LOAN FROM OUT OF HIS EARNING S/SAVINGS. HE ALSO CONFIRMED THAT THE LOAN WAS REPAID VIDE CHEQUE NO. 156587 DATED 22-01-2007. 5 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 10. B. ANURADHA: LETTER OF CONFIRMATION IS PLACED A T PAGE 39 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA GRAIN S AND GENERAL STORES. AS THE CREDITOR IS PASSED AWAY THE LETTER OF CONFIRMATION IS PROVIDED HER SON B. RAJASEKHAR. HE CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 1,03,400/- IN ALL, O UT OF WHICH RS. 55,000/- WAS DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. HE STATED THAT AMOUNT WAS GIVEN FROM OUT OF HIS HER FAMILY SAVINGS. HE AL SO CONFIRMED THAT THE AMOUNT WAS REPAID VIDE CHEQUE NO. 156588 D ATED 22- 01-07. 11. SRI P. RAMULU: LETTER OF CONFIRMATION IS PLACED AT PAGE 40 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA GRAIN S AND GENERAL STORES. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 1,03,000/- IN ALL, OUT OF WHICH RS. 55,000/- WAS DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. HE WAS RUNNING A HOTEL AT PODILI, PR AKASAM DIST. AND PROVIDED THE LOAN FROM OUT OF HIS EARNINGS/SAVI NGS. IN THE LETTER OF CONFIRMATION HE ALSO CONFIRMED THAT THE L OAN WAS REPAID VIDE CHEQUE NO. 156589 DATED 12-01-2007. 12. D. UMA MAHESWARA RAO: LETTER OF CONFIRMATION IS PLACED AT PAGE 41 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE B USINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA GRAINS AND GENERAL STORES. THE CREDITOR CONFIRMED H AVING GIVEN THE AMOUNT OF RS. 70,050/- IN ALL, OUT OF WHICH RS. 69,000/- WAS DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMEN T YEAR UNDER CONSIDERATION. HE WAS EMPLOYED IN PRIVATE SERVICE F OR MORE THAN 15 YEARS AND PROVIDED THE LOAN FROM OUT OF HIS SALARY SAVINGS. HE ALSO CONFIRMED THAT THE LOAN WAS REPAID VIDE CHEQUE NO. 158584 DATED 12-01-2007. 13. D. MANI: LETTER OF CONFIRMATION IS PLACED AT PA GE 42 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE 6 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO IN THE NAME OF SRI SEETHARAMANJANEYA GRAINS AND GEN ERAL STORES. THE CREDITOR CONFIRMED HAVING GIVEN THE AMO UNT OF RS. 1,04,400/- IN ALL, OUT OF WHICH RS. 55,000/- WAS DU RING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. HE WAS CARRYING BUSINESS ACTIVITY OF PURCHASE AND SALE OF SAREES AND PROVIDED THE LOAN FROM OUT O F HIS EARNINGS/SAVINGS. IN THE LETTER OF CONFIRMATION HE ALSO CONFIRMED THAT THE AMOUNT WAS REPAID VIDE CHEQUE NO. 156590 D ATED 22- 01-2007. 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 THE LOAN S TAKEN BY HIM FROM THE SAID CREDITORS. THERE IS ALSO NO INCRIMINA TING MATERIAL IN THE SEARCH PROCEEDINGS AND ALL THE CREDITS WERE OLD AND REPAID BY THE TIME OF SEARCH. THEREFORE, THE ADDITIONS MADE BY TH E AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE SAME ARE HEREBY DELETED. GROUND NOS. 2 TO 14 ARE ALLOWED. 8. GROUND NO. 15 IS DIRECTED AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE ADDITION OF RS. 75,000/- OUT OF RS. 1,26,684/- MADE BY THE AO BY WAY OF GROSS PROFIT IN BUSINESS. 9. THE AO MADE ADDITION OF RS. 1,26,684/- BY INCREA SING THE NET PROFIT BY 0.5% OF THE TOTAL TURNOVER ON ADHOC BASIS . BEFORE THE CIT(A), IT WAS CONTENDED THAT THE REASONS FOR MAKING SUCH A DDITION HAD NOT GIVEN BY THE AO AND FURTHER HE OUGHT NOT TO HAVE ES TIMATED THE 7 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO INCOME SIMPLY ON GROUND THAT PROFIT IS LOW. AFTER CONSIDERING THE SUBMISSIONS, THE CIT(A) RESTRICTED THE ADDITION TO RS. 75,000/-. 10. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND CONSIDERING THAT NO INCRIMINATING MATERIAL WAS FOUN D DURING THE COURSE OF SEARCH, ESTIMATION OF INCOME WITHOUT REJE CTING THE BOOKS OF ACCOUNT CANNOT BE SUSTAINED. ACCORDINGLY, WE SET A SIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION SUSTAINED BY CIT(A). THIS GROUND IS ALLOWED. 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FO R AY 2002-03. ITA NO. 2062/HYD/2011 FOR AY 2003-04 12. GROUND NO. 1 & 13 ARE GENERAL IN NATURE. GROUND NOS. 2 TO 10 ARE PERTAINING TO CASH CREDITS. GROUND NO. 11 IS PERTAINING TO ADDITION BY INCREASING THE PROFIT BY 0.5%. GROUND NO. 12 IS PERTAINING TO CHARGING OF INTEREST U/S 234A, 234B & 234C OF TH E ACT, WHICH IS CONSEQUENTIAL IN NATURE. 13. AS REGARDS GROUND NOS. 2 TO 10 PERTAINING TO CA SH CREDITS, THE AO MADE TWO ADDITIONS OF RS. 5,94/,594- AND RS. 20, 050/-/- TOWARDS UNEXPLAINED CREDITS MADE U/S 68 OF THE ACT IN RESPE CT OF UNSECURED LOANS, SHOWN IN THE ACCOUNTS OF M/S SITHARAMANJANEY A FLOUR MILL AND M/S SITHARAMANJANEYA GRAINS & GENERAL STORES, EVEN THOUGH, ASSESSEE FILED CONFIRMATION LETTERS FROM THE SAID P ERSONS, ON THE GROUND THAT THEY HAVE NOT PROVED THEIR CREDITWORTHI NESS BY FILING SUFFICIENT DOCUMENTARY EVIDENCE. 14. ON APPEAL, BEFORE THE CIT(A) IT WAS SUBMITTED T HAT ASSESSEE HAD PROVIDED EACH CREDITORS ADDRESS AND HIS SOURCE OF INCOME FOR ADVANCING SUCH AMOUNTS TO HIM, THEREFORE HE HAD DIS CHARGED THE ONUS TO PROVE THE CREDIT IN EACH CASE. AFTER CONSID ERING THE 8 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO SUBMISSIONS, THE CIT(A) CONFIRMED THE ADDITIONS MAD E BY THE AO U/S 68 OF THE ACT. 15. BEFORE US THE LEARNED COUNSEL REFERRING TO THE SUBMISSIONS MADE BY THE LOAN CREDITORS IN THEIR CONFIRMATION LE TTERS, SUBMITTED AS UNDER: 1. SRI P. SUBBA RAO: LETTER OF CONFIRMATION IS PLAC ED AT PAGE 37 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED THE LOAN GIVEN TO ASSE SSEE RS. 60,000/-. HE STATED THAT HE WAS WORKING IN PRIVATE ORGANSATIONS FOR MORE THAN 25 YEARS AND GIVEN THE LOAN FROM OUT OF HIS SALARY SAVINGS. HE ALSO CONFIRMED THAT THE LOAN WAS REPAID BY VIDE CHEQUE NO. 164980 DATED 22-12-2006. 2. SRI B. SRINVAS: LETTER OF CONFIRMATION IS PLACED AT PAGE 38 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED HAVING ADVANCED RS. 25 ,000/-. HE STATED THAT HE WORKED IN KUWAIT FOR MORE THAN 10 YE ARS AND THE AMOUNT WAS GIVEN FROM OUT OF SALARY INCOME DEPOSITE D IN NRI BANK ACCOUNT NO. 52190621 AND HE HAS PROVIDED POWER OF ATTORNEY TO HIS BROTHER BSK CHANDRASEKHAR RAO TO LO OK AFTER HIS AFFAIRS IN INDIA. 3. P. SATYA PRASAD: LETTER OF CONFIRMATION IS PLACE D AT PAGE 39 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUN T OF RS. 55,000/-. HE STATED THAT HE WAS WORKING AS A DEVELO PMENT OFFICER IN LIC FOR MORE THAN 20 YEARS AND GIVEN THE AMOUNT FROM OUT OF HIS SALARY SAVINGS. IN THE LETTER OF CONFIRM ATION HE ALSO CONFIRMED THAT THE LOAN WAS REPAID VIDE CHEQUE NO. 164981 DATED 22-12-2006. 9 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 4. B. RUPAVANI: LETTER OF CONFIRMATION IS PLACED AT PAGE 40 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUN T OF RS. 1,00,094/-. SHE STATED THAT SHE IS A SOFTWARE ENGIN EER WORKING IN USA AND DERIVED INCOME FROM SALARY. SHE ALSO CON FIRMED THAT THE LOAN WAS REPAID VIDE CHEQUE NO. 448426 DATED 29 -03-2008. 5. SRI D. UMA MAHESWARA RAO: THE AMOUNT WAS TAKEN F OR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FOUR MILL. THE LETTER OF CONFIRMA TION COULD NOT BE PROVIDED AS DURING THE RELEVANT PERIOD, THE CREDITORS WAS NOT AVAILABLE. 6. B. MADHAVI: LETTER OF CONFIRMATION IS PLACED AT PAGE 42 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINE SS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FO UR MILL. THE CREDITOR CONFIRMED THE ADVANCE. SHE WAS EMPLOYE D IN PRIVATE ORGANSATION AND GIVEN THE AMOUNT FROM OUT O F HER SALARY INCOME/SAVINGS. IN THE LETTER OF CONFIRMATION SHE A LSO CONFIRMED THAT THE AMOUNT WAS REPAID BY ASSESSEE IN CASH ON 1 6-02-2006. 7. SRI B. SIVA PRASAD: LETTER OF CONFIRMATION IS PL ACED AT PAGE 43 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED THE ADVANCE. THE AMOUN T GIVEN FROM OUT OF HIS FAMILY SAVINGS. IN THE LETTER OF CO NFIRMATION HE ALSO CONFIRMED THAT THE AMOUNT WAS REPAID IN CASH O N 16-02- 2006. 8. SRI G. RAMESH: LETTER OF CONFIRMATION IS PLACED AT PAGE 44 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUN T. HE STATED 10 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO THAT HE WAS EMPLOYED IN PRIVATE ORGANIZATION AND PR OVIDED LOAN FROM OUT OF HIS EARNINGS/SAVINGS. IN THE LETTER OF CONFIRMATION HE ALSO CONFIRMED THAT THE LOAN WAS REPAID TO HIM. 9. SRI B. SESHAIAH: LETTER OF CONFIRMATION IS PLACE D AT PAGE 45 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA FOUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUN T. HE STATED THAT HE WAS EMPLOYED IN PRIVATE ORGANSATION AND PRO VIDED LOAN FROM OUT OF HIS EARNINGS/SAVINGS. IN THE LETTER OF CONFIRMATION HE ALSO CONFIRMED THAT THE LOAN WAS REPAID TO HIM. 16. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F AO AND CIT(A). 17. 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. MOREOVER, ASSESSEE REPAID THE LOAN S TAKEN BY HIM FROM THE SAID CREDITORS. THERE IS ALSO NO INCRIMINA TING MATERIAL IN THE SEARCH PROCEEDINGS AND ALL THE CREDITS WERE OLD AND REPAID BY THE TIME OF SEARCH. THEREFORE, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE S AME ARE HEREBY DELETED. GROUND NOS. 2 TO 10 ARE ALLOWED. 18. GROUND NO. 11 IS DIRECTED AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE ADDITION OF RS. 75,000/- OUT OF RS. 1,26,684/- MADE BY THE AO. 19. THE AO MADE ADDITION OF RS. 1,26,684/- BY INCRE ASING THE NET PROFIT BY 0.5% OF THE TOTAL TURNOVER ON ADHOC BASIS . BEFORE THE CIT(A), IT WAS CONTENDED THAT THE REASONS FOR MAKING SUCH A DDITION HAD NOT 11 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO GIVEN BY THE AO AND FURTHER HE OUGHT NOT TO HAVE ES TIMATED THE INCOME SIMPLY ON GROUND THAT PROFIT IS LOW. AFTER CONSIDERING THE SUBMISSIONS, THE CIT(A) RESTRICTED THE ADDITION TO RS. 50,000/-. 20. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND CONSIDERING THAT NO INCRIMINATING MATERIAL WAS FOUN D DURING THE COURSE OF SEARCH, ESTIMATION OF INCOME WITHOUT REJE CTING THE BOOKS OF ACCOUNT CANNOT BE SUSTAINED. MOREOVER THERE IS NO CONSISTENCY IN CONFIRMING THE AMOUNT BY LD.CIT(A) AS CAN BE SEEN F ROM THE EARLIER YEAR ORDER. NO SUCH ADDITION WAS MADE IN LATER YEAR . ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITI ON SUSTAINED BY CIT(A). THIS GROUND IS ALLOWED. 21. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FO R AY 2003-04. ITA NO. 2087/HYD/2011 FOR AY 2004-05 22. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE. GROUND NO. 2 & 3 ARE PERTAINING TO CASH CREDITS. GROUND NO. 4 IS PERTAIN ING TO CHARGING OF INTEREST U/S 234 A & 234B, WHICH IS CONSEQUENTIAL I N NATURE. 23. AS REGARDS GROUND NOS. 2 & 3 PERTAINING TO CASH CREDITS, THE AO MADE TWO ADDITIONS OF RS. 7,00,000/- AND RS. 1,95,0 00/- TOWARDS UNEXPLAINED CREDITS MADE U/S 68 OF THE ACT IN RESPE CT OF UNSECURED LOANS, SHOWN IN THE ACCOUNTS OF M/S SITHARAMANJANEY A FLOUR MILL AND M/S SITHARAMANJANEYA GRAINS & GENERAL STORES, EVEN THOUGH, ASSESSEE FILED CONFIRMATION LETTERS FROM THE SAID P ERSONS, ON THE GROUND THAT THEY HAVE NOT PROVED THEIR CREDITWORTHI NESS BY FILING SUFFICIENT DOCUMENTARY EVIDENCE. 24. ON APPEAL, BEFORE THE CIT(A) IT WAS SUBMITTED T HAT ASSESSEE HAD PROVIDED EACH CREDITORS ADDRESS AND HIS SOURCE OF INCOME FOR ADVANCING SUCH AMOUNTS TO HIM, THEREFORE HE HAD DIS CHARGED THE 12 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO ONUS TO PROVE THE CREDIT IN EACH CASE. AFTER CONSID ERING THE SUBMISSIONS, THE CIT(A) CONFIRMED THE ADDITIONS MAD E BY THE AO U/S 68 OF THE ACT. 25. BEFORE US THE LEARNED COUNSEL REFERRING TO THE SUBMISSIONS MADE BY THE LOAN CREDITORS IN THEIR CONFIRMATION LE TTERS, SUBMITTED AS UNDER: 1. SRI D. UMA MAHESWARA RAO(MANI): LETTER OF CONFI RMATION IS PLACED AT PAGE 30 OF THE PAPER BOOK. THE AMOUNT WA S TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SR I SEETHARAMANJANEYA FOUR MILL. THE CREDITOR HAVING GI VEN THE AMOUNTS RS. 3,00,000/- VIDE CHEQUE NO. 216124 ON 28-08- 2003 AND RS. 4,00,000/- VIDE CHEQUE NO. 216125 ON 2 9-092- 003. HE STATED THAT HE WAS WORKING IN KINGDOM OF SA UDI ARABIA FOR MORE THAN 12 YEARS AND DERIVED INCOME FROM SALA RY. 2. SRI D. UMA MAHESWARA RAO(PONDY): LETTER OF CON FIRMATION IS PLACED AT PAGE 31 OF THE PAPER BOOK. THE AMOUN T WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FOUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT. HE STATED THAT HE IS AN EMPLOYEE WORKING IN A GLASS FACTORY AT BARODA FOR MORE THAN 15 YEARS AN D THE AMOUNT WAS GIVEN FORM OUT OF SALARY INCOME. THE CRE DITOR ALSO CONFIRMED THAT THE SAID AMOUNT WAS REPAID VIDE CHEQ UE NO. 177548 DATED 07-11-2007. 26. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F AO AND CIT(A). 27. 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. MOREOVER, ASSESSEE REPAID THE LOAN S TAKEN BY HIM 13 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO FROM THE SAID CREDITORS. THERE IS ALSO NO INCRIMINA TING MATERIAL IN THE SEARCH PROCEEDINGS AND ALL THE CREDITS WERE OLD AND REPAID BY THE TIME OF SEARCH. THEREFORE, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE S AME ARE HEREBY DELETED. GROUND NOS. 2 AND 3 ARE ALLOWED. 26. IN THE RESULT, APPEAL FOR AY 2004-05 IS ALLOWED . ITA NO. 1100/H/2011 FOR AY 2005-06 27. GROUND NO. 1,2 & 8 ARE GENERAL IN NATURE. GROUN D NOS. 3 & 4 ARE PERTAINING TO CASH CREDITS. GROUND NO. 5 IS P ERTAINING TO ADDITION BY INCREASING THE NET PROFIT BY 0.5%. GROUND NO. 6 IS WITH REGARD TO DISALLOWANCE OF 10% OF TRANSPORT EXPENDITURE ON AD HOC BASIS. GROUND NO. 7 IS PERTAINING TO THE ADDITION OF RS. 2 5,75,000/- GROUND NO. 7 IS PERTAINING TO CHARGING OF INTEREST U/S 234 A, B & C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. 28. AS REGARDS GROUND NOS. 3 PERTAINING TO CASH CR EDITS, THE AO MADE TWO ADDITIONS OF RS. 11,55,000/- AND RS. 1,13, 800/- TOWARDS UNEXPLAINED CREDITS MADE U/S 68 OF THE ACT IN RESPE CT OF UNSECURED LOANS, SHOWN IN THE ACCOUNTS OF M/S SITHARAMANJANEY A FLOUR MILL AND M/S SITHARAMANJANEYA GRAINS & GENERAL STORES, EVEN THOUGH, ASSESSEE FILED CONFIRMATION LETTERS FROM THE SAID P ERSONS, ON THE GROUND THAT THEY HAVE NOT PROVED THEIR CREDITWORTHI NESS BY FILING SUFFICIENT DOCUMENTARY EVIDENCE. 29. ON APPEAL, BEFORE THE CIT(A) IT WAS SUBMITTED T HAT ASSESSEE HAD PROVIDED EACH CREDITORS ADDRESS AND HIS SOURCE OF INCOME FOR ADVANCING SUCH AMOUNTS TO HIM, THEREFORE HE HAD DIS CHARGED THE ONUS TO PROVE THE CREDIT IN EACH CASE. AFTER CONSID ERING THE 14 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO SUBMISSIONS, THE CIT(A) CONFIRMED THE ADDITIONS MAD E BY THE AO U/S 68 OF THE ACT. 30. BEFORE US THE LEARNED COUNSEL REFERRING TO THE SUBMISSIONS MADE BY THE LOAN CREDITORS IN THEIR CONFIRMATION LE TTERS, SUBMITTED AS UNDER: 1. SRI D. UMA MAHESWARA RAO: LETTER OF CONFIRMATION IS PLACED AT PAGE 63 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FOUR MILL. THE CREDITOR CONFIRMED AMOUNT GIVEN OF RS. 2,80,000/- VIDE CHEQUE NO. 668148 ON 0 8-07-2004. HE STATED THAT HE WAS WORKING IN KINGDOM OF SAUDI A RABIA FOR MORE THAN 12 YEARS AND DERIVED INCOME FROM SALARY. HE STATED THAT AMOUNT WAS GIVEN OUT OF HIS NRI EARNINGS. 2. SRI B.V. SUBBA RAO: LETTER OF CONFIRMATION IS PL ACED AT PAGE 64 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINE SS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FL OUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF R S. 8 LAKHS RS. 5 LAKHS VIDE CHEQUE NO. 559215 ON 02-11-2004 AN D RS. 3 LAKHS VIDE CHEQUE NO. 559224 ON 23-03-2005. HE STAT ED THAT HE IS CARRYING ON THE BUSINESS ACTIVITY OF RUNNING PRO VISIONAL STORES AT JANAPRIYA APARTMENTS, MIYAPUR, HYDERABAD AND GIV EN THE AMOUNT OUT OF HIS EARNINGS/SAVINGS. THE CREDITOR AL SO CONFIRMED THAT THE AMOUNT WAS REPAID TO HIM. 3. SRI D. UMA MAHESWARA RAO(PONDY): THE AMOUNT WA S RECEIVED THROUGH CHEQUE AND WAS ACCOUNTED FOR IN TH E REGULAR BOOKS OF ACCOUNT. THE LETTER OF CONFIRMATION COULD NOT BE OBTAINED AS THE CREDITOR WAS NOTA AVAILABLE AT THE RELEVANT POINT OF TIME. 15 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 4. SRI V.P. MUTHY RAJU: LETTER OF CONFIRMATION IS P LACED AT PAGE 65 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINE SS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FL OUR MILL. THE CREDITOR CONFIRMED HAVING PROVIDED ADVANCE OF R S. 50,000/- DURING THE PREVIOUS YEAR 2005-06. HE STATED THAT HE WAS WORKING WITH VARIOUS ORGANISATIONS FOR MORE THAN 10 YEARS AND GIVEN THE AMOUNT FROM OUT OF HIS SALARY INCOME/SAVI NGS. IN THE LETTER OF CONFIRMATION HE ALSO CONFIRMED THAT THE A MOUNT WAS REPAID VIDE CHEQUE NO. 164992, DATED 22-12-2006. 5. SRI T. SUDHAKAR: LETTER OF CONFIRMATION IS PLACE D AT PAGE 66 OF PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINES S ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA GR AINS AND GENERAL STORES. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 1,00,000/-. HE STATED THAT HE IS CARRYING ON THE BUSINESS OF RUNNING A KIRANA AND GENERAL STORES. IN THE LETT ER OF CONFIRMATION HE ALSO CONFIRMED THAT THE AMOUNT WAS REPAID VIDE CHEQUE NO. 156591 DATED 13-03-22007. 6. SRI KASI VISWANATHAM: LETTER OF CONFIRMATION IS PLACED AT PAGE 67 OF PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMAN JANEYA GRAINS AND GENERAL STORES. THE CREDITOR CONFIRMED H AVING GIVEN THE AMOUNT OF RS. 13,800/-. HE STATED THAT HE IS CA RRYING ON THE BUSINESS OF RUNNING A HOTEL AT LINGAMPALLY HUDA TRA DE CENTRE AND THE AMOUNT WAS GIVEN FORM OUT OF HIS INCOME/SAV INGS. IN THE LETTER OF CONFIRMATION HE ALSO CONFIRMED THAT T HE LOAN WAS REPAID VIDE CHEQUE NO. 156593 DATED 12-01-2007. 31. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F AO AND CIT(A). 16 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 32. 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. MOREOVER, ASSESSEE REPAID THE LOAN S TAKEN BY HIM FROM THE SAID CREDITORS. THERE IS ALSO NO INCRIMINA TING MATERIAL IN THE SEARCH PROCEEDINGS AND ALL THE CREDITS WERE OLD AND REPAID BY THE TIME OF SEARCH. MANY OF THE CREDITS ARE FROM PERSON S WHOS CREDITS WERE ACCEPTED IN EARLIER YEARS. THEREFORE, THE ADDI TION MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE SAME ARE HEREBY DELETED. GROUND NO 3 ARE ALLOWED. 33. GROUND NO. 4 IS DIRECTED AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE ADDITION OF RS. 50,000/- OUT OF RS. 1,30,260/- MADE BY THE AO. 34. THE AO MADE ADDITION OF RS. 1,30,260/- BY INCRE ASING THE NET PROFIT BY 0.5% OF THE TOTAL TURNOVER ON ADHOC BASIS . BEFORE THE CIT(A), IT WAS CONTENDED THAT THE REASONS FOR MAKING SUCH A DDITION HAD NOT GIVEN BY THE AO AND FURTHER HE OUGHT NOT TO HAVE ES TIMATED THE INCOME SIMPLY ON GROUND THAT PROFIT IS LOW. AFTER CONSIDERING THE SUBMISSIONS, THE CIT(A) RESTRICTED THE ADDITION TO RS. 50,000/-. 35. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND CONSIDERING THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH, ESTIMATION OF INCOME WITHOUT REJECTING THE BOOKS OF ACCOUNT CANNOT BE SUSTAINED. MOREOVER THERE IS NO CONSISTENCY IN C ONFIRMING THE AMOUNT BY LD.CIT(A) AS CAN BE SEEN FROM THE EARLIER YEAR ORDERS. NO SUCH ADDITION WAS MADE IN IMMEDIATE PRECEEDING YEAR . ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADD ITION SUSTAINED BY CIT(A). THIS GROUND IS ALLOWED. . 17 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 36. GROUND NO. 5 IS REGARDING DISALLOWANCE OF 10% O F TRANSPORTATION EXPENDITURE ON ADHOC BASIS. ASSESSEE HAD CLAIMED TRANSPORT CHARGES TO THE TUNE OF RS. 14,72,025/- DU RING THE YEAR. WHEN THE AO QUERIED THAT THE EXPENDITURE CLAIMED I S ON THE HIGH SIDE AND VOUCHERS WERE ALSO NOT VERIFIABLE TO ASSES SEE, HE STATED THAT IT INVOLVES HEAVY TRANSPORTATION OF MATERIAL AND RE CEIVES 40 TO 50 LOADS IN A MONTH, THEREFORE, HUGE TRANSPORT CHARGES WERE INVOLVED AND THE TRANSPORT CHARGES ARE GENERALLY EACH TIME I T IS LESS THAN RS. 20,000/- AND EACH TIME, DIFFERENT VEHICLE WILL TRAN SPORT THE MATERIAL. CONSIDERING ASSESSEES SUBMISSIONS, AO DISALLOWED 1 0% OF THE TOTAL EXPENDITURE, WHICH WORKED OUT RS. 1,47,202/-. 37. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE BO OKS OF ACCOUNT OF ASSESSEE ARE AUDITED AND THE AO HAD NOT FOUND ANY D EFECT IN THE SAME, THEREFORE, THE DISALLOWANCE MADE BY HIM IS NO T JUSTIFIED. CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 50,000/-. 38. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSING THE RECORD, WE HOLD THAT NO THE TRANSPORT EXPENDITURE COULD HAVE BEEN DISALLOWED WHEN GP ADDITION WAS MADE. CON SIDERING THE NATURE OF BUSINESS AND NEED TO EXPEND IN CASH DISAL LOWANCE IN TRANSPORT EXPENDITURE ON ADHOC BASIS MAY NOT ARISE. CONSIDERING THAT GP ADDITION MADE WAS DELETED EARLIER, WE SUSTAIN A ROUND SUM AMOUNT OF RS 25,000 FOR NON VERIFIABLE NATURE OF E XPENDITURE. THIS GROUND IS PARTLY ALLOWED. 39. GROUND NO. 7 IS PERTAINING TO ADDITION OF RS. 2 5,75,000/- TOWARDS UNEXPLAINED INVESTMENT. 40. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSEE HAD FILED A CASH FLOW STATEMENT FOR THE ENDING 31/03/20 05 RELEVANT TO AY UNDER CONSIDERATION. AFTER VERIFYING THE SAID CASH FLOW STATEMENT, THE 18 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO AO FOUND THAT ASSESSEE HAD INVESTED A TOTAL SUM OF RS. 25,75,000/- IN THE FIRM OF M/S NVM SITARAMANJANEYA CONSTRUCTION S. ON BEING ASKED BY THE AO FOR THE SOURCE OF THE SAID INVESTME NT, ASSESSEE HAD ADMITTED IN THE CASH FLOW STATEMENT CASH ADVANCE RE CEIVED FOR SALE OF BUILDING WITH LAND ADMEASURING 858 SQ.YARDS AT MADI NAGUDA, SERILINGAMPALLY FOR A TOTAL CONSIDERATION OF RS. 85 ,80,000/-, TO THIS EFFECT, A COPY OF AGREEMENT OF SALE EXECUTED ON 02- 01-2005 IN FAVOUR OF SRI GAYAM VENKAT REDDY, S/O SRI SITARAMI REDDY, MATTAMPALLI, NALGONDA DIST WAS FILED WHICH WAS NOT A REGISTERED SALE DEED. FURTHER, ASSESSEE STATED THAT HE HAD RECEIVED AN AD VANCE OF RS. 25,75,000/- FROM THE ABOVE TRANSACTION DURING THE Y EAR, WHICH WAS SHOWN IN THE CASH FLOW STATEMENT. AS NO DOCUMENTARY EVIDENCE WAS FILED EXCEPT COPIES OF RECEIPT FOR THE SAID ADVANCE , AO HELD THAT SOURCE OF SUCH RECEIPT REMAINS UNEXPLAINED AND IN T HE ABSENCE OF DOCUMENTARY EVIDENCE IN SUPPORT OF GENUINENESS OF T RANSACTION AND CREDITWORTHINESS OF THE PERSON WHO IS SAID TO HAVE ADVANCED RELATING TO THE ABOVE TRANSACTION, HE TREATED THE ENTIRE AMO UNT OF RS. 25,75,000/- SHOWN AS ADVANCE AS UNEXPLAINED CASH CR EDIT U/S 68 OF THE ACT IN THE HANDS OF ASSESSEE AND ADDED THE SAM E TO TOTAL INCOME. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITI ON MADE BY THE AO. 41. WE HAVE HEARD THE PARTIES AND EXAMINED THE RECO RD. WE FIND THAT ASSESSEE FAILED TO PROVE THE GENUINENESS OF TH E TRANSACTION WITH DOCUMENTARY EVIDENCE BEFORE THE REVENUE AUTHORITIES . THE CLAIM WAS NOT VERIFIED BY AO AT ALL. IN THIS VIEW OF THE MAT TER, IN THE INTEREST OF JUSTICE, WE RESTORE THE ISSUE TO THE FILE OF THE AO FOR EXAMINATION AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND FACTS. ASSESSEE IS DIRECTED TO PUT-FORTH THE NECESSARY DOCUMENTARY EVI DENCE/ CONFIRMATIONS BEFORE THE AO IN SUPPORT OF THIS CLAI M. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 19 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 42. IN THE RESULT, APPEAL FOR AY 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1101/H/2011 FOR AY 2006-07 43. GROUND NOS. 1 & 9 ARE GENERAL IN NATURE. GROUND NO. 2 IS REGARDING INITIATING PROCEEDINGS U/S 153A OF THE AC T, HAS NOT PRESSED BEFORE US AND THE SAME IS DISMISSED AS NOT PRESSED. GROUND NO. 3 I) TO III) ARE PERTAINING TO CASH CREDITS. GROUND NO . 4 IS PERTAINING TO ADDITION BY INCREASING THE NET PROFIT BY 0.5%. GROU ND NO. 5 IS WITH REGARD TO DISALLOWANCE OF TRANSPORT EXPENDITURE ON AD HOC BASIS. GROUND NO. 6 IS PERTAINING TO THE ADDITION OF RS. 4 7,25,000/- GROUND NO. 7 IS ADDITION ON ACCOUNT OF INTEREST RECEIPT OF RS. 3,81,399/-. GROUND NO. 8 IS PERTAINING TO CHARGING OF INTEREST U/S 234A,234B & 234 C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. 44. AS REGARDS GROUND NOS. 3 PERTAINING TO CASH CRE DITS, THE AO MADE ADDITIONS OF RS. 1,75,000/-, RS. 50,000 AND R S. 1,10,000/- TOWARDS UNEXPLAINED CREDITS MADE U/S 68 OF THE ACT IN RESPECT OF UNSECURED LOANS FROM S/SRI D. UMA MAHESWARA RAO, DI LIP KUMAR AND D. NAGARAJU, SHOWN IN THE ACCOUNTS EVEN THOUGH, ASS ESSEE FILED CONFIRMATION LETTERS FROM THE SAID PERSONS, ON THE GROUND THAT THEY HAVE NOT PROVED THEIR CREDITWORTHINESS BY FILING SU FFICIENT DOCUMENTARY EVIDENCE. 45. ON APPEAL, BEFORE THE CIT(A) IT WAS SUBMITTED T HAT ASSESSEE HAD PROVIDED EACH CREDITORS ADDRESS AND HIS SOURCE OF INCOME FOR ADVANCING SUCH AMOUNTS TO HIM, THEREFORE HE HAD DIS CHARGED THE ONUS TO PROVE THE CREDIT IN EACH CASE. AFTER CONSID ERING THE SUBMISSIONS, THE CIT(A) CONFIRMED THE ADDITIONS MAD E BY THE AO U/S 68 OF THE ACT. 20 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 46. BEFORE US THE LEARNED COUNSEL REFERRING TO THE SUBMISSIONS MADE BY THE LOAN CREDITORS IN THEIR CONFIRMATION LE TTERS, SUBMITTED AS UNDER: 1. SRI D. UMA MAHESWARA RAO: LETTER OF CONFIRMATION IS PLACED AT PAGE 61 OF THE PAPER BOOK. THE AMOUNT WAS TAKEN FOR THE BUSINESS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FOUR MILL. THE CREDITOR CONFIRMED AMOUNT GIVEN OF RS. 1,75,000/- VIDE CHEQUE NO. 668149 ON 2 2-08-2005. HE STATED THAT HE WAS WORKING IN KINGDOM OF SAUDI A RABIA FOR MORE THAN 12 YEARS AND DERIVED INCOME FROM SALARY. HE STATED THAT AMOUNT WAS GIVEN OUT OF HIS NRI EARNINGS. 2. SRI DILIP KUMAR: LETTER OF CONFIRMATION IS PLACE D AT PAGE 62 OF PAPER BOOK. THE LOAN WAS TAKEN FOR THE BUSINESS ACT IVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA FLOUR MILL. THE CREDITOR CONFIRMED HAVING GIVEN THE AMOUNT OF RS. 5 0,000/-. HE STATED THAT HE IS EMPLOYED IN PRIVATE ORGANIZATIONS FOR MORE THAN 10 YEARS AND GIVEN THE AMOUNT FORM OUT OF HIS INCOME/SAVINGS. THE CREDITOR ALSO CONFIRMED THAT TH E AMOUNT WAS REPAID TO HIM VIDE CHEQUE NO. 164993 DATED 22-1 2-2006. 3. SRI D. UMA MAHESWARA RAO: LETTER OF CONFIRMATI ON IS PLACED AT PAGE NO. 63. THE AMOUNT WAS TAKEN FOR THE BUSINE SS ACTIVITY OF ASSESSEE IN THE NAME OF SRI SEETHARAMANJANEYA GR AINS & GENERAL STORES. THE CREDITOR CONFIRMED THAT HE HAS GIVEN AMUNT OF RS. 1,10,000/-. HE STATED THAT HE WAS WORKING AS A SOFTWARE ENGINEER IN USA SINCE 10 YEARS AND DERIVED FROM SAL ARY AND GIVEN THE AMOUNT FROM OUT OF HIS INCOME/SAVINGS. TH E CREDITOR ALSO CONFIRMED THAT THE LOAN WAS REPAID VIDE CHEQUE NO. 156594 DATED 12-01-2007. 47. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F AO AND CIT(A). 21 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 48. 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. MOREOVER, ASSESSEE REPAID THE LOAN S TAKEN BY HIM FROM THE SAID CREDITORS. THERE IS ALSO NO INCRIMINA TING MATERIAL IN THE SEARCH PROCEEDINGS AND ALL THE CREDITS WERE OLD AND REPAID BY THE TIME OF SEARCH. MANY OF THE CREDITS ARE FROM PERSON S WHOSE CREDITS WERE ACCEPTED IN EARLIER YEARS. THEREFORE, THE ADDI TION MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THIS ISSUE IS NOT PROPER AND THE SAME ARE HEREBY DELETED. GROUND NOS. 3 I) TO III) ARE ALLOWED. 49. GROUND NO. 4 IS DIRECTED AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE ADDITION OF RS. 75,000/- OUT OF RS. 1,52,397/- MADE BY THE AO. 50. THE AO MADE ADDITION OF RS. 1,52,397/- BY INCRE ASING THE NET PROFIT BY 0.5% OF THE TOTAL TURNOVER ON ADHOC BASIS . BEFORE THE CIT(A), IT WAS CONTENDED THAT THE REASONS FOR MAKING SUCH A DDITION HAD NOT GIVEN BY THE AO AND FURTHER HE OUGHT NOT TO HAVE ES TIMATED THE INCOME SIMPLY ON GROUND THAT PROFIT IS LOW. AFTER CONSIDERING THE SUBMISSIONS, THE CIT(A) RESTRICTED THE ADDITION TO RS. 75,000/-. 51. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND CONSIDERING THAT NO INCRIMINATING MATERIAL WAS FOUN D DURING THE COURSE OF SEARCH, ESTIMATION OF INCOME WITHOUT REJE CTING THE BOOKS OF ACCOUNT CANNOT BE SUSTAINED. SIMILAR ADDITION IN E ARLIER YEARS WAS ALSO DELETED. ACCORDINGLY, WE DELETE THE ADDITION S USTAINED BY CIT(A). THIS GROUND IS ALLOWED. 52. GROUND NO. 5 IS REGARDING DISALLOWANCE OF 10% O F TRANSPORTATION EXPENDITURE ON ADHOC BASIS. ASSESSEE HAD CLAIMED TRANSPORT CHARGES TO THE TUNE OF RS. 31,65,712/- DU RING THE YEAR. 22 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO WHEN THE AO QUERIED THAT THE EXPENDITURE CLAIMED I S ON THE HIGH SIDE AND VOUCHERS WERE ALSO NOT VERIFIABLE TO ASSES SEE, HE STATED THAT IT INVOLVES HEAVY TRANSPORTATION OF MATERIAL AND RE CEIVES 40 TO 50 LOADS IN A MONTH, THEREFORE, HUGE TRANSPORT CHARGES WERE INVOLVED AND THE TRANSPORT CHARGES ARE GENERALLY EACH TIME I T IS LESS THAN RS. 20,000/- AND EACH TIME, DIFFERENT VEHICLE WILL TRAN SPORT THE MATERIAL. CONSIDERING ASSESSEES SUBMISSIONS, AO DISALLOWED 1 0% OF THE TOTAL EXPENDITURE, WHICH WORKED OUT RS. 3,16,571/-. 53. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE BO OKS OF ACCOUNT OF ASSESSEE ARE AUDITED AND THE AO HAD NOT FOUND ANY D EFECT IN THE SAME, THEREFORE, THE DISALLOWANCE MADE BY HIM IS NO T JUSTIFIED. CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 1,50,000/-. 54. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSING THE RECORD, WE HOLD THAT NO THE TRANSPORT EXPENDITURE COULD HAVE BEEN DISALLOWED WHEN GP ADDITION WAS MADE. CON SIDERING THE NATURE OF BUSINESS AND NEED TO EXPEND IN CASH DISAL LOWANCE IN TRANSPORT EXPENDITURE ON ADHOC BASIS MAY NOT ARISE. CONSIDERING THAT GP ADDITION MADE WAS DELETED EARLIER, WE SUSTAIN A ROUND SUM AMOUNT OF RS 50,000 FOR NON VERIFIABLE NATURE OF E XPENDITURE. THIS GROUND IS PARTLY ALLOWED. 55. GROUND NO. 6 IS PERTAINING TO ADDITION OF RS. 4 7,25,000/- TOWARDS UNEXPLAINED INVESTMENT. SIMILAR GROUND ON I DENTICAL FACTS AND CIRCUMSTANCES RAISED AS GROUND NO. 7 HAS BEEN DECID ED BY US IN AY 2005-06 IN ITA NO. 1100/HYD/2011 VIDE PARAS 39 TO 4 1 (SUPRA) WHEREIN WE HAVE REMITTED THE ISSUE TO THE FILE OF T HE AO FOR EXAMINATION AND DECIDE THE ISSUE AFRESH. FOLLOWING THE CONCLUSIONS DRAWN THEREIN, WE RESTORE THIS ISSUE ALSO TO THE FI LE OF THE AO. 23 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO 56. GROUND NO. 7 IS PERTAINING TO THE ADDITION OF R S. 3,81,399/- TOWARDS INTEREST RECEIPT. 57. THE AO WHILE COMPLETING THE ASSESSMENT ADDED RS . 3,81,3999/- AS INTEREST RECEIPT FROM THE PARTNERSHIP FIRM M/S N VM SITARAMANJANEYA CONSTRUCTING DURING THE YEAR WHEREI N ASSESSEE IS A PARTNER STATING THAT ASSESSEE HAD NOT OFFERED THE S AID AMOUNT FOR TAXATION. 58. 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 40B IN THE CASE OF THE PARTNERSHIP FIRM IS NOT INCLUDIBLE AS I NCOME OF THE PARTNER. AFTER CONSIDERING THE SUBMISSIONS, THE CIT(A) CONFI RMED THE ADDITION MADE BY THE AO. 59. 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 FOR TH E ASSESSEE SUBMITTED THAT THERE IS INCOME FOR THE YEA R UNDER CONSIDERATION AND THE PROFIT & LOSS ACCOUNT DOES NO T DEBIT ANY INTEREST PAID TO THE PARTNERS. EVEN THE CAPITAL ACC OUNT DOES NOT HAVE ANY CREDIT UNDER THE HEAD INTEREST. INTERES T PAID TO PARTNERS, WHICH HAS BEEN DISALLOWED IN THE HANDS OF THE 24 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO PARTNERSHIP FIRMS CANNOT BE ASSESSED IN THE HANDS O F THE PARTNERS. IN THESE CIRCUMSTANCES, WE DEEM IT FIT TO SET ASIDE THE ISSUES WITH RESPECT TO THE ADDITION OF RS. 3,54,65 5/- AND THE ADDITION OF RS. 6,06,332/- TO THE FILE OF THE ASSE SSING OFFICER TO DETERMINE THE CORRECT AMOUNT OF INTEREST RECEIVED B Y THE ASSESSEE FROM PARTNERSHIP FIRMS. ACCORDINGLY, GROUN D NOS. 4 & 5 ARE ALLOWED FOR STATISTICAL PURPOSES. 60. IN VIEW OF THE DECISION OF THE COORDINATE BENCH , AND CONSISTENT WITH THE VIEWS IN EARLIER YEARS, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO BRING TO TAX I N THE HANDS OF ASSESSEE ONLY TO THE EXTENT OF INTEREST ALLOWED IN THE HANDS OF FIRM. THUS, THIS GROUND OF APPEAL IS ALLOWED FOR ST ATISTICAL PURPOSES. 61. IN THE RESULT, THE APPEAL FOR AY 2006-07 IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 62. TO SUM UP, ITA NOS. 2061, 2062 & 2087 FOR AY 20 02-03, 2003- 04 & 2004-05 ARE ALLOWED AND ITA NOS. 1100 & 1101 F OR AY 2005-06 AND 2006-07 ARE PARTLY ALLOWED FOR STATISTICAL PURP OSES. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. R AMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT M EMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2013. KV 25 ITA NOS. 2061, 2062, 2087, 1100 & 1101/HYD/2011 SHRI D. NAGARJUNA RAO COPY TO:- 1) SHRI D. NAGARJUNA RAO, C/O SHRI S. RAMA RAO, ADV OCATE, FLAT NO. 102, SHRIYAS RESIDENCY, ROAD NO. 9, H IMAYATNAGAR, HYDERABAD. 2) ACIT, CIRCLE - 8(1), HYDERABAD. 3) CIT(A)-III, HYDERABAD. 4) CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.