Srinivasa Rao Grandhe, Visakhapatnam V. The Assistant Commissioner of Income Tax, Circle-(1), , Visakhapatnam

ITA 209/VIZ/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9004 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 21-10-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Set aside
• Section: 15; 143(3); 142(1); 133A; 143(1); 201; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM (THROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T. A.NO. 209 /VIZ/20 20 ( / A SSESSMENT Y EAR : 20 1 6 - 17 ) SRINIVASA RAO GRANDHE 15 - 5 - 5, SF - 2, HARITHA CLASSICS KRISHNANAGAR VISAKHAPATNAM [PAN :AEOPG4717L] VS . ASST.COMMISSIONER OF INCOME TAX CIRCLE - 1 (1) VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI I KAMA SASTRY , AR / RESPONDENT BY : S HRI B.RAMA KRISHNA, DR / DATE OF HEARING : 2 7 . 11 .2020 / DATE OF PRONOUNCEMENT : 06.01. 202 1 / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : TH IS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 1 , VISAKHAPATNAM IN ITA NO.101 47 /201 8 - 1 9 /CIT(A) - 1/VSP/2019 - 20 DATED 2 1 . 09 .20 20 FOR THE ASSESSMENT YEAR (A.Y.) 201 6 - 1 7 . 2 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ADDITION OF RS.61,96,070/ - MADE BY THE ASSESSING OFFICER (AO) AS UNEXPLAINED INCOME. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF WHOLESALE TRADE OF CLOTH AND READYMADE GARMENTS IN THE NAME OF SRINIVASA ENTERPRISES. H E IS ALSO THE PARTNER IN THE FIRM, M/S LUCKY RETAIL STORES ALONG WITH HIS WIFE AND BOTH OF THEM ARE HAVING THE SHARE OF 1/6 TH EACH . FOR THE A.Y. 2016 - 17, THE ASSESSEE FILED THE RETURN OF INCOME ON 17.10.2016 DECLARING TOTAL INCOME OF RS.13,57,520/ - . SUB SEQUENTLY, THE CASE WAS SELECTED FOR LIMITED SCRUTINY AND A N OTICE U/S 142(1) WAS ISSUED TO THE ASSESSEE CALLING FOR INFORMATION TO EXAMINE WHETHER THE SHARE CAPITAL WAS GENUINE AND FROM DISCLOSED SOURCES OR NOT. THE AO FOUND THAT THE PROPRIETORS CAPITA L WAS SHOWN AT RS.2,06,31,026/ - AND IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR, IT WAS SHOWN AT RS. NIL THUS, THERE WAS SUSPICION REGARDING THE SOURCE OF INTRODUCTION OF CAPITAL . T HE AO CALLED FOR DETAILS , FOR WHICH THE ASSESSEE FILED EXPLANATION STATING THAT THE OPENING CAPITAL WAS RS.1,52,72,425/ - AND FURNISHED THE CAPITAL ACCOUNT . THE ASSESSEE ALSO EXPLAINED THAT IN THE EARLIER YEARS THE INCOME WAS DECLARED ON ESTIMATION BASIS, HENCE THERE WAS NO OCCASION TO DECL ARE THE CAPITAL. THE ASSESSEE FURTHER STATED THAT HE IS A PARTNER IN M/S LUCKY RETAIL STORES AND 3 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM RECEIVED PROFIT FROM THE PARTNERSHIP DURING THE YEAR FOR AN AMOUNT OF RS.34,44,402/ - AND REMUNERATION FROM PARTNERSHIP FIRM TO THE TUNE OF RS.10,00,000/ - WHICH WAS ADDED TO THE CAPITAL ACCOUNT. THE ASSESSEE FURNISHED DETAILS OF CAPITAL ACCOUNT AS UNDER : OPENING BALANCE RS.1,52,72,425.02 ADD : ADDITION (CASH INVESTMENT) RS.31,85,000.00 ADD : INCOME FROM PARTNERSHIP FIRM RS.44,44,402.09 ADD : CURRENT YEAR PROFIT FROM BUSINESS RS.3,97,047.48 LESS : PERSONAL DRAWINGS RS.26,67,847.50 CLOSING CAPITAL ACCOUNT RS.2,06,31,027.09 2.1. THE ASSESSEE FURTHER SUBMITTED THAT A SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMISES OF M/S LUCKY STORES AND DURING THE COURSE OF SURVEY, THE ASSESSEE HAD ADMITTED THE EXCESS STOCK OF RS.1.8 7 CR. A ND THE SAME WAS ADDED TO THE INCOME IN COMPUTATION STATEMENT BASED ON THE DECLARATIONS GIVEN AT THE TIME OF SURVEY. THE VALUE OF STOCK WAS NOT TAKEN TO THE FIRMS PROFIT & L OSS ACCOUNT AND BALANCE SHEET AND T HE SAME WAS TAKEN TO THE PERSONAL CAPITAL ACCOUNT S OF THE PARTNERS, THUS ARGUED THAT THE SALE PROCEEDS OF T HE EXCESS STOCK AMOUNTING TO RS.62.5 LAKHS I.E. 1/3 RD SHARE CONSISTING OF ASSESSEES AND HIS WIFES SHARE WAS TAKEN TO THE ASSESSEES CAPITAL ACCOUNT. TH E ASSESSEE SUBMITTED THAT THE INCREASE IN CAPITAL WAS ONLY RS.61,96,000/ - AGAINST THE RECEIPT RS.62.5 LACS WH ICH WAS 4 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM LESS THAN THE INCOME ADMITTED, HENCE EXPLAINED THAT NO ADDITION IS WARRANTED ON ACCOUNT OF INCREASE IN CAPITAL . THE AO DID NOT FIND THE EXPLANATION TO BE SATISFACTORY, HENCE ADDED THE ENTIRE SUM OF RS.61.96 LACS TO THE INCOME OF THE ASSESSEE. 3. AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE LD.CIT(A) VIEWED THAT THE EXCESS STOCK WAS ON ACCOUNT OF VARIATION IN GP , T HEREFORE, IN SUCH SITUATION, THE STOCK APPEARING IN THE BOOKS DO NOT UNDERGO ANY CHANGE IN QUANTITY. THE GP OFFERED IS EXCLUSIVELY TO THE FIRMS ACCOUNTS, HENCE, THE ASSESSEES PLEA THAT EXCESS STOCK WAS SOLD IN THE MARKET AND THE PROCEEDS OF THE STOCK WAS RECEIVED AND OFFERED IN PARTNERS CAPITAL ACCOU NT HAS NO BASIS. THE LD.CIT(A) OBSERVED THAT THE ASSESSEE IS TRYING TO MAKE GOOD OF THE ADDITIONAL INCOME OFFERED IN THE HANDS OF THE FIRM FOR INFUSION OF CAPITAL, THEREFORE, VIEWED THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE HIS CASE WITH CONTEMPORA NE OUS EVIDENCE. HENCE, CONFIRMED THE ORDER OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. 3.1. ALTERNATIVELY, THE ASSESSEE HAS REQUESTED THE LD.CIT(A) TO ALLOW RS.31.85 LAKHS WHICH WAS BROUGHT INTO CAPITAL ACCOUNT BY SALE OF UNDISCLOSED STOCK. THE LD.CIT(A) DID NOT FIND FAVOUR WITH THE ALTERNATE 5 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM PLEA OF THE ASSESSEE, SINCE, THE ASSESSEE HAS BROUGHT THE SUM OF RS.61.96 LAKHS TO THE CAPITAL ACCOUNT. 4. AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR SUBMITTED THAT A SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMISES OF THE M/S LUCKY STORES. THE ASSESSEE ALONG WITH HIS WIFE ARE PARTNERS IN THE LUCKY STORES , EACH OF THEM HAVING 1/6 TH SHARE. DURING THE COURSE OF SURVEY IN THE LUCKY STORES, THE AO FOUND EXCESS STOCK OF RS.1.87 CR. O N THE BASIS OF GROSS PROFIT. THE EXCESS STO CK OF RS.1.87 CR. W AS NOT TAKEN TO THE BALANCE SHEET, PROFIT & LOSS ACCOUNT AND OFFERED THE SAME IN THE COMPUTATION OF INCOME SEPARATELY AND PAID THE TAXES THEREON. OUT OF RS.1,87,50,000/ - , CASH GENERATED OUT OF THE PROCEEDS OF SUCH STOCK WAS TAKEN BY TH E PARTNERS AND INTRODUCED IN THE PARTNERS CAPITAL ACCOUNT. THE ASSESSEE BEING 1/6 TH SHARE HOLDER AND INCLUDING HIS WIFES SHARE IT WORKED OUT TO 1/3 RD AMOUNTING TO RS. 62,50,000/ - WHICH WAS TAKEN TO THE ASSESSEES CAPITAL ACCOUNT, THAT CONSTITUTES RS.30,1 1,070/ - WAS OUT OF SALES OF UNACCOUNTED STOCK OF THE FIRM AND RS.31,85,000/ - AS CASH INVESTMENT . THEREFORE, SUBMITTED THAT THE ASSESSEE HAVING ADMITTED THE ADDITIONAL INCOME PAID THE TAXES THERE ON AND ALSO PAID THE VAT, ARGUED THAT THE ASSESSEE HAS RIGHT LY TAKEN THE ADDITIONAL 6 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM INCOME OFFERED BY THE ASSESSEE TO THE CAPITAL ACCOUNT , HENCE, NO ADDITION IS WARRANTED, THEREFORE, REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT( A ) AND DELETE THE ADDITION MADE BY THE AO. 5. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE ASSESSEE HAS ADMITTED THE ADDITIONAL INCOME IN THE LUCKY STORES AND NO ENTRIES WERE MADE IN THE BOOKS OF ACCOUNTS OF THE FIRM, THEREFORE, ARGUED THAT THE AO RIGHTLY MADE THE ADDITION AND NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE AND DURING THE COURSE OF SURVEY, EXCESS TOCK OF RS.1,87,50,000/ - WAS FOUND, WHICH WAS OFFERED AS ADDITIONAL INCOME DIRECTLY IN THE COMPUTATION BUT NOT TAKEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS OF THE FIRM. THE ASSESSEE ALSO PAID THE VAT FOR SALE OF EXCESS S TOCK. THE ASSESSEE HAS ALSO PAID THE INCOME TAX IN THE HA NDS OF THE FIRM. THE ADMISSION MADE BY THE ASSESSEE IN THE FIRM WAS ACCEPTED BY THE AO. THE ASSESSEE HAS TAKEN OUR ATTENTION TO PAGE NO.22 OF THE PAPER BOOK, WHEREIN, THE ASSESSEE HAD ADMITTED THE INCOME OF RS.1,87,50,000/ - AS EXCESS STOCK AT THE TIME OF SURVEY. IN RESPONSE TO QUESTION NO. 7, THE 7 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM ASSESSEE HAS ADMITTED EXCESS STOCK OF RS.1,87,50,000/ - IN THE FIRMS HANDS AND WHICH WAS ACCEPTED BY THE AO IN THE ASSESSMENT ORDER PASSED FOR THE A.Y. 2016 - 17 U/S 143(3) DATED 31.12.2017. SINCE THE ASSESSEE HA S OFFERED THE EXCESS STOCK SEPARATELY IN THE COMPUTATION OF INCOME WITHOUT TAKING INTO THE BOOKS OF ACCOUNTS, THE SOURCE OF RS.1,87,50,000/ - WAS AVAILABLE TO THE PARTNERS OF THE FIRM IN THE FORM OF CASH OR KIND , T HUS, THE PARTNERS OF THE FIRM ARE FREE TO D ISTRIBUTE THE SALE PROCEEDS OF THE STOCK AS DRAWING S TOWARDS THEIR SHARES. ACCORDINGLY, ALL THE PARTNERS OF THE FIRM HAD DISTRIBUTED THE SALES AND TAKEN TO THEIR PERSONAL BALANCE SHEETS. IN THE SAME MANNER, THE ASSESSEE ALSO HAS TAKEN THE SHARE OF HIS IN COME GENERATED OUT OF THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY AND BROUGHT TO HIS CAPITAL ACCOUNT. THE ASSESSEE FILED PAPER BOOK WITH REGARD TO TWO OTHER PARTNERS, WHEREIN, THE DEPARTMENT HAS COMPLETED THE ASSESSMENT U/S 143(1) WITHOUT MAKING SE PARATE ADDITION ON ACCOUNT OF EXCESS STOCK DISTRIBUTED BY THE PARTNERS. DURING THE APPEAL HEARING, THE LD.AR SUBMITTED THAT THE DEPARTMENT HAS NOT TAKEN ANY ACTION AND NOT MADE ANY ADDITION IN RESPECT OF OTHER PARTNERS. SINCE THE ASSESSEE HAS ADMITTED TH E ADDITIONAL INCOME ON ACCOUNT OF EXCESS STOCK AND THE SAID EXCESS STOCK WAS NOT REVERTED BACK TO THE BOOKS OF ACCOUNTS OF THE FIRM, WE 8 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM ARE OF THE VIEW THAT THE ASSESSEE HAS RIGHTLY TAKEN THE SALE PROCEEDS TO THEIR INDIVIDUAL CAPITAL ACCOUNT S . ONCE, THE A SSESSEE HAS ADMITTED THE ADDITIONAL INCOME, THE SAID INCOME IS AVAILABLE TO THE ASSESSEE IN THE FORM OF CASH OR KIND WHICH THE ASSESSEE IS PERMITTED TO TAKE AS SOURCE FOR APPLICATION OF FUNDS. THUS, THE ASSESSEE EXPLAINED THE SOURCE FOR CREDITS IN THE CAPI TAL ACCOUNTS AND THERE IS NO UNEXPLAINED INVESTMENT REQUIRED TO BE BROUGHT TO TAX. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH J ANUARY, 2021 S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /DATED : 06.01.2021 L.RAMA, SPS 9 I .T.A. NO . 209 /VIZ/20 20 , A.Y.201 6 - 1 7 SRINIVASA RAO GRANDHE, VISAKHAPATNAM / COPY OF THE ORDER FORWARDED TO : - 1 . / THE ASSESSEE SRINIVASA RAO GRANDHE, 15 - 5 - 5, SF - 2, HARITHA CLASSICS, KRISHNANAGAR, VISAKHAPATNAM 2 . / THE REVENUE ASST.COMMISSIONER OF INCOME TAX, CIRCLE - 1 (1), VISAKHAPATNAM 3. THE PR. COMMISSIONER OF INCOME TAX - 1, VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM