Sri Krishnadev arya Constructions, Anantapur V. ADDL.CIT, Anantapur

ITA 497/HYD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1357 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Keywords: Gift; Set aside
• Section: 68

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL HYDERABAD BENCH 'B' BEFORE SHRI N.R.S.GANESAN AND SHRI CHANDRA POOJARI I.T.A.NO.497/HYD/2009 ASSESSMENT YEAR 2006-07 SRI KRISHNADEVARAYA CONSTRUCTIONS, ANANTAPUR. .. APPELLANT (PAN ARGFS2319Q) VERSUS ADDL. CIT, ANANTAPUR. ..RESPONDENT APPELLANT BY : SHRI SAI PRASAD RESPONDENT BY : SHRI E.S.NAGENDRA PRASAD O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT (APPEALS), TIRUPATI, DATED 6-2-2009, AND PERTAINS T O ASST. YEAR 2006-07. 2. THE FIRST ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS ADDITION OF RS.10,25,000 UNDER SEC. 68 OF THE INCOME-TAX ACT, 1 961. SHRI SAI PRASAD, LEARNED REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND E STIMATED THE BUSINESS PROFIT AT 12% OF THE GROSS RECEIPTS. RELYING ON THE VERY S AME BOOKS OF ACCOUNT, THE AO MADE AN ADDITION OF RS.10,25,000 UNDER SEC. 68. ACCORDING TO THE LEARNED REPRESENTATIVE, CREDIT OF RS.10,25,000 WAS FOUND IN THE CAPITAL ACCOUNT OF SHRI L.NARAYANA CHOWDHARY. THE ASSESSEE CONTENDED BEFORE THE AO THAT AN AMOUNT OF RS.7,00,000 WAS WITHDRAWN ON 30-3-2005 FROM HIS CAPITAL ACCOUNT WHICH WAS PAID AS ADVANCE FOR PURCHASE OF AGRICULTURAL LAND F ROM ONE SHRI G.RAMANJANEYULU. ACCORDING TO THE LEARNED REPRESENT ATIVE, THE SAID 2 RAMANJANEYULU LATER RETURNED THE AMOUNT OF RS.7,00, 000 ON 1-1-2006 ON CANCELLATION OF THE AGREEMENT FOR SALE. ACCORDING T O THE LEARNED REPRESENTATIVE, THE ASSESSEE HAS EXPLAINED THE SOURCE PROPERLY. MOR EOVER, THE AO MADE AN ADDITION OF RS.3,25,000 RECEIVED BY THE ASSESSEE AS GIFT FROM SHRI L.THIPPAIAH. THE ASSESSEE FILED THE ENTIRE DOCUMENTS TO SHOW THA T SHRI THIPPAIAH HAS AGRICULTURAL INCOME. THE LEARNED REPRESENTATIVE SUB MITTED THAT THE AO SIMPLY REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT THE ABOVE SAID SHRI L.THIPPAIAH CULTIVATED 56 ACRES OF LAND AND, THEREF ORE, THE AGRICULTURAL INCOME CANNOT BE LEFT UNACCOUNTED. ACCORDING TO THE LEARNE D REPRESENTATIVE, WHEN THE BOOKS OF ACCOUNT WERE REJECTED AND THE PROFIT OF TH E ASSESSEE WAS ESTIMATED AT 12%, THE VERY SAME BOOKS OF ACCOUNT CANNOT BE RELIE D UPON FOR MAKING THE ADDITION UNDER SEC. 68. ACCORDING TO THE LEARNED RE PRESENTATIVE, WHEN THE PROFIT IS ESTIMATED, THERE IS NO QUESTION OF ANY FURTHER A DDITION AS CASH CREDITS UNDER SEC. 68. THEREFORE, THE LEARNED REPRESENTATIVE SUBM ITTED THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN MAKING THE ADDITIO N OF RS.10,25,000 ON THE GROUND THAT THE GENUINENESS OF THE CASH CREDIT AND GIFT WAS NOT PROVED. 3. ON THE CONTRARY, SHRI E.S.NAGENDRA PRASAD, LEARN ED DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS EXP LAINED THAT THE MONEY ADVANCED FOR PURCHASE OF AGRICULTURAL LAND TO SHRI G.RAMANJANEYULU WAS RETURNED ON 1-1-2006 ON CANCELLATION OF THE AGREEME NT. HOWEVER, THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL TO ESTABLISH THE CLAI M. MOREOVER, THE GENUINENESS OF THE GIFT OF RS.3,25,000 WAS NOT ESTA BLISHED. WHEN THE ASSESSEE CLAIMS THAT SHRI L.THIPPAIAH EARNED AGRICULTURAL IN COME FROM 56 ACRES OF LAND, NATURALLY HE WOULD HAVE MAINTAINED SOME BOOKS OF AC COUNT TO SHOW THE 3 AGRICULTURAL INCOME. IN THE ABSENCE OF ANY BOOKS OF ACCOUNT, THE CLAIM OF THE ASSESSEE THAT THEY RECEIVED RS.3,25,000 AS GIFT CAN NOT BE ACCEPTED. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE AO RE JECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATED THE BUSINESS PROFIT A T 12%. THE QUESTION THAT ARISES FOR CONSIDERATION IS, WHEN THE AO REJECTED T HE BOOKS OF ACCOUNT, CAN HE MAKE FURTHER ADDITION UNDER SEC. 68 ON THE BASIS OF THE VERY SAME BOOKS OF ACCOUNT. THIS ISSUE WAS CONSIDERED BY THE JURISDICT IONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS V. CIT (1990) 232 ITR 776. THE ANDHRA PRADESH HIGH COURT HELD THAT ONCE THE BOOKS OF ACCOUNT ARE REJEC TED AND THE PROFIT IS ESTIMATED, THE VERY SAME BOOKS CANNOT BE USED AS BA SIS FOR MAKING ANY ADDITION/DISALLOWANCE. MOREOVER, ALL ADDITIONS AND DISALLOWANCES ARE DEEMED TO HAVE BEEN MADE WHEN THE PROFIT IS ESTIMATED. THEREF ORE, THERE IS NO QUESTION OF MAKING ANY FURTHER DISALLOWANCE WITH REGARD TO CRED IT IN PARTNER'S CAPITAL ACCOUNT AND RECEIPT OF GIFT. BY RESPECTFULLY FOLLOW ING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTIONS (SUPRA), AND FOR THE REASONS STATED THEREIN, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDITION. 5. THE NEXT GROUND OF APPEAL IS REGARDING DISALLOWA NCE OF INTEREST AND SALARIES PAID TO PARTNERS. SHRI SAI PRASAD, LEARNED REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE AO DISALLOWED THE INTE REST AND REMUNERATION PAYABLE TO PARTNERS. ACCORDING TO THE LEARNED REPRE SENTATIVE, THOUGH THE PROFIT WAS ESTIMATED, THE INTEREST AND REMUNERATION TO PAR TNERS CANNOT BE DISALLOWED. THE LEARNED REPRESENTATIVE FURTHER SUBMITTED THAT T HE ASSESSEE HAD TAKEN A 4 SPECIFIC GROUND OF APPEAL BEFORE THE CIT (A), BUT T HE SAME WAS NOT DISPOSED OF. THEREFORE, ACCORDING TO THE LEARNED REPRESENTATIVE, THE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS HAS TO BE ALLOWED WHILE CO MPUTING THE TAXABLE INCOME OF THE ASSESSEE. 6. ON THE CONTRARY, SHRI NAGENDRA PRASAD, LEARNED D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THIS GROUND OF APPEA L REGARDING DISALLOWANCE OF INTEREST AND REMUNERATION TO PARTNERS WAS NOT DISPO SED OF BY THE CIT (A). THEREFORE, HE MAY NOT HAVE ANY OBJECTION FOR REMITT ING THE MATTER BACK TO THE FILE OF THE CIT (A) FOR CONSIDERATION. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO FOUND THAT THO UGH THE ASSESSEE CLAIMED THE STATUS AS FIRM, THE ASSESSEE HAD NOT FILED COPY OF THE PARTNERSHIP DEED ALONG WITH THE RETURN OF INCOME. THEREFORE, THE AO FOUND THAT THE DEDUCTION CLAIMED TOWARDS PAYMENT OF INTEREST AND REMUNERATIO N TO PARTNERS CANNOT BE ALLOWED UNDER SEC. 185 OF THE INCOME-TAX ACT. WHEN THE PROFIT IS ESTIMATED UNDER SEC. 44AD, ALL DEDUCTIONS SHALL BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT AND NO FURTHER DEDUCTION SHALL BE ALLOWED. H OWEVER, PROVISO TO SEC. 44AD(2) CLEARLY SAYS THAT WHERE THE ASSESSEE IS A F IRM, SALARY AND INTEREST PAID TO PARTNERS SHALL BE DEDUCTED FROM THE INCOME COMPU TED. THEREFORE, EXCEPT INTEREST AND SALARY TO THE PARTNERS, ALL OTHER EXPE NSES ARE DEEMED TO HAVE BEEN ALLOWED. THEREFORE, WHEN THE ASSESSEE COMPLIES WITH OTHER CONDITIONS, SALARY AND INTEREST NEED TO BE ALLOWED IN VIEW OF THE SPEC IFIC PROVISIONS CONTAINED IN SEC. 44AD(2) OF THE INCOME-TAX ACT. A SIMILAR VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTIONS (SUPRA). HOWEVER, 5 THE GROUND RAISED BY THE ASSESSEE WAS NOT DISPOSED OF BY THE CIT (A). THEREFORE, IN OUR OPINION, THE CIT (A) HAS TO DISPO SE OF THE GROUND ON MERIT. ACCORDINGLY, WE REMIT THE MATTER BACK TO THE FILE O F THE CIT (A) IN RESPECT OF PAYMENT OF SALARY AND INTEREST TO PARTNERS. THE CIT (A) SHALL CONSIDER THE ISSUE IN ACCORDANCE WITH LAW AND DECIDE THE SAME ON MERIT S AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 20-11-09. SD SD (CHANDRA POOJARI) (N.R.S.GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, 20TH NOVEMBER, 2009. RRRAO. COPY OF THE ORDER FORWARDED TO:- 1. CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1ST FLOOR, SOWBHAGYA AVENUE, ST. NO.1, ASHOK NAGAR, HYDERABAD 500 020. 2. ADDL. CIT, ANANTAPUR. 3. CIT, TIRUPATI. 4. CIT (A), TIRUPATI. 5. DR, ITAT, HYDERABAD. 1. DATE OF DICTATION : 16-11-2009 2. DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER: 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER: 17-11-09 AND OTHER MEMBERS: 5. DATE ON WHICH THE FAIR ORDER GOES TO THE SR. P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR: 9. DATE OF DESPATCH OF THE TRIBUNAL ORDER: