B. Srinivasa Varma, , Visakhapatnam V. ITO, Ward-3(2), , Visakhapatnam

ITA 471/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3687 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 23-08-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C DAS
• Keywords: Unexplained investment
• Section: 143(3); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 471 / VIZ /201 7 (ASST. YEAR : 20 11 - 12 ) B. SRINIVASA VARMA, D.NO. 50 - 52 - 9, GF - 2, SOWBHAGYA RESIDENCY, NEAR KRISHNA MANDIR, N.E. LAYOUT, VISAKHAPATNAM. V S . I T O , WARD - 3 ( 2 ), VISAKHAPATNAM. PAN NO. AJJPB 4121 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI K.C. DAS SR. DR DATE OF HEARING : 17 / 0 7 /201 8 . DATE OF PRONOUNCEMENT : 10 / 08 /201 8 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , VISAKHAPATNAM , DATED 1 6 /0 6 /201 7 FOR ASSESSMENT YEAR 20 11 - 12 . 2. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, NO ADJUDICATION IS REQUIRED, THEREFORE , SAME ARE DISMISSED. 3 . GROUND NO. 2 RELATING TO SUSTENANCE OF ADDITION OF RS.10,08,889/ - TOWARDS UNEXPLAINED INVESTMENT. 2 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) 4 . FACTS OF THIS ISSUE , IN BRIEF, ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF RETAIL TRADING LIQUOR IN THE NAME AND STYLE OF M/S.SRI RAJA WINES, FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 5,65,668/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT') AND SUBSEQUENTLY, ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY MAKING ADDITION OF RS. 10,08,889/ - . 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER HAS NOTED THAT ASSESSEE INITIALLY INVESTED AN AMOUNT OF RS. 26,58,889/ - FOR SETTING UP BUSINESS OF M/S. RAJA WINES, THE DETAILS OF WHICH ARE AS UNDER: - FIRST INSTALMENT OF EXCISE LICENSE FEE - RS. 18,88,889 INVESTMENT IN FDR - RS. 5,70,000 FIRST PURCHASE FROM APBCL - RS. 2,00,000 TOTAL - RS. 26,58,889 THE ASSESSEE HAS EXPLAINED THAT THE ABOVE INVEST MENT WAS MET OUT OF HIS ACCUMULATED FAMILY SAVINGS OF RS. 3.00 LAKHS AND RS. 24.00 LAKHS RECEIVED FROM H I S ASSOCIATED PARTNERS. IT WAS FURTHER SUBMITTED TH A T OUT OF RS. 24.00 LAKHS, AN AMOUNT OF RS.9.00 LAKHS WAS SUBSEQUENTLY RETURNED BACK TO SUCH PERSONS . IT WAS ALSO FURTHER SUBMITTED THAT ASSESSEE HAS STARTED LIQUOR BUSINESS AS A PARTNERSHIP FIRM AND ACCORDINGLY ENTERED IN TO A 3 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) PARTNERSHIP DEED DATED 14/06/2010 . HOWEVER, AS PER EXCISE LICENSE POLICY OF THE GOVERNMENT OF ANDHRA PRADESH , ONLY INDIVIDUALS ARE ALLOWED TO GET THE LICENSE TO CARRY ON THE LIQUOR BUSINESS AND HENCE THE PROPOSED PARTNERSHIP BUSINESS HAD TO BE CONVERTED INTO HIS PROPRIETARY CONCERN WITH THE AMOUNTS INVESTED BY THE OTHER PARTNERS WAS UTILIZED TOWARDS THE ABOVE IN ITIAL INVESTMENT AND FOR RUNNING REGULAR BUSINESS. THE ASSESSEE FURNISHED COPIES OF LEDGER EXTRACT OF CAPITAL CONTRIBUTION OF HIS ASSOCIATED PERSONS , CONFIRMATION LETTERS GIVEN BY THEM AND ALSO A COPY OF PARTNERSHIP DEED DATED 14/06/2010 IN SUPPORT OF HIS ABOVE CLAIM. ON PERUSAL OF THE PARTNERSHIP DEED DATED 14/06/2010 , IT IS NOTICED TH A T THE SAID FIRM CONSISTS OF 13 PARTNERS. IT IS MENTIONED AT PAGE NO. 5 OF THE SAID DEED TH A T THE FIRM IS STARTED WITH A VIEW OF CONDUCTING IMFL RETAIL BUSINESS, FOR WHICH LICENSE IS OBTAINED IN THE NAME OF SIR BH. SRINIVASA V A RMA AND AGREED TO TRANSFER THE SAME TO THE FIRM. IT IS ALSO MENTIONED THEREIN THAT ALL OTHER PARTNERS OF THE FIRM HAD MUTUALLY AGREED FOR THE SAME AND DECIDED TO RUN IMFL SHOP BY FIRM , IN THE NAME AND STYLE OF M/S. RAJA WINES . THE DETAILS I.E. NAMES OF THE PARTNERS , (OTHER THAN THE ASSESSEE SRI BH. SRINIVASA VARMA), AMOUNTS OF CAPITAL CONTRIBUTED BY EACH OF THEM AND SOURCES THERE OF , ARE TABULATED HEREUNDER: - 4 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) SL.NO. NAME OF THE PARTNER CAPITAL CONTRIBUTED SOURCES FOR CAPITAL INVESTMENT 1 SRI P. RAMESH 1,00,000 INCOME TAX ASSESSEE 2 SRI M. AOPPALA NAIDU 2,00,000 INCOME TAX ASSESSEE 3 SRI OP. RAMANAIDU 2,00,000 INCOME TAX ASSESSEE 4 SRI M.V. RAMAKRISHNA RAO 1,00,000 FAMILY ACCUMULATED INCOME SAVINGS 5 SRI BH. RAVI VARMA 8,00,000 INCOME TAX ASSESSEE 6 SRI M. VENKATA SWAMY NAIDU 1,00,000 FAMILY ACCUMULATED INCOME SAVINGS 7 SRI B. LAKSHMI KUMARI 2,00,000 FAMILY ACCUMULATED INCOME SAVINGS 8 SRI S. TALUPULU 1,00,000 INCOME TAX ASSESSEE 9 SRI P. BANGARU RAJU 1,00,000 INCOME TAX ASSESSEE 10 SRI P. APPALANAIDU 1,00,000 FAMILY ACCUMULATED INCOME SAVINGS 11 SRI P. SAIBABU 1,00,000 FAMILY ACCUMULATED INCOME SAVINGS 12 SRI M. SESHAGIRI 1,00,000 FAMILY ACCUMULATED INCOME SAVINGS TOTAL 22,00,000 FROM THE ABOVE , THE ASSESSING OFFICER HAS NOTED THAT TOTAL CONTRIBUTION MADE BY THE ASSOCIATE PERSONS OF THE ASSESSEE OF RS.22.00 LAKHS ONLY , BUT NOT 24.00 LAKHS AS CLAIMED BY THE ASSESSEE. IT IS ALSO NOTICED THAT WHILE THE PARTNERS MENTIONED AT SL. NOS. 1,2,3,5, 8 & 9 ARE REGULARLY ASSESSED TO INCOME TAX AND THE PARTNERS MENTIONED AT SL. NOS. 4,6,7,10,11 & 12 ARE NOT INCOME TAX ASSESSEES . IT WAS SUBMITTED BY THE NON - ASSESSEES IN THEIR CONFIRMATION LETTERS THAT THE SAID AMO UNTS WERE CONTRIBUTED BY THEM , OUT OF THEIR FAMILY ACCUMULATED INCOME SAVINGS. HOWEVER, THE DETAILS OF SOURCES FOR THEM AND FOR THEIR FAMILY MEMBERS, SIZE OF THE FAMILY, EXPENDITURE INCURRED TOWARDS FAMILY MAINTENANCE ETC. HAVE NOT BEEN MENTIONED IN THEIR LETTERS, SO AS TO ENABLE THE UNDERSIGNED TO VERIFY THE GENUINENESS OF THE SOURCE 5 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) FOR SUCH CAPITAL CONTRIBUTION, IN EACH CASE. F URTHER , THE ASSESSEE ALSO COULD NOT FURNISH ANY SUPPORTING DOCUMENTARY EVIDENCE TO PROVE THE GENUINENESS OF SOURCES FOR CAPITAL CONTRIBUTIONS MADE BY THESE N ON - ASSESSEES. APPARENTLY, THE ASSESSEE HAD ATTEMPTED TO GIVE A COLOUR OF GENUINENESS TO THE INVESTMENT MADE BY HIM IN HIS BUSINESS , BY PRODUCING CONFIRMATORY LETTERS BY THE SO - CALLED PARTNERS OF THE FIRM. ACCORDINGLY, THE ASSESSING OFFICER ALLOWED ONLY RS . 15.00 LAKHS , OUT OF RS. 24.00 LAKHS CLAIMED BY THE ASSESSEE. 6 . THE ASSESSING OFFICER HAS NOTED THAT TAKING INTO SURROUNDING FACTS OF THE CASE, IT IS HELD THAT INITIALLY INVESTED TO THE TUNE OF RS.16,50,00 ,000/ - , OUT OF THE CLAIM MADE FOR RS. 26,58,889/ - IS EXPLAINED SATISFACTORILY, THE BREAK UP OF WHICH IS AS UNDER: - 1 INVESTMENT OUT OF ACCUMULATED SAVINGS FROM WORK CONTRACTS BY THE ASSESSEE RS. 1 , 50,000 2. CAPITAL CONTRIBUTIONS BY THE PARTNERS RS. 15,00,000 TOTAL INVESTMENT EXPLAINED RS. 16,50,000 IN VIEW OF THE ABOVE, THE UNEXPLAINED INVESTMENT OF THE ASSESSEE IN H IS WINE BUSINESS WORKS OUT TO RS. 10,08,889/ - (RS.26,58,889 RS. 16,50,000) . ACCORDINGLY, THE SAME IS ADDED TO THE ASSESSEES TOTAL ESTIMATED INCOME UNDER SECTION 69 OF THE ACT. 6 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) 7 . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HAS NOT SUBSTANTIATED WITH ANY EVIDENCE IN RESPECT OF RS. 9.00 LAKHS CO N TRIBUTED FROM SO - CALLED PART N ERS. 8 . ON APPEAL BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER IS NOT JUSTI FI ED IN MAKING ADDITION IN RESPECT OF CONTRIBUTIONS RECEIVED FROM THE PARTNERS AND PRAYED THAT SAME MAY BE DELETED. 9. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 1 1. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAS STARTED INITIALLY TO RUN A PARTNERSHIP BUSINESS IN THE NAME OF M/S. RAJA WINES AND INVESTED AN AMOUNT OF RS. 26,58,889/ - . WHEN ASSESSING OFFICER ASKED THE ASSESSEE, THE ASSESSEE HAS SUBMITTED THAT THE PART NERS HAVE CONTRIBUTED AN AMOUNT OF RS. 24.00 LAKHS, HOWEVER, THE ASSESSEE ONLY ABLE TO ESTABLISH THE CONTRIBUTION TO THE EXTE NT OF RS. 15.00 LAKHS AS GENUINE CONTRIBUTIONS AND THE REMAINING BALANCE RECEIVED FROM THE PARTNERS, NO EVIDENCE IS PRODUCED, THERE FORE, THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE TRANSACTIONS AND HE ONLY ALLOWED TO THE EXTENT 7 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) O F RS. 15.00 LAKHS CONTRIBUTION RECEIVED FROM THE INCOME TAX ASSESSEES WHICH ARE GENUINE CONTRIBUTIONS. ACCORDINGLY, THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS. 10,08,889/ - UNDER SECTION 69 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. EVEN BEFORE THE LD. CIT(A), THE ASSESSEE HAS NOT FILED ANY SUPPORTED EVIDENCE TO SUBSTANTIATE THAT THE CONTRIBUTIONS RECEIVED FROM THE PART NERS ARE GENUINE AND THE PARTNERS ARE HAVING CREDITWORTHINESS TO CONTRIBUTE THE BUSINESS OF THE ASSESSEE. THEREFORE, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. EVEN BEFORE US, THE ASSESSEE HAS NOT FILED ANY INFORMATION IN RESPECT OF CONTRIB UTIONS RECEIVED FROM THE NON - TA X PAYEES THAT THEY ARE HAVING CREDITWORTHINESS AND THE TRANSACTIONS ARE GENUINE. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE OPINION TH A T THE CONTRIBUTIONS MADE BY THE NON - TAX PAYERS CANNOT BE CONSIDERED A S GENUINE CONTRIBUTIONS AND THEREFORE, WE FIND NO REASON TO INTER FERE WITH THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 1 2. SO FAR AS GROUND NO.3 IN RESPECT OF TELESCOPING BENEFIT IS CONCERNED, THIS PRAYER HAS BEEN MADE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS OBSERVED THAT THE CONTRIBUTIONS MADE BY THE SO - CALLED PARTNERS OF THE ASSESSEE WERE BEFORE THE 8 ITA NO. 471 /VIZ/2017 ( B. SRINIVASA VARMA ) COMMENCEMENT OF THE BUSINESS . H ENCE, THE BUSINESS PROFITS WHICH START GENERATING AFTER COMMENCEMENT OF THE BUSINESS CANNOT BE ALLOWED TO BE SET OFF OF AGAINST THE INITIAL INVESTMENTS MADE BEFORE THE COMMENCEMENT OF THE BUSINESS AND REJECTED THE CLAIM MADE BY THE ASSESSEE. WE FIND TH AT LD. CIT(A) RIGHTLY REJECTED THE CLAIM MADE BY THE ASSESSEE AS THERE IS NO REASON TO ALLOW TELESCOPING BENEFIT TO THE ASSESSEE. THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 1 3. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON TH IS 1 0 T H DAY OF AUGUST , 201 8 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 6 T H AUGUST , 201 8 . VR/ - COPY TO: 1. THE ASSESSEE - B. SRINIVASA VARMA, D.NO. 50 - 52 - 9, GF - 2, SOWBHAGYA RESIDENCY, NEAR KRISHNA MANDIR,N.E. LAYOUT, VISAKHAPATNAM. 2. THE REVENUE ITO, WARD - 3(2), VISAKHAPATNAM. 3. THE PR. CIT - 1, VISAKHAPATNAM. 4. THE CIT(A) - 1, VISAKHAPATNAM. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.