P. Pavani, Nellore, Hyderabad V. Asst.CIT, Central Circle, Tirupathi

ITA 424/HYD/2014

• Counselvise Citation: 42422514 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 26-06-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 13-03-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Search and seizure
• Section: 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. AY. APPELLANT RESPONDENT 424/HYD/2014 2002 - 03 P. PAVANI, L/R. OF LATE SMT. CH. VANAJAKSHAMMA, NELLORE [PAN: ABVPC3305J] ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, TIRUPATI 42 5 /HYD/2014 200 3 - 0 4 42 6 /HYD/2014 200 4 - 0 5 42 7 /HYD/2014 200 5 - 0 6 42 8 /HYD/2014 200 6 - 0 7 FOR ASSESSEE : SHRI S. RAMA RAO , A R FOR REVENUE : S HRI RAJAT MITRA , DR DATE OF HEARING : 02 - 0 7 - 201 5 DATE OF PRONOUNCEMENT : 08 - 0 7 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE APPEALS ARE PERTAINING TO SMT. CH. VANAJAKSH AMMA, AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S), GUNTUR DATED 31-12-2013. AS THE ASSESSEE SMT. CH. VANAJAKSHAMMA DIED, SMT. P. PAVANI, DAUGHTER OF ASSESSEE FILED THE APPEALS A S LEGAL REPRESENTATIVE. THE MATTER WAS REFERRED TO ASSESSING OFFICER (AO) T O DO THE NEEDFUL. APPEALS ARE MAINTAINED TAKING P. PAVANI AS LEGAL RE PRESENTATIVE. 2. BRIEFLY STATED, LATE SMT. CH. VANAJAKSHAMMA, WAS LIVING WITH SHRI P.V. RAGHAVA RAO AND SMT. P. PAVANI AT NELLORE, BEI NG MOTHER OF SMT. P. PAVANI. THERE WERE SEARCH AND SEIZURE OPERATIONS A T THE BUSINESS AND RESIDENTIAL PREMISES OF SHRI P.V. RAGHAVA RAO ON 23 -01-2006. AO RECORDS THAT CERTAIN DOCUMENTS PERTAINING TO ASSESS EE WERE FOUND AND SEIZED DURING THE SEARCH AND HENCE NOTICES U/S. 153 C OF THE INCOME TAX ACT [ACT] WERE ISSUED FOR VARIOUS YEARS. IN THE CO URSE OF ASSESSMENT I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 2 -: PROCEEDINGS U/S. 143(3) R.W.S. 153C OF THE ACT, ASS ESSEE'S BOOKS OF ACCOUNTS WERE REFERRED TO SPECIAL AUDIT CARRIED BY M/S. SOMANCHI & CO., HYDERABAD, WHO SUBMITTED A REPORT ON 24-05-2010. A O COMPLETED THE ASSESSMENTS IN THE IMPUGNED ASSESSMENT YEARS OF 200 2-03 TO 2006-07 BY MAKING COMMON ADDITIONS OF 10% OF EXPENDITURE CL AIMED IN THE P&L A/C, OTHER THAN DEPRECIATION AND DISALLOWANCE OF CH IT LOSS CLAIMED IN SOME YEARS. THERE WERE CERTAIN OTHER ADDITIONS LIK E DEPOSITS IN BANK A/C, CREDITS IN THE BOOKS WHICH WERE DELETED BY THE CIT(A) IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE HIM AFTER DUE VERIF ICATION BY THE AO IN THE REMAND PROCEEDINGS. REVENUE IS NOT IN APPEAL O N THE DELETIONS MADE BY THE CIT(A). HOWEVER, ASSESSEE IS AGGRIEVED ON THE CONFIRMATION OF DISALLOWANCE OF EXPENDITURE IN THE IMPUGNED YEAR S AT 10% OF THE CLAIM AND DISALLOWANCE OF CHIT LOSS CLAIMED. 3. REFERRING TO THE ASSESSMENT ORDERS PARTICULARLY TO THE ORDER IN AY. 2002-03, LD. COUNSEL SUBMITTED THAT ASSESSEE IS HAV ING A HOTEL AND IN THE HOTEL BUSINESS, BOOKS OF ACCOUNTS WERE MAINTAIN ED. WHILE SPECIAL AUDITOR HAS NOT MADE ANY ADVERSE COMMENTS AND CONFI RMED THE P&L A/C, ON THE REASON THAT ASSESSEE DID NOT FURNISH A NY VOUCHERS, 10% OF THE EXPENDITURE CLAIMED (OTHER THAN DEPRECIATION) W AS DISALLOWED BY THE AO IN THE IMPUGNED ASSESSMENT YEARS. LD. COUNSEL D REW OUR ATTENTION TO THE FACT THAT THE AMOUNT CONSIDERED FOR THE DISA LLOWANCE FOR THE ASSESSMENT YEAR I.E., RS. 23,34,282/- INCLUDES ELEC TRICITY BILLS OF RS. 7,35,895/-, INTEREST PAID OF RS. 3,83,426/-, INTERE ST TO APSFC OF RS. 6,48,501/-, TELEPHONE BILLS OF RS. 85,771/-, MUNICI PAL TAXES OF RS. 7,876/- AND BANK CHARGES OF RS. 7,618/-. THERE WER E RECEIPTS TOWARDS TELEPHONE BILLS ALSO IN ADDITION TO ROOM RENTS AND CONFERENCE HALL RENTS TO THE TUNE OF RS. 6,55,720/- AND RS. 6,45,000/-. IT WAS SUBMITTED THAT ASSESSEE INCURRED LOSS IN THIS YEAR DUE TO HIGH DEP RECIATION, ALL THE EXPENDITURE WHICH WAS CLAIMED IN P&L A/C WERE SUPPO RTED BY VOUCHERS I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 3 -: AND ARE VERIFIABLE. IT WAS FURTHER SUBMITTED THAT NEITHER THE AO NOR SPECIAL AUDITOR EXAMINED THE VOUCHERS AND DISALLOWA NCE OF 10% OF EXPENDITURE ON ADHOC BASIS WAS NOT WARRANTED. IT W AS FURTHER SUBMITTED THAT THERE WAS NO INCRIMINATING MATERIAL AND HENCE, DISALLOWANCE OF EXPENDITURE ON ADHOC BASIS ALSO DOE S NOT ARISE IN THESE PROCEEDINGS. 3.1 WITH REFERENCE TO THE DISALLOWANCE OF CHIT LOSS , IT WAS THE SUBMISSION THAT ASSESSEE PARTICIPATED IN VARIOUS CH ITS AND INFORMATION WAS FURNISHED TO THE AO. WHILE THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT CHIT DIVIDENDS WERE OFFERED AS INCOMES, A O DISALLOWED THE LOSS ON THE REASON THAT LOSS WAS NOT SUBSTANTIATED. IT WAS FURTHER SUBMITTED THAT LD.CIT(A) ALSO DID NOT CONSIDER THE SUBMISSION S AND EVIDENCES ON RECORD INCLUDING THE FACT THAT THESE AMOUNTS OF CHI TS WERE SHOWN IN THE BALANCE SHEET AND P&L A/C, BUT OPINED THAT ASSESSEE DID NOT FURNISH ANY EVIDENCE. REFERRING TO THE PAPER BOOK AND THE ANNUAL REPORTS OF THE IMPUGNED YEARS, LD. COUNSEL SUBMITTED THAT THE AMOU NTS RECEIVED BY BIDDING THE CHITS WERE USED IN PURCHASE OF ASSETS A ND THE OUTSTANDING CHIT AMOUNTS WERE SHOWN UNDER THE HEAD 'CURRENT LIA BILITY'. SINCE THERE IS NO DISPUTE WITH REFERENCE TO QUANTIFICATION OF L OSS, AS ASSESSEE HAS OFFERED THE CORRESPONDING DIVIDEND AS INCOME, THE L OSS SHOULD BE ALLOWED. 4. LD. DR HOWEVER, SUBMITTED THAT ASSESSEE DID NOT FURNISH THE NECESSARY EVIDENCE BEFORE AO, THEREFORE, AO WAS COR RECT IN DISALLOWING THE ABOVE AMOUNTS. HE DREW OUR ATTENTION TO THE OB SERVATIONS OF THE STATUTORY AUDITOR IN THE REPORT PLACED AT PAGE 13 O F THE PAPER BOOK FOR THE AY. 2002-03. IT WAS SUBMITTED THAT SIMILAR COMM ENTS WERE MADE IN ALL THE YEARS THAT NONE OF THE EXPENDITURE NOR RECE IPTS IN THE P&L A/C WAS 'SUPPORTED BY SUPPORTING VOUCHERS OF ANY KIND'. IN VIEW OF THIS, AO I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 4 -: AND CIT(A) ARE CORRECT IN DISALLOWING THE AMOUNTS A ND CONFIRMING THE SAME. 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RI VAL CONTENTIONS AND THE PAPER BOOK PLACED ON RECORD. EVEN THOUGH, ASSESSEE HAS NOT CHALLENGED THE PROCEEDINGS U/S. 153C, WHAT WE NOTIC E IS THAT NO INCRIMINATING SEIZED MATERIAL WAS AVAILABLE AS FAR AS ASSESSEE IS CONCERNED. PROCEEDINGS INITIATED AND COMPLETED BY AO ARE IN THE CONTEXT OF PROCEEDINGS U/S. 153C OF THE ACT. AO'S JURISDICTION ARISES FROM THE INCRIMINATING MATERIAL FOUND IN THE THIRD PERSON'S CASE WHICH 'BELONGS TO ASSESSEE'. THERE IS NO SUCH FINDING EI THER IN THE ASSESSMENT ORDER OR IN THE CIT(A)'S ORDER ABOUT THE INCRIMINAT ING MATERIAL BELONGING TO ASSESSEE SO AS TO INITIATE PROCEEDINGS. SINCE A SSESSEE HAS NOT QUESTIONED THE INITIATION OF PROCEEDINGS, WE ARE NO T ADJUDICATING THE MERITS OF THE PROCEEDINGS BUT EXAMINED THE ADDITION S MADE IN THE RESPECTIVE ASSESSMENTS, KEEPING IN MIND THAT THE PR OCEEDINGS ARE U/S. 153C. 5.1 AS FAR AS THE ESTIMATED DISALLOWANCE OF EXPENDI TURE, WE NOTICE THAT STATUTORY AUDITOR QUANTIFIED THE AMOUNT OF EXPENDI TURE OTHER THAN DEPRECIATION IN HIS STATUTORY REPORTS IN EACH YEAR WITH THE COMMENT THAT NEITHER THE RECEIPTS NOR EXPENDITURES WERE SUPPORTE D BY ANY VOUCHERS. HOWEVER, AT THE SAME TIME, HE ALSO CERTIFIED THE BA LANCE SHEET AND THE P&L A/C TO BE TRUE AND CORRECT. THERE ARE NO DISAL LOWANCES OR VIOLATIONS REPORTED IN THE REPORT OF THE SPECIAL AUDITOR. IN VIEW OF THIS, WE ARE OF THE OPINION THAT MUCH CANNOT BE READ INTO THE COMME NT OF THE SPECIAL AUDITOR THAT VOUCHERS ARE NOT AVAILABLE. IF BOTH R ECEIPTS AND EXPENDITURES ARE NOT VERIFIABLE, HOW THE SPECIAL AU DITOR CERTIFIED THE ACCOUNTS IS NOT UNDERSTOOD. IT WAS THE CONTENTION OF ASSESSEE THAT ASSESSEE DID MAKE AVAILABLE THE RELEVANT VOUCHERS T O THE AO, WHO DID I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 5 -: NOT ENTERTAIN THEM. WHATEVER MAY BE THE REASON, WE ARE NOT IN A POSITION TO UNDERSTAND HOW 10% OF THE EXPENDITURE C AN BE DISALLOWED ON ADHOC BASIS WITHOUT EXAMINING THE NATURE OF EXPENDI TURE. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL, THE EXPENDITURE CON SIDERED FOR DISALLOWANCE ALSO INCLUDES THE INTEREST PAID TO APS FC, ELECTRICITY BILLS, MUNICIPAL TAXES, INTEREST ON THE BORROWED FUNDS ETC . THE OTHER EXPENDITURE CLAIMED BY ASSESSEE IS WITH REFERENCE T O SALARIES, MAINTENANCES, REPAIRS, SECURITY SERVICES. WE ALSO NOTICE THAT ASSESSEE DISALLOWED CERTAIN INADMISSIBLE MISCELLANEOUS EXPEN DITURE IN THE COMPUTATION OF INCOME, WHICH WAS LOST SIGHT OF. CO NSIDERING THE NATURE OF EXPENDITURE CLAIMED AND THE BUSINESS OF ASSESSEE , WE ARE OF THE OPINION THAT NO ADHOC DISALLOWANCE OF EXPENDITURE I S WARRANTED ON THE FACTS OF THE CASE. THEREFORE, WE DIRECT THE AO TO DELETE ALL SUCH DISALLOWANCES MADE AND ALLOW THE CLAIMS AS PER THE P&L A/C. IN VIEW OF THIS, THE GROUNDS PERTAINING TO ESTIMATED DISALLOWA NCE OF EXPENDITURE IN RESPECTIVE YEARS ARE TREATED AS ALLOWED. 6. COMING TO THE ISSUE OF DISALLOWANCE OF CHIT LOSS , ASSESSEE HAS FURNISHED ALL THE DETAILS OF CHIT PAYMENTS, CHIT LO SS, AUCTIONED CHITS AND CHIT DIVIDENDS. WE NOTICE THAT THE COMPLETE DETAIL S ARE FURNISHED BEFORE THE AO AND CIT(A). FOR THE SAKE OF RECORD, IN AY. 2003-04, ASSESSEE CLAIMED CHIT LOSS OF RS. 2,84,425/- IN THE P&L A/C. THIS AMOUNT WAS ARRIVED AT AFTER SETTING OF A DIVIDEND OF RS. 22,57 5/- ON A CHIT FOR RS. 10 LAKHS IN CHIT NO. FT001ZV/10. IT WAS SUBMITTED THA T THE CHIT WAS BID IN FY. 2001-02 AND THE LOSS WAS DISTRIBUTED OVER CH IT CONTRIBUTION PERIOD. PROPORTIONATE AMOUNT OF RS. 2,84,425/- WAS RECOGNIZED AS A LOSS AFTER NETTING OF CHIT DIVIDEND INCOME OF RS. 22,575 /-. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS USED THE CHIT AMOUNT FO R THE PURPOSE OF BUSINESS. ASSESSEE WAS PROPRIETOR OF PAVANI RESIDE NCY HOTEL AND PARTNER IN PAVANI TOWERS AND PAVANI PARK. AMOUNT R ECEIVED OUT OF I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 6 -: BIDDING CHIT RS. 6,93,000/- WAS INVESTED IN THE ABO VE BUSINESS VENTURES. IN SPITE OF THE EXPLANATION, LD.CIT(A) REJECTED THE CLAIM ON THE REASON THAT NOTHING HAS BEEN BROUGHT ON RECORD TO INDICATE THAT AMOUNTS RAISED IN THE CHITS HAVE BEEN UTILIZED FOR THE PURPOSE OF APPELLANT'S BUSINESS. HE FURTHER GIVES A FINDING THAT NO BALANCE SHEET HA S BEEN FILED. THERE IS NO JUSTIFICATION FOR THE ABOVE OBSERVATIONS OF CIT( A) AS ASSESSEE HAS FURNISHED NOT ONLY THE BALANCE SHEETS BUT ALSO EXPL ANATION WITH REFERENCE TO EACH OF THE CHIT DURING THE IMPUGNED Y EARS. IN FACT WE NOTICE THAT IN AY. 2002-03 ALSO ASSESSEE FURNISHED THE FOLLOWING DETAILS. DETAILS OF CHIT DIVIDEND EARNED ON FOUR CHITS AT RS . 1,94,784/-, CHIT LOSS ON TWO CHITS IS RS. 2,27,606/-, NET LOSS AT RS. 32 ,825/-. THESE DETAILS AND SCHEDULES WERE ALSO SUPPORTED BY THE BALANCE SH EET ENCLOSED TO THE RETURN OF INCOME WHEREIN, THE AUCTIONED CHITS AS PE R LIST UNDER THE HEAD 'SECURED LOANS' WERE SHOWN AT RS. 20 LAKHS AND CHIT PAYMENTS ON THE ASSETS SIDE WERE SHOWN AT RS. 17,90,000/- AND UN-MA TURED CHIT LOSS WAS DECLARED AT RS. 5,48,839/-. NO SUCH DISAALOWAN CE WAS MADE IN THAT YEAR (AY 2002-03). SIMILAR DETAILS WERE ALSO AVAILABLE IN EACH OF THE IMPUGNED ASSESSMENT YEARS. WE ARE OF THE OPINION T HAT WITHOUT EXAMINING THE RECORD OR WITHOUT EVEN BOTHERING TO V ERIFY THE CLAIMS, BOTH AO AND CIT(A) ON PRESUMPTIONS AND ASSUMPTIONS DISAL LOWED THE CHIT LOSS. SINCE WE FIND THAT THE CHITS WERE CONTRIBUTE D IN THE COURSE OF ASSESSEE'S BUSINESS, AND FUNDS WERE UTILIZED FOR AC QUIRING BUSINESS ASSETS AND ALSO COUPLED WITH THE FACT THAT DIVIDEND S EARNED WERE SHOWN AS INCOME IN THE P&L A/C, WE DIRECT THE AO TO ALLOW THE CHIT LOSS CLAIMED IN THE RESPECTIVE ASSESSMENT YEARS AS 'BUSINESS EXP ENDITURE'. 7. IN THE COURSE OF ARGUMENTS, BOTH THE PARTIES REL IED ON CASE LAW. WE NOTICE THAT THESE ARE PERTAINING TO THE ISSUE WH ETHER ADDITIONS CAN BE MADE IN THE PROCEEDINGS U/S. 153C. SINCE ASSESSE E HAS NOT CHALLENGED THE JURISDICTION TO INITIATE THE PROCEED INGS U/S. 153C, WE ARE I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 7 -: OF THE OPINION THAT THERE IS NO NEED TO ADJUDICATE THE ISSUE AND THE RELEVANT CASE LAW. LD. DR RELIED IN THE CASE OF CI T VS. RAJKUMAR ARORA [367 ITR 517] OF HON'BLE ALLAHABAD HIGH COURT. THI S JUDGMENT WAS GIVEN IN THE CONTEXT OF PROCEEDINGS U/S. 153A AND T HAT TOO WHERE THERE WAS INCRIMINATING MATERIAL BELONGING TO ASSESSEE. THIS JUDGMENT DOES NOT APPLY TO THE FACTS OF ASSESSEE'S CASE. SINCE, WE HAVE CONSIDERED THE ISSUE ON MERITS AFTER EXAMINING THE STATEMENT OF AC COUNTS, WE ARE OF THE OPINION THAT THE LEGAL CONTENTIONS NEED NOT BE ADJU DICATED. 8. IN THE RESULT, ASSESSEE'S APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH JULY, 2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 08 TH JULY, 2015 TNMM I.T.A. NOS. 424, 425, 426 427 & 428/HYD/2014 P. PAVANI :- 8 -: COPY TO : 1. P. PAVANI, NELLORE, L/R. OF LATE SMT. CH. VANAJA KSHAMMA, C/O. S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, ROAD NO. 9, HIMAYATNAGAR, HYDERABAD. 2. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE , TIRUPATI. 3. CIT(APPEALS), GUNTUR. 4. CIT-(CENTRAL), HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.