The ACIT, Circle-1, Eluru V. Sri G Rama Krishna Reddy, Eluru

ITA 250/VIZ/2003

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2823 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 1999-2000
• Appeal Filed On: 20-06-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SINGH
• Keywords: Bad and doubtful debts; Block assessment
• Section: 132

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T(SS.A). NO.22/VIZAG/2002 ASSESSMENT YEAR : BP 1.4.88 TO 17.2.99 DCIT, CIRCLE-1, ELURU VS. G. RAMA KRISHNA REDDY, BHIMAVARAM (APPELLANT) (RESPONDENT) GIR NO. R-816/ACIT,CIR-1/ELURU ITA NO. 250/VIZAG/2003 ASSESSMENT YEAR 1999-2000 ACIT, CIRCLE-1, ELURU VS. G.RAMA KRISHNA R EDDY, BHIMAVARAM APPELLANT BY : SHRI R.K. SINGH, DR RESPONDENT BY : SHRI G.V.N. HARI, CA O R D E R PER B..R. BASKARAN, ACCOUNTANT MEMBER : 1. THE APPEAL NUMBERED AS IT(SS)A NO.22/V/2002 FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 19-12-2001 PASSED BY LD CIT(A), RAJAHMUNDRY AND IT RELATES TO THE BLOCK PERIOD FROM 1.4.1988 TO 17.2.1999. THE APPEAL NUMBERED AS ITA NO.250/VIZAG/2003 FILED BY THE REVE NUE IS DIRECTED AGAINST THE ORDER DATED 21.3.2003 PASSED BY LD CIT(A)-I, VISAKH APATNAM IN RELATION TO THE ASSESSMENT YEAR 1999-2000. SINCE THE ISSUES AGITAT ED IN THESE TWO APPEALS ARE INTERCONNECTED, BOTH THE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN THE APPEAL NUMBERED AS IT(SS)A NO.22/V/20 02, THE GROUNDS RAISED BY THE REVENUE GIVE RISE TO THE FOLLOWING ISSUES:- A. DELETION OF BAD DEBTS AMOUNT OF RS.16,99,883/- B. DELETION OF CASH BALANCE AMOUNT OF RS.5,25,000/- 2 C. DELETION OF INVESTMENT IN AGRICULTURAL LAND RS .2,00,946/- D. DELETION OF INTEREST ACCRUED - RS.15,46,683/- 3. THE FACTS RELATING TO THE CASE ARE SET OUT I N BRIEF. THE ASSESSEE AND HIS FAMILY MEMBERS WERE SUBJECTED TO SEARCH OPERATION U /S 132 OF THE ACT ON 17.2.1999. THE AO COMPLETED THE BLOCK ASSESSMENT D ETERMINING THE UNDISCLOSED INCOME AT RS.59,40,700/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT (A) AND GOT PARTIAL RELIEF. AGGRIEVED BY THE ORDER PASSED BY LD CIT(A), THE REV ENUE IS IN APPEAL BEFORE US. THE REVENUE HAS RAISED A GROUND RELATING TO THE VIO LATION OF RULE 46A OF THE INCOME TAX RULES ALONG WITH THE GROUND RELATING TO THE DELETION OF CASH BALANCE AMOUNT OF RS.5,25,000/-. HOWEVER, ON A CAREFUL PE RUSAL OF THE ORDER OF LD CIT(A) SHOWS THAT THE ASSESSING OFFICER WAS PRESENT BEFORE LD CIT(A) DURING THE APPEAL PROCEEDINGS AND FURTHER, PARA 9.2 OF THE ORD ER SHOW THAT THE AO HAS OFFERED HIS COMMENT ON THE BOOKS OF ACCOUNT. IN VI EW OF THE ABOVE, WE DO NOT FIND ANY VIOLATION OF RULE 46A SINCE THE AO WAS GIV EN SUFFICIENT OPPORTUNITY. 4. IN THE REGULAR RETURN OF INCOME RELATING TO THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE DECLARED AN INCOME OF RS.3,21,080/-. THE TRANSACTIONS WERE EFFECTED FROM 1.4.1999 TO 17.2.99, I.E. UP TO THE D ATE OF SEARCH. THE AO TOOK THE VIEW THAT THE INCOME RELATING TO THE SAID PERIOD IS ASSESSABLE UNDER BLOCK ASSESSMENT PROCEEDINGS, SINCE THE ASSESSEE DID NOT MAINTAIN REGULAR BOOKS OF ACCOUNT. IN THE PROFIT AND LOSS ACCOUNT OF THE BUS INESS NAMED ADHILAKSHMI FINANCE, THE ASSESSEE HAD OFFERED INTEREST INCOME ON CASH BASIS AND ALSO CLAIMED EXPENDITURE TOWARDS BAD DEBTS TO THE TUNE O F RS.16,99,883/-.. IN THE BLOCK ASSESSMENT PROCEEDINGS, THE AO MADE FOLLOWING ADDITIONS:- (A) THE TOTAL INCOME OF RS.3,21,080/- DEC LARED BY THE ASSESSEE IN HIS REGULAR RETURN OF INCOME WAS TREATED AS UNDISCLOS ED INCOME. (B) THE AO ALSO TOOK THE VIEW THAT THE BAD DEBT CLAIM IS NOT ALLOWABLE UNDER BLOCK ASSESSMENT PROCEEDINGS AND ACCORDINGLY TREATE D THE SAME AS THE UNDISCLOSED INCOME OF THE ASSESSEE. (C) THE ASSESSEE HAD OFFERED INTEREST INC OME ON FINANCE BUSINESS ON RECEIPT BASIS AND THE ASSESSEE CLAIMED THAT HE IS F OLLOWING CASH SYSTEM OF ACCOUNTING. HOWEVER, THE AO TOOK THE VIEW THAT TH E ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY CAL CULATED THE ACCRUED INTEREST 3 ON THE OUTSTANDING LOANS AT RS.6,07,791/- FOR THE P ERIOD UP TO 31.12.1998 AND RS.9,38,892/- FOR THE PERIOD FROM 1.1.99 TO 16.2.99 . THE TOTAL OF ACCRUED INTEREST AMOUNTING TO RS.15,46,683/- WAS TREATED AS UNDISCLO SED INCOME OF THE ASSESSEE. 4.1 THUS THE ISSUES RELATING TO BAD DEBTS AND TH E ACCRUED INTEREST AS THE FACTS RELATING TO THE BOTH THE ISSUES ARE SAME. THE MAIN CONTENTION OF THE AO IS THAT THE INCOME OF RS.3,21,080/- GENERATED FROM THE CONC ERN NAMED ADHILAKSHMI FINANCE IS LIABLE TO THE TAXED UNDER BLOCK ASSESSM ENT PROCEEDINGS. HOWEVER LD CIT(A) DELETED ALL THE THREE ADDITIONS CITED ABO VE WITH THE OBSERVATION THAT ALL THE THREE ITEMS HAVE TO BE CONSIDERED IN THE REGULA R ASSESSMENT. 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THE SEARCH IN THE HANDS OF THE ASSESSEE TOOK PLACE ON 1 7.2.1999. HENCE, ON THE DATE OF SEARCH, THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR 1999-2000 HAS NOT ENDED. THE ASSESSEE IS A REGULAR INCOME TAX AS SESSEE. HENCE THE ASSESSEE HAS FILED THE REGULAR RETURN OF INCOME FOR ASSESSMENT YEAR 1999-2000 DISCLOSING THE INCOME RELATING TO THE PERIOD FROM 1 .4.98 TO 17.2.99, SINCE THE PREVIOUS YEAR HAD NOT ENDED ON THE DATE OF SEARCH. THE VIEW OF THE AO IS THAT, ON THE DATE OF SEARCH, THERE WERE NO PUCCA BOOKS OF ACCOUNT AND HENCE ALL THE MONEY LENDING TRANSACTIONS HAVE TO BE TAKEN AS TRAN SACTIONS RECORDED OUTSIDE THE BOOKS OF ACCOUNT. HOWEVER THE CONTENTION OF LD AR IS THAT (A) THE EXISTENCE OF THE CONCERN ADHILAK SHMI FINANCE HAS BEEN DISCLOSED TO THE DEPARTMENT PRIOR TO THE DATE OF SEARCH IN TH E RETURN OF INCOME FILED FOR ASST. YEAR 1997-98 AND EARLIER YEARS. (B) MOST OF THE MONEY LENDING ADVANCES A RE CARRY FORWARD ITEMS, I.E BALANCES WERE BROUGHT FORWARD FROM EARLIER BOOKS. (C) FOR EARLIER YEARS, THE ASSESSEE HAD MAINTAIN ED REGULAR BOOKS OF ACCOUNT AND ALSO FILED RETURN OF INCOME. (D) THOUGH THE ASSESSEE HAD NOT PREPARED PROPER BOOKS OF ACCOUNT ON THE DATE OF SEARCH, ALL THE TRANSACTIONS WERE FOUND RECORDED IN SOME RECORD. ACCORDINGLY, LD AR CONTENDED THAT THERE IS NO REASO N TO SUSPECT THAT THESE TRANSACTIONS WOULD NOT HAVE BEEN DISCLOSED TO THE D EPARTMENT. 4 4.3 WE FIND MERIT IN THE CONTENTION OF THE ASSE SSEE. AS ON THE DATE OF SEARCH, THE PREVIOUS YEAR HAS NOT ENDED. THE ASSESSEE HAD DISCLOSED THE MONEY LENDING INCOME IN EARLIER YEARS ON THE BASIS OF BOO KS OF ACCOUNT. AS PER THE DEFINITION OF THE TERM UNDISCLOSED INCOME GIVEN I N SECTION 158B(B), INVESTMENT FOUND ON THE BASIS OF ANY ENTRY IN THE BOOKS OR DOC UMENTS SHALL BE TREATED AS UNDISCLOSED INCOME ONLY IF IT HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSES OF THE INCOME TAX ACT. ON THE FACTS A ND CIRCUMSTANCES OF THE CASE, IT CANNOT BE PRESUMED THAT THE ASSESSEE WOULD NOT H AVE DISCLOSED THE INCOME FROM MONEY LENDING TO THE DEPARTMENT. THE ASSESSEE HAS ALSO FILED REGULAR RETURN OF INCOME FOR THE ASSESSMENT YEAR 1999-2000 SUBSEQUENTLY. HENCE, IN OUR OPINION, THE LD CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS.3,21,080/- WITH A DIRECTION TO CONSIDER THE SAME IN REGULAR ASSESSMEN T PROCEEDINGS. 4.4 SINCE THE NET INCOME FROM MONEY LENDING ACT IVITIES HAVE BEEN DIRECTED TO BE CONSIDERED IN THE REGULAR ASSESSMENT PROCEEDINGS , THE OTHER RELATED ADDITIONS VIZ., THE CLAIM OF BAD DEBT AND THE ADDITION RELATI NG TO THE ACCRUED INTEREST WERE ALSO DIRECTED TO BE CONSIDERED IN THE REGULAR ASSES SMENT PROCEEDINGS. HENCE WE DO NOT FIND ANY INFIRMITY WITH REGARD TO THESE TWO ITEMS. 5. THE REMAINING TWO ISSUES RELATE TO THE CASH B ALANCE OF RS.5,25,000/- FOUND DURING THE COURSE OF SEARCH AND THE INVESTMENT IN A GRICULTURAL LAND AMOUNTING TO RS.2,00,946/-. THE CONTENTION OF THE LD AR IS TH AT THESE TWO ITEMS HAVE BEEN RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND HENCE THEY CANNOT BE TREATED AS THE UNDISCLOSED INCOME OF THE ASSESSEE. ALTERNATIVELY, THE LD AR CONTENDED THAT, THE ASSESSEE HAS ACCEPTED FOLLOWING ADDITIONS MADE IN THE BLOCK ASSESSMENT PROCEEDINGS, TO THE EXTENT CONFIRMED BY LD CIT(A) A. COMMISSION INCOME FROM PRAWN SEED SUPPLY (2,59,547/- + 4,87,467/-) 7,47,014 B. COMMISSION INCOME ON PRAWN SALES 2,44,716 -------------- 9,91,730 ========= WHEN THESE INCOMES HAVE BEEN CONSIDERED IN THE HAND S OF THE ASSESSEE, THEN CASH BALANCE EQUAL TO THIS AMOUNT SHOULD BE AVAILAB LE WITH THE ASSESSEE, WHICH 5 SUFFICIENTLY EXPLAINS THE INVESTMENT MADE IN THE AG RICULTURAL LAND AS WELL AS THE CASH BALANCE NOTICED IN THE COURSE OF SEARCH. 5.1 WITH REGARD TO THE MONEY LENDING TRANSACTION , WE HAVE HELD THAT THERE IS NO MATERIAL TO SUSPECT THAT THE SAID TRANSACTIONS WOUL D NOT HAVE BEEN DISCLOSED TO THE DEPARTMENT, IN VIEW OF THE BOOKS MAINTAINED AND THE RETURN OF INCOME FILED IN EARLIER YEARS. HOWEVER THE SAME ANALOGY COULD NOT BE APPLIED TO THE CASH BALANCE OF RS.5,25,000/- AS WELL AS THE INVESTMENT OF RS.2,00,946/- MADE IN THE AGRICULTURAL LAND, EVEN THOUGH BOTH THE ITEMS WERE FOUND RECORDED IN THE BOOKS OF ACCOUNT PREPARED SUBSEQUENT TO THE SEARCH. HOWEVE R, WE FIND MERIT IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE. IT IS A WE LL SETTLED PROPOSITION THAT BOTH THE INCOME AND INVESTMENT COULD NOT BE TAXED TOGETH ER, WHEN THE INCOME IS SUFFICIENT ENOUGH TO EXPLAIN THE INVESTMENT. IT WOU LD LEAD TO DOUBLE TAXATION OF THE SAME ITEM, WHICH IS NOT INTENDED IN TAXATION LAWS. IN THE INSTANT CASE, THE INCOME ASSESSEE WAS RS.9.91 LAKHS AND THE INVESTMEN T IN THE FORM OF CASH AND AGRICULTURAL LAND WAS RS.7.26 LAKHS. THERE IS NO MATERIAL WITH THE DEPARTMENT TO SHOW THAT THE SAID INCOME WAS NOT AVAILABLE FOR THE IMPUGNED INVESTMENTS. HENCE THE INVESTMENT MADE SHOULD NATURALLY BE TELES COPED WITH THE INCOME ASSESSED. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD CIT(A) HAS RIGHTLY DELETED BOTH THE ADDITIONS. 6. IN THE APPEAL NUMBERED AS ITA NO.250/V/2003 R ELATING TO THE ASSESSMENT YEAR 1999-2000, FOLLOWING ISSUES ARE AGITATED. A. WHETHER LD CIT(A) IS JUSTIFIED IN HOLDING THAT T HE INTEREST INCOME IS ASSESSABLE IN REGULAR ASSESSMENT, WHEN THE SAME ISS UE IS PENDING BEFORE ITAT IN BLOCK ASSESSMENT PROCEEDINGS. B. WHETHER LD CIT(A) IS JUSTIFIED IN DELETING THE A DDITION MADE TOWARDS BAD DEBTS, WHEN THE SAME IS PENDING BEFORE ITAT IN BLOCK ASSESSMENT PROCEEDINGS. 6.1 THE FIRST ISSUE IS REQUIRED TO BE ANSWERED AGAINST THE REVENUE, SINCE WE HAVE AFFIRMED THE ORDER OF LD CIT(A) IN THE BLOCK A SSESSMENT PROCEEDINGS IN HOLDING THAT THE INCOME FROM MONEY LENDING ACTIVITI ES RELATING TO THE ASSESSMENT YEAR 1999-2000 HAS TO BE CONSIDERED IN THE REGULAR ASSESSMENT PROCEEDINGS. 6 6.2 WITH REGARD TO THE METHOD OF ACCOUNTING FOL LOWED BY THE ASSESSEE, LD CIT(A) HAS CONSIDERED THE ASSESSMENT ORDERS AND STA TEMENT OF EARLIER YEARS RELATING TO ASST. YEAR 1995-96, 1996-97 AND 1997-98 AND HAVE GIVEN A CLEAR FINDING THAT THE ASSESSEE HAS BEEN OFFERING INCOME ON CASH BASIS. HENCE THE QUESTION OF CONSIDERING THE ACCRUED INTEREST ALSO D OES NOT ARISE. 6.3 WITH REGARD TO THE BAD DEBT CLAIM OF RS.16, 99,883/-, THE AO HIMSELF ALLOWED DEDUCTION TO THE EXTENT OF RS.4,93,700/-. WITH REGARD TO THE REMAINING AMOUNTS, THE ASSESSEE SUBMITTED THAT THEY WERE SETT LED THROUGH AN ADVOCATE NAMED SHRI P.RAMA MOHAN AND ALSO THROUGH THE SARPAN CH OF THE CONCERNED VILLAGE. THE AO HAS CAUSED ENQUIRIES WITH THE SAID CLAIM AND ALL THE DEBTORS EXCEPT TWO HAVE CONFIRMED THAT THEIR LOAN BALANCE W AS SETTLED DUE TO THE CROP FAILURES. THE AO COULD NOT CONTACT TWO DEBTORS. H ENCE THE LD CIT(A) DELETED THE ADDITION PERTAINING TO THE BAD DEBTS TO THE EXTENT OF RS.11,96,535/-. THE OBSERVATIONS OF LD CIT(A) IN THIS REGARD ARE EXTRAC TED BELOW:- IT WAS FURTHER SUBMITTED THAT THE STATEMENTS OBTA INED BY THE DEPARTMENT CONFIRMED THAT THE DEBTORS SUFFERED LOSSES OF CROP AND AS THEIR FINANCIAL POSITION WORSENED, THEY APPROACHED FOR SETTLEMENT OF DEBT AN D EVEN THE ASSESSING OFFICER CONCEDED THAT THERE WERE CROP FAILURES. THE APPELL ANT IS IN THE BUSINESS OF SUPPLY OF PRAWN SEED. IN ADDITION, HE WAS ALSO FIN ANCING THE FARMERS OUT OF THE MONEYS REALIZED FROM SUPPLY OF PRAWN. AS THE ASSES SING OFFICER HIMSELF MADE ENQUIRIES AND ALLOWED BAD DEBT TO THE TUNE OF RS.4, 93,700/-, THERE IS NO NEED TO DISALLOW THE BALANCE AS THE APPELLANT HAS SUFFERED LOSS AND WRITTEN OFF THESE AMOUNTS. AS SEEN FROM THE TABLE ABOVE, EXCEPT A BA D DEBT OF RS.4,168 IN THE CASE OF SRI GODAVARTHY VARMA AND RS.5,480/- IN THE CASE OF SRI V.PEDDIRAJU, THE REST OF ALL HAVE BEEN ENQUIRED INTO BY THE ASSESSIN G OFFICER. AS THE APPELLANT MADE CLAIM OF BAD DEBT AND AS THE ASSESSING OFFICER ENQUIRED AND FOUND THAT THOSE DEBTORS REALLY CONFIRMED THAT THERE WAS SETTL EMENT AND AS MOST OF THE PEOPLE SUFFERED LOSSES IN THE PRAWN CULTURE, THE AP PELLANTS CLAIM OF BAD DEBT IS TO BE ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE AMOUNTS TO THE EXTENT TO WHICH HE HAD ENQUIRED AND GOT CONFIRMATIONS FROM THE DEBTORS I.E (RS.12,06,183 MINUS (RS.4186 + RS.5,480) = RS.11,96 ,535. WITH REFERENCE TO THE TWO DEBTS WHICH ARE NOT VERIFIED, THE APPELLANT DID NOT FURNISH ANY FURTHER EVIDENCE AND SO, THEY CANNOT BE ALLOWED. IN VIEW OF THE REASONING GIVEN BY LD CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A). 7 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 4.12.2009 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 4 TH DECEMBER, 2009 A COPY OF THIS ORDER IS FORWARDED TO : 01 THE DCIT, CIRCLE-1, KKS TOWERS, RR PET, ELURU 53 4002 02 ACIT, CIRCLE-1, ELURU 03 SHRI GOLUGURI RAMAKRISHNA REDDY, S/O SHRI G. SAT YANARAYANA REDDY, C/O SHIRDI SAI APARTMENTS, NEAR DNR COLLEGE, BHIMAV ARAM, W.G.DISTT. 04 THE CIT (A), RAJAHMUNDRY, 05 THE CIT, RAJAHMUNDRY 06 THE DR, ITAT, VISAKHAPAATNAM 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH