M/s Vajramsetty Panduranga, Guntur V. The Commissioner of Income Tax, Guntur

ITA 352/VIZ/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7286 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Assessee Lawyers: P BALA SRINIVAS
• Section: 143(3); 263

Judgement Text

ITA NO.352 OF 2010 VAIRAMSETTY PANDURANGA GUNTUR U NDER SECTION 143(3) PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.352/VIZAG/2010 ASSESSMENT YEAR: 2005 - 06 VAIRAMSETTY PANDURANGA, GUNTUR VS. COMMISSIONER OF INCOME TAX GUNTUR (APPELLANT) PAN NO:ABAPV 7348 F (RESPONDENT) APPELLANT BY: SHRI P. BALA SRINIVAS, CA RESPONDENT BY: SHRI T.H. LUCAS PETER, CIT(DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31.3.2010 PASSED BY LEARNED CIT GUNTUR UNDER SECTIO N 263 OF THE ACT AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LE ARNED CIT IN SETTING ASIDE THE ASSESSMENT ORDER DATED 26-12-2007 PASSED UNDER SECTION 143(3) OF THE ACT WITH A DIRECTION TO THE ASSESSING OFFICE R RE-EXAMINE THE FOLLOWING ISSUES: A) CAPITAL GAIN ON SALE OF SHARES - RS.3.45 CRORE S B) LOSS ON SALE OF TEXTILE STOCK - RS.1.51 CRORES C) NON CHARGING OF INTEREST ON ADVANCES GIVEN TO 3 PERSONS. D) INTEREST PAYMENT OF RS. 15.16 LAKHS 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON ADMITTING A TOTAL INCOME OF RS.2.76 CRORES. THE ASSESSING OFFICER ACC EPTED THE SAME IN THE SCRUTINY PROCEEDINGS AND PASSED ASSESSMENT ORDER UN DER SECTION 143(3) OF THE ACT. THE LEARNED CIT EXAMINE THE SAID ORDER AND FOUND THE SAME TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AND ACCORDINGLY INITIATED PROCEEDINGS UNDER SECTION 263 OF THE ACT. AFTER HEARING THE ITA NO.352 OF 2010 VAIRAMSETTY PANDURANGA GUNTUR U NDER SECTION 143(3) PAGE 2 OF 6 ASSESSEE, THE LEARNED CIT SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE ASSESSING OFFICER TO EXAMINE THE FOUR ITEMS LISTED IN THE PRECEDING PARAGRAPH IN A PROPER MANNER AND THEN PASS THE ASSE SSMENT ORDER IN ACCORDANCE WITH THE LAW. AGGRIEVED BY THE SAID ORDE R OF THE LEARNED CIT, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE RELATES TO THE LONG TERM CAP ITAL GAINS EARNED BY THE ASSESSEE ON SALE OF SHARES HELD IN M/S SPIKE TECHNO LOGIES (INDIA) (P) LTD. THE ASSESSEE CLAIMED THAT HE HAD SOLD 25 LAKHS OF S HARES HELD IN THE ABOVE SAID COMPANY FOR A SUM OF RS.3,45,00,690/- AND OFFE RED THE ENTIRE SALE CONSIDERATION AS LONG TERM CAPITAL GAIN. WHEN THE ASSESSING OFFICER RAISED QUERY IN THIS REGARD, THE ASSESSEE FURNISHED TRUE C OPY OF THE REGISTER OF MEMBERS OF THAT COMPANY, WHICH CONTAINED FOLLOWING DETAILS. (A) ON 10.10.1997 25 SHARES OF RS.10/- WAS AL LOTTED TO THE ASSESSEE. (B) ON 24.10.2000 - 25 SHARES CONVERTED INTO 50 SHARES OF RS.5/- EACH. (C) ON 08.11.2000 24,99,250 BONUS SHARES IS SUED TO THE ASSESSEE. THUS THE ASSESSEE CLAIMED TO HAVE BECOME THE OWNER OF 25 LAKHS SHARES IN THAT COMPANY IN THE MATTER STATED ABOVE. THE ASSESS EE CLAIMED THAT HE PURCHASED 25 SHARES INITIALLY FOR A SUM OF RS.250/- ON 10.10.1997 OUT OF HIS PERSONAL DRAWINGS. ON RECEIPT OF BONUS SHARES, HE CLAIMED TO HAVE SOLD THE ENTIRE 25 LAKHS SHARES ON 18.11.2004 FOR A CONS IDERATION OF RS.3.45 CRORES. THE ASSESSING OFFICER ACCEPTED THE EXPLANA TIONS OF THE ASSESSEE AS IT IS. 4.1 THE LEARNED CIT NOTICED THAT THE ASSESSEE H AS NOT DISCLOSED THE INITIAL INVESTMENTS OF RS.250/- IN HIS BALANCE SHEE T. FURTHER THE ASSESSEE DID NOT FURNISH THE DETAILS OF (A) SPLIT OF SHARES AND BONUS SHARES OFFERED BY THE COMPANY (B) NAME AND ADDRESS OF THE PERSON TO W HOM SOLD (C) MODE OF RECEIPT OF PAYMENT (D) DISTINCTIVE NUMBERS OF THE S HARES TRANSFERRED. ACCORDINGLY THE LEARNED CIT DIRECTED THE ASSESSING OFFICER TO VERIFY THE GENUINENESS OF THE CLAIM MADE BY THE ASSESSEE IN TH IS REGARD. ITA NO.352 OF 2010 VAIRAMSETTY PANDURANGA GUNTUR U NDER SECTION 143(3) PAGE 3 OF 6 4.2 BEFORE US, THE LEARNED A.R SUBMITTED THAT TH E ASSESSEE HAS FURNISHED THE DETAILS OF PURCHASE OF SHARES, SPLIT UP AND BON US SHARES DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN COMPLIANCE TO T HE QUERY RAISED BY THE ASSESSING OFFICER. THE LEARNED A.R DREW OUR ATTENTI ON TO THE RELEVANT DETAILS PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. TH E LEARNED A.R FURTHER SUBMITTED THAT THE ASSESSING OFFICER WAS SATISFIED ABOUT THE GENUINENESS OF THE TRANSACTIONS AFTER CONDUCTING NECESSARY ENQUIRI ES AND ACCORDINGLY CONTENDED THAT THE LEARNED CIT IS WRONG IN INVOKING THE REVISION PROCEEDINGS ON THIS ISSUE. 4.3 ON THE CONTRARY, LEARNED DEPARTMENTAL REPRE SENTATIVE SUBMITTED THAT IT IS BEYOND THE SCOPE OF HUMAN PROBABILITIES THAT AN INVESTMENT OF RS.250/- MADE IN 1997 WOULD FETCH A RETURN OF RS.3. 45 CRORES WITHIN A SPAN OF ABOUT 3 YEARS. ACCORDINGLY HE CONTENDED THAT TH E ASSESSING OFFICER HAS NOT PROPERLY UNDERSTOOD THE IMPLICATIONS OF THE TRA NSACTIONS AND HENCE HE HAS FAILED TO MAKE PROPER INQUIRIES WARRANTING REVI SION PROCEEDINGS BY THE LEARNED CIT. 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND CAREFULLY PERUSED THE RECORD. THE ASSESSMENT ORDER IS VERY C RISP AND IT DID NOT DISCUSS ANY THING ABOUT THE COMPONENTS OF THE TOTAL INCOME. HENCE IT IS NOT CLEAR FROM THE ASSESSMENT ORDER WHETHER THE ASSESSI NG OFFICER HAS PROPERLY APPLIED HIS MIND ON THE VARIOUS COMPONENTS OF INCOM E AND EXPENDITURE THAT WERE DISCLOSED BY THE ASSESSEE. THOUGH THE ASSESSE E HAS FURNISHED COPIES OF REGISTER OF MEMBERS AND THE COMPUTATION OF CAPIT AL GAIN, IN OUR VIEW, THE SAME CANNOT BE TAKEN AS PROPER APPRECIATION OF THE ISSUE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE DID NOT DI SCLOSE THE PURCHASE OF SHARES IN HIS BALANCE SHEET. SINCE THE INITIAL AMO UNT OF INVESTMENT WAS A SMALL AMOUNT OF RS.250/- HE EXPLAINED THAT THE SAME WAS PAID OUT OF PERSONAL DRAWINGS. THE SECOND IMPORTANT POINT IS T HAT THE COMPANY NAMED M/S SPIKE TECHNOLOGIES (INDIA) (P) LTD. IS A CLOSELY HELD COMPANY AND ITS SHARES ARE NOT LISTED IN ANY STOCK EXCHANGE. THE Q UESTION THAT SHOULD NORMALLY ARISE IN THE MIND OF A REASONABLE PERSON I S HOW A COMPANY COULD ITA NO.352 OF 2010 VAIRAMSETTY PANDURANGA GUNTUR U NDER SECTION 143(3) PAGE 4 OF 6 ALLOT 24,99,950 BONUS SHARES ON JUST 50 SHARES, THA T TOO WITHIN THREE YEARS OF ITS FORMATION. GETTING SUCH A HUGE NUMBER OF BO NUS SHARES IS MIND BOGGLING AND HENCE THAT SHOULD HAVE PROMPTED THE AS SESSING OFFICER TO INITIATE FURTHER ENQUIRIES. NEXT QUESTION THAT SHO ULD HAVE ARISEN IS HOW THE SALE PRICE OF THE SAID SHARES WAS FIXED, SINCE THE SHARES OF THE SAID COMPANY ARE NOT LISTED IN ANY STOCK EXCHANGE. THE ASSESSING OFFICER SHOULD HAVE PROBED THE ISSUE IN THE ABOVE SAID LINE S SINCE THE INCOME FROM LONG TERM CAPITAL GAINS IS SUBJECTED TO TAX AT CONC ESSIONAL RATE OF 20%. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VI EW THAT THE ASSESSING OFFICER HAS CLEARLY FAILED TO MAKE INVESTIGATION OF THE ISSUE IN A PROPER MANNER AND ACCORDINGLY THE LEARNED CIT WAS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THE ISSUE PROPERLY. 5. THE NEXT ISSUE RELATES TO THE LOSS CLAIMED O N SALE OF TEXTILE STOCK. THE ASSESSEE HAD SOLD THE OPENING STOCK OF TEXTILE STOC K COSTING RS.1,66,63,394/- FOR A SUM OF RS.10,08,003/- AND TH US DECLARED A LOSS OF RS.1,51,42,391/-. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE ASSESSING OFFICER HAS FAILED TO MAKE ANY ENQUIRY IN THIS REGARD. HENCE WE ARE OF THE VIEW THAT THE LEARNED CIT IS RIGHT IN LA W IN DIRECTING THE ASSESSING OFFICER TO INVESTIGATE THIS ISSUE. 6. THE NEXT ISSUE RELATES TO THE NON-CHARGING O F INTEREST ON THE AMOUNTS ADVANCED BY THE ASSESSEE. THE ASSESSEE HAS GIVEN A N ADVANCE OF RS.1.03 CRORES TO M/S GANGOTRI PHARMA P LTD; RS.2.34 CRORES TO M/S VAJRAM INNS PVT. LTD AND RS.25.85 LAKHS TO SRI V.PRAVEEN KUMAR. THE ASSESSEE DID NOT COLLECT ANY INTEREST FROM THEM. THE ASSESSING OFFIC ER RAISED A QUERY IN THIS REGARD, VIDE HIS LETTER DATED 29.10.2007 AND THE AS SESSEE REPLIED THAT THEY WERE GIVEN INTEREST FREE. THE LEARNED CIT OPINED T HAT SUCH A HUGE AMOUNT WILL NOT BE GIVEN BY ANY PRUDENT PERSON FOR FREE OF INTEREST AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO CAUSE FURTHER ENQ UIRIES TO VERIFY THE CORRECTNESS OF THE TRANSACTIONS AND CLAIM. ITA NO.352 OF 2010 VAIRAMSETTY PANDURANGA GUNTUR U NDER SECTION 143(3) PAGE 5 OF 6 6.1 THE LEARNED AUTHORISED REPRESENTATIVE POINT ED OUT THAT THE ASSESSEE HIMSELF OFFERED A SUM OF RS.1.00 CRORE IN HIS MEMO OF TOTAL INCOME IN ORDER TO COVER UP SUCH KIND OF DEFICIENCIES AND THE SAID FACT WAS ALSO BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. ON THE CONTRA RY THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LEAR NED CIT HAS ONLY DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ISSUE SINCE THE ASSESSING OFFICER HAS FAILED TO MAKE PROPER ENQUIRIES IN THIS REGARD. 6.2 WE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE . WE NOTICE THAT THE ASSESSING OFFICER HAS RAISED A QUERY IN THIS REGARD AND THE ASSESSEE HAS FURNISHED A REPLY. AS STATED EARLIER, THE ASSESSIN G OFFICER DID NOT DISCUSS ANY THING ABOUT THIS ISSUE IN THE ASSESSING OFFICER . HENCE IT IS NOT DISCERNIBLE HOW THE ASSESSING OFFICER HAS ACCEPTED THE EXPLANATION OF THE ASSESSEE ON THIS ISSUE AND WHETHER THE VIEW OF THE ASSESSING OFFICER IS ONE OF THE PLAUSIBLE VIEWS. IT IS ALSO NOT UNDERSTANDA BLE WHY THE ASSESSEE SHOULD OFFER A SUM OF RS.1.00 CRORE TOWARDS THE DEF ICIENCIES IN CONNECTION WITH THE INTEREST CLAIM/RECEIPTS. HENCE, IN OUR VI EW, THE LEARNED CIT IS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE INTEREST PAYME NT OF RS.15.16 LAKHS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE T OOK A SECURED LOAN OF RS.1.98 CRORES AND UNSECURED LOAN OF RS.43.08 LAKHS AND CLAIMED INTEREST OF RS.15.16 LAKHS ON SUCH LOANS. THE LEARNED CIT NOTI CED THAT THE ASSESSEE WAS POSSESSING A CASH BALANCE OF RS.18.18 LAKHS AT THE BEGINNING OF THE YEAR AND A BALANCE OF RS.25.08 LAKHS AT THE END OF THE YEAR. HENCE THE LEARNED CIT OPINED THAT THERE WAS NO NECESSITY FOR THE ASSESSEE TO BORROW FUNDS WHEN HE WAS HAVING HUGE CASH BALANCE. ACCORD INGLY HE DIRECTED THE ASSESSING OFFICER TO EXAMINE THE BOOKS OF ACCOUNTS OF THE ASSESSEE TO FIND OUT WHETHER THE ASSESSEE IS SHOWING THE TRANSACTION S IN A TRUE AND FAIR MANNER. THE LEARNED CIT HAS ALSO POINTED OUT THAT THERE IS NO NECESSITY FOR THE ASSESSEE TO OFFER A SUM OF RS.1.00 CRORE TO COVER UP DEFICIENCIES IF THE BOOKS OF ACCOUNT ARE TRUE AND FAIR IN ALL RESPE CT. ITA NO.352 OF 2010 VAIRAMSETTY PANDURANGA GUNTUR U NDER SECTION 143(3) PAGE 6 OF 6 7.1 FROM THE RECORD, WE NOTICE THAT THE ASSESSI NG OFFICER DID NOT EXAMINE THIS ISSUE AND THERE IS NO DISPUTE BETWEEN THE PARTIES ON THIS POINT. THE LEARNED A.R SUBMITTED THAT THE DEFICIEN CY, IF ANY WOULD BE COVERED BY THE LUMP SUM OFFER OF RS.1.00 CRORE MADE BY THE ASSESSEE. BUT THE FACT REMAINS THAT THE ASSESSING OFFICER HAS FAI LED TO INVESTIGATE THIS ISSUE. HENCE, WE ARE OF THE VIEW THAT THE LEARNED CIT IS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFICER TO INVESTIGATE THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:19-01-2011 COPY TO 1 SHRI P. BALA SRINIVAS, POLINENI ASSOCIATES, CHART ERED ACCOUNTANTS 6-12- 47, 12/1 ARUNDELPET, GUNTUR 522 002 2 THE COMMISSIONER OF INCOME TAX, GUNTUR 4 THE DR, ITAT, VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM