Sri Venkateswara Chit Funds, Nalgonda, Hyderabad V. Addl.CIT, Range-9, Hyd, Hyderabad

ITA 657/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2479 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 09-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L R AMJI RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained cash credit; Business expenditure; Reasonable cause
• Section: 143(3); 133A; 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 657 & 658 /HYD/2016 ASSESSMENT YEAR: 2005-06 & 2006-07 SRI VENKATESWARA CHIT FUNDS, NALGONDA. PAN AAZFS 9604F VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE 9, HYDERABAD. (APPELLANT) (RESPONDENT) ITA NOS. 507 & 508 /HYD/2016 ASSESSMENT YEAR: 2005-06 & 2006-07 INCOME-TAX OFFICER, WARD 1, NALGONDA. VS. SRI VENKATESWARA CHIT FUNDS, NALGONDA. PAN AAZFS 9604F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI L. RAMJI RAO DATE OF HEARING : 29-08-2017 DATE OF PRONOUNCEMENT : 27-10-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE FOUR APPEALS ARE CROSS-APPEALS BY ASSESSEE A ND REVENUE AGAINST THE ORDERS OF LD. CIT(A) 5, HYDERABAD FO R AYS 2005-06 AND 2006-07. AS THE ISSUES ARE IDENTICAL IN THESE APPEA LS, THEY WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. 2. THE APPEAL BY ASSESSEE FOR AY 2005-06 WAS FILED WITH A DELAY OF 19 DAYS. ASSESSEE FILED A PETITION FOR CONDONATI ON OF DELAY EXPLAINING THE REASONS, INTER-ALIA, THAT DURING TH E RELEVANT PERIOD, THERE WERE COURT CASES AND THE MANAGING PARTNER OF THE ASSESSEE WAS PREOCCUPIED WITH HIS DAUGHTERS MARRIAGE. CONSID ERING THE SUBMISSIONS OF THE ASSESSEE AND THE OBJECTION OF TH E LD. DR, WE HEREBY CONDONE THE DELAY AS THE ASSESSEE WAS PREVEN TED BY REASONABLE CAUSE IN NOT FILING THE APPEAL WITHIN TH E STIPULATED TIME. ITA NOS. 657 & 507/H/16 BY THE ASSESSEE AND REVENUE FOR AY 2005- 06 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM CARRYING ON BUSINESS IN CHITS. FOR THE ASSESSMENT YEAR 2005-06, IT FILED ITS RETURN OF INCOME ON 28-1 0-2005 ADMITTING AN INCOME OF RS.1,16,380/- THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. THE ASSESSING OFFICER, LATER , CONDUCTED SURVEY U/S 133A ON 13-09-2007 AND INITIATED PROCEEDINGS U/ S 148 ON 05-02- 2008. THE ASSESSEE FILED A LETTER ON 31-03-2008 REQ UESTING THE ASSESSING OFFICER TO TREAT THE RETURN OF INCOME ALR EADY FILED AS THE RETURN FILED IN RESPONSE TO NOTICE U/S 148 OF THE A CT. THE ASSESSING OFFICER ISSUED NOTICES U/S 143(2) AND 142(1), AGAIN ST WHICH, THE ASSESSEE FILED DETAILED EXPLANATIONS. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 OF T HE ACT ON 29-12- 2008 DETERMINING TOTAL INCOME AT RS. 51,89,090/-. W HILE DOING SO, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS: 1) UNEXPLAINED CREDIT IN OPENING BALANCES RS.33,38,971/- 2) UNEXPLAINED CREDIT IN THE ACCOUNTS OF PARTNERS R S. 4,00,000/- 3) DISALLOWANCE OF SALARY OF K. MOHAN REDDY R S. 18,000/- 4) UNEXPLAINED CREDIT TOWARDS EXCESS OF LIABILITIES IN BOOKS RS.5,18,009/- 5) ADDITION FOR SUPPRESSION OF INCOME RS. 1,31,455/- 6) ADDITION FOR INFLATION OF EXPENDITURE RS. 3,72,300/- 7) DISALLOWANCE OF PART OF EXPENSES OF PARTNER'S SITTING FEES RS.3,12,640/- 3 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) SUSTAINED/DELETED/PARTIALLY ALLOWED THE ADDITIONS AS UNDER: S.NO. INCOME/EXPENDITURE AMOUNT RELIEF 1 UNEXPLAINED CREDIT IN OPENING BALANCES 3,25,349/- PARTIAL RELIEF TO THE EXTENT OF RS. 30,13,622 2 UNEXPLAINED CREDIT IN THE ACCOUNTS OF PARTNERS 4,00,000/- DELETED 3. ADDITION ON ACCOUNT OF SALARY PAID TO PARTNERS 45,000/- SUSTAINED FULLY 4 UNEXPLAINED CREDIT TOWARDS EXCESS OF LIABILITIES N BOOKS RS.5,18,009/- SUSTAINED FULLY 5 ADDITION FOR SUPPRESSION OF INCOME RS. 1,31,455/- SUSTAINED FULLY 6 ADDITION FOR INFLATION OF EXPENDITURE RS. 3,72,300/- SUSTAINED FULLY 7 DISALLOWANCE OF PART OF EXPENSES OF PARTNER'S SITTING FEES RS.3,12,640/- SUSTAINED FULLY 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US AGAINST SUSTAINING THE ADDITIONS AND THE REVENUE IS IN APPEAL BEFORE US AGAINST RELIEF GIVEN TO THE EXTENT OF RS. 30,13,622 ON ACCOUNT OF UNEXPLAINED CREDIT IN OPENING BALANCES. 7. AS REGARDS THE ADDITION ON ACCOUNT OF UNEXPLAINE D CREDIT IN OPENING BALANCES, THE AO EXTRACTED THE BALANCE SHEE T FIGURE AS PER THE RETURN OF INCOME FOR THE AY 2004-05 I.E. THE CL OSING BALANCE AS ON 31/03/2004 AND THE OPENING BALANCE AS ON 1 ST APRIL, 2005 AS PER IMPOUNDED BOOKS OF ACCOUNT. AS FAR AS LIABILITIES A RE CONCERNED, THE OPENING BALANCE AS ON 1 ST APRIL, 2005 AS PER IMPOUNDED BOOKS OF ACCOUNT IS LESSER BY RS. 7,84,971/- IN COMPARISON W ITH THE CLOSING BALANCE AS ON 31/03/2004 SHOWN IN THE RETURN OF INC OME FILED. HE NOTED THAT THIS DIFFERENCE HAD ARISEN BECAUSE OF AN ENTRY ON ACCOUNT OF ADVANCE TO SVCF1 AS SHOWN ON 1 ST APRIL, 2004. 4 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. 7.1 SIMILARLY, THE AO OBSERVED THAT THE ASSETS SHOW N IN THE BALANCE SHEET WITH RETURN OF INCOME FOR AY 2004-05 ON 31/03 /2004 WAS RS. 1,29,78,977/-, WHEREAS, THE OPENING BALANCE AS ON 0 1/04/2005 AS PER BOOKS WAS RS. 1,55,32,977/- AND, THEREFORE, THERE WAS AN EXCESS OF ASSETS IN BOOKS BY RS. 25,54,000/-. THUS, THE AO MA DE THE ADDITION OF RS. 33,38,971/- ( THE SUMMATION OF DEFICIT LIABI LITY RS. 7,84,971/- AND EXCESS OF ASSETS RS. 25,54,000/-). 7.2 THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE CONTENTION OF THE ASSESSEE WAS TH AT THE CLOSING BALANCE OF CASH-IN-HAND AS ON 31/03/2004 WAS SHOWN AT RS. 46,39,109/- IN THE RETURN. HE OPINED THAT IT WAS E RRONEOUSLY TAKEN BY THE AO AT RS. 16,25,487/-, HENCE, THERE WILL BE ASS ETS AS PER BOOKS OF RS. 1,59,92,599/- AND DEFICIT OF ASSET IN BOOKS WIL L BE OF RS. 4,59,622/-, AS UNDER: CLOSING BALANCE AS ON 31/03/04 RETURN OF INCOME FOR AY 04-05 OPENING BALANCE AS ON 01/04/04 (AS PER BOOKS) DIFFERENCE 198150 198150 0 7709953 7709953 0 2972500 2972500 0 46000 0 -46000 0 2600000 2600000 8000 8000 0 182216 182216 0 4639109 1625487 -3013622 15992599 15532977 -459622 WITH RESPECT TO THE DIFFERENCES IN LIABILITIES, CIT (A) OBSERVED THAT THE OPENING BALANCE AS ON 1 ST APRIL, 2005 AS PER IMPOUNDED BOOKS OF ACCOUNTS WHICH IS LESSER BY RS. 7,84,971/- ON COMPA RISON WITH FIGURES QUOTED IN THE RETURN OF INCOME (CLOSING BALANCE) FO R AY 2004-05, THE DEFICIT WAS NOT PROPERLY EXPLAINED. FURTHER, HE OBS ERVED THAT EVEN AFTER TELESCOPING THE DIFFERENCES IN ASSETS OF RS. 4,59,622/- AS QUANTIFIED ABOVE, THE REMAINING DEFICIT OF RS. 3,25 ,349/- REMAINED 5 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. UNEXPLAINED. HE, THEREFORE, SUSTAINED THE ADDITION TO THE EXTENT OF RS. 3,25,349/- AS AGAINST THE ADDITION OF RS. 33,38,971 /-. 7.3 LD. AR SUBMITTED THAT THE ISSUE IN DISPUTE IS S QUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEE S OWN CASE FOR AY 2004-05 IN ITA NOS. 1042 & 1314/HYD/2011, ORDER DATED 16/09/2016, A COPY OF WHICH IS PLACED ON RECORD. 7.4 LD. DR NEITHER CONTROVERTED THE SUBMISSION OF THE ASSESSEE NOR BROUGHT ANY CONTRARY DECISION IN THIS REGARD, H OWEVER, HE RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 7.5 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. WHILE MAKING ADDITION, THE AO ON RECONCI LIATION NOTED FOLLOWING DISCREPANCIES: I) MANY TIMES, ACTUAL TRANSACTIONS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT CONSIDERED WHILE PREPARING THE RETURN OF INCOME AND CERTAIN TRANSACTIONS ARE NOT REPORTED TO THE DEPARTMENT. CERTAIN EXPENSES ARE ALSO INFLATED TO M ANIPULATE THE TAXABLE INCOME. (II) THE ACCOUNTS IN THE P&L ACCOUNT DECLARED TO TH E DEPARTMENT AND THE ACCOUNTS IN THE BOOKS ARE NOT ID ENTICAL. THIS IS DUE TO DIFFERENCE IN NOMENCLATURE. DUE TO T HIS, THERE IS OVERLAP OF EXPENDITURE AMONGST THE ACCOUNTS. HENCE, THERE IS AN APPARENT DISCREPANCY. BUT THIS IS RESOLVABLE WHE N EXPENDITURE BETWEEN THE BOOKS AND RETURN OF INCOME IS COMPARED IN TOTAL. (III) IN SOME OF THE ACCOUNTS (LIABILITIES AND ASSE TS), THERE IS A DISCREPANCY BETWEEN BOOKS FROM ONE YEAR TO OTHER YE AR I.E. IN THE ENTRY OF CLOSING BALANCE BETWEEN ONE YEAR AND T HE ENTRY OF OPENING BALANCE IN THE NEXT YEAR. (IV) IN SOME CASES, ACCOUNTS ARE NOT RECORDED IN BO OKS BUT INDEPENDENT VERIFICATION IS POSSIBLE AND THESE HAVE TO BE CONSIDERED FOR COMPARISON WITH I.T. RETURN. (V) THERE IS A CRUCIAL ACCOUNT CALLED PARTNER'S SIT TING FEES ACCOUNT WHICH IS NOTHING AN IMPREST ACCOUNT MAINTAI NED BY MANAGING PARTNER BUT SOME OF THE EXPENDITURE RECORD ED IN THIS ACCOUNT IS NOT ADMISSIBLE AS PER LAW.' 6 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. THE EXPLANATION OF THE AO IN THIS REGARD IS THAT TH ERE ARE MORE LIABILITIES AND ASSETS IN THE FINAL ACCOUNTS AND TH E ENTRIES IN THE BOOKS OF ACCOUNT DO NOT SUPPORT THE FINAL ACCOUNTS. THE C IT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, RESTRI CTED THE ADDITION TO RS. 3,25,349/- INSTEAD OF RS. 33,38,971/-. WE FI ND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BEN CH IN ASSESSEES OWN CASE FOR AY 2004-05 (SUPRA) WHEREIN THE COORDIN ATE BENCH HELD AS UNDER: 11.1 AFTER CONSIDERING THE RIVAL CONTENTIONS, CONSI DERING THAT BOOKS OF ACCOUNT ARE NOT COMPLETE EVEN THOUGH THEY ARE IMPOUNDED AFTER THREE YEARS OF CLOSURE OF THE ACCOU NTING YEAR, THE RECONCILIATION GIVEN BY ASSESSEE WAS NOT CORREC TLY APPRECIATED BY THE AO OR CIT(A). SINCE THE FINAL AC COUNTS ARE TALLYING, THE SO CALLED DISCREPANCIES ON THE BASIS OF INCOMPLETE BOOKS CANNOT LEAD TO AN ADDITION THAT TOO, WHEN ASS ESSEE WAS EXPLAINING THAT BOTH THE ASSETS AND LIABILITIES ARE TO BE RECONCILED. CONSIDERING THE RECONCILIATION FILED BY ASSESSEE BEFORE THE CIT(A), WE ARE OF THE OPINION THAT THERE IS NO NEED FOR ANY ADDITION ON THIS ACCOUNT. ACCORDINGLY, THE ORDER OF CIT(A), DELETING THE AMOUNT OF RS. 20,28,000/- WAS CONFIRMED AND THE BALANCE CONFIRMED AMOUNT OF RS. 4,83,297/- IS ALSO DIRECTED TO BE DELETED. AS THE GROUNDS AND FACTS OF THIS ISSUE ARE MATERIAL LY IDENTICAL IN THE AY UNDER CONSIDERATION TO THAT OF AY 2004-05, FOLLO WING THE DECISION THEREIN, WE SET ASIDE THE ORDER OF THE CIT(A) AND D IRECT THE AO TO DELETE THE ADDITION OF RS. 3,25,349/- SUSTAINED BY THE CIT(A). ACCORDINGLY, THIS GROUND IS ALLOWED AND THE GROUND RAISED BY THE REVENUE AGAINST THE ACTION OF CIT(A) IN GIVING RELI EF TO THE ASSESSEE TO THE EXTENT OF RS. 30,13,622/-, IS DISMISSED. 8. AS REGARDS ADDITION OF RS. 45,000/- TOWARDS SALA RY PAID TO THE PARTNERS, AO OBSERVED THAT IN THE STATEMENT U/S 131 RECORDED ON 22/11/07 SHRI K. MOHAN REDDY STATED/ANSWERED AGAINS T QUESTION NO. 3 THAT HE HAS NO ACTIVE ROLE IN CHIT FUND COMPANY A ND ALL THE AFFAIRS ARE LOOKED AFTER BY MR. A. VENKATESWARLU. BASED ON THIS STATEMENT, HE 7 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. CONSIDERED THAT SHRI K. MOHAN REDDY IS NOT A WORKIN G PARTNER. ACCORDINGLY, DISALLOWED THE PARTNER SALARY. 8.1 THE CIT(A) CONFIRMED THE ADDITION MADE BY THE A O. 8.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE AO MADE THE ADDITION RELYING ON THE STATEMENT OF THE PARTNERS WHO STATE THAT THEY HAVE NO ACTIVE ROLE IN CHIT FUND COMPANY AND THE MANAGING PARTNER SHRI A. VENKATESWARLU ONLY LOOKS AFTER THE CHIT FUNDS. THE CIT(A) UPHELD THE ADDITION RELYING ON HIS PREDECESSORS DECISION. SIMILAR DISALLOWANCE WAS MA DE IN AY 2004- 05 BY THE REVENUE AUTHORITIES AND THE TRIBUNAL HAD DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 10.1. AFTER CONSIDERING THE RIVAL CONTENTIONS AND EXAMINING THE STATEMENT PLACED ON RECORD AT PGS. 33-35 OF THE PAP ER BOOK, WE ARE OF THE OPINION THAT THE DISALLOWANCE IS NOT WAR RANTED. FIRST OF ALL, THE STATEMENT RECORDED U/S. 131 CLEARLY IND ICATES THAT SHRI MOHAN REDDY IS AWARE ABOUT HIS PARTNERSHIP IN THE FIRM AND ADMITS THAT HE IS RESPONSIBLE AS A PARTNER FOR ALL AFFAIRS OF THE FIRM. IN FACT, QUESTION NO.3 ITSELF ASKS HIM AB OUT THE 'ACTIVE ROLE IN THE DAY-TO-DAY AFFAIRS OF THE CHIT FUND FO R WHICH HE REPLIED THAT HE HAS NO ACTIVE ROLE AS IT WAS LOOKED AFTER BY SHRI A. VENKATESH. THIS ANSWER GIVEN TO A SPECIFIC QUEST ION DOES NOT MEAN THAT HE IS NOT A WORKING PARTNER. MANAGING PAR TNER AND WORKING PARTNER HAVE DIFFERENT ROLES. AS SEEN FROM THE P&L A/ C AN AMOUNT OF RS. 54,000/- WAS PAID AS SALARIES TO P ARTNERS AND THREE OF THE FIVE PARTNERS ARE GETTING RS. 18,000/- EACH. ONLY THE SALARY PAID TO SHRI MOHAN REDDY WAS DISALLOWED ON THE BASIS OF SO CALLED STATEMENT. WE DO NOT AGREE WITH THE OBSERVATION OF THE AO AS THE DISALLOWANCE HAS NO BA SIS. AO IS DIRECTED TO ALLOW THE AMOUNT AS CLAIMED. GROUND IS ALLOWED. SINCE ISSUE IS IDENTICAL IN THE AY UNDER CONSIDERA TION, FOLLOWING THE CONCLUSIONS DRAWN THEREIN, WE DIRECT THE AO TO DELE TE THE ADDITION MADE ON THIS COUNT. ACCORDINGLY, THIS GROUND IS ALL OWED. 9. AS REGARDS THE ADDITION OF RS. 5,18,009/- AS UNE XPLAINED CREDIT TOWARDS EXCESS LIABILITIES IN THE BOOKS, AO OBSERVE D THAT THERE WAS EXCESS LIABILITIES IN THE BOOKS OF ACCOUNT OF RS. 6 7,18,914/-, WHILE, IN 8 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. BOOKS, THERE WAS RECORD OF EXCESS ASSETS OF RS. 62, 00,904/-. THEREFORE, THE DIFFERENCE BETWEEN THE SAID TWO FIGU RES WERE TAKEN BY THE AO AS UNEXPLAINED CREDIT AND MADE THE ADDITION. 9.1 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) OBSERVED THAT AFTER TAKING INTO ADJUSTMENTS OF LIA BILITY ON OWN CHITS BY REDUCING INVESTMENT IN OWN CHITS AND MAKING AD JUSTMENT OF CHEQUES UNDER CLEARANCE AND THE BANK BALANCE TH ERE WAS A DIFFERENCE OF THE AMOUNT OF RS. 5,18,009/-, WHICH R EMAIN UNEXPLAINED. ACCORDINGLY, HE CONFIRMED THE ADDITION. 9.2 LD. AR SUBMITTED THAT SIMILAR ISSUE AROSE IN AY 2004-05 AND THE COORDINATE BENCH HAS DELETED THE ADDITION MADE ON THIS COUNT. 9.3 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 9.4 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE AO MADE THE ADDITION OF RS. 5,18,009 /- AS UNEXPLAINED CREDIT TOWARDS EXCESS LIABILITIES IN TH E BOOKS BY OBSERVING THAT THERE IS EXCESS LIABILITIES IN THE B OOKS OF ACCOUNT OF RS. 67,18,914/- WHILE IN BOOKS, THERE IS RECORD OF EXCE SS ASSETS OF RS. 62,00,904/-, THE DIFFERENCE OF WHICH WAS TAKEN AS U NEXPLAINED CREDIT. THE CONTENTION OF THE ASSESSEE IS THAT THE MAIN DIF FERENCE AROSE ON ACCOUNT OF LIABILITY ON OWN CHITS OF RS. 34,52,94 0/-. HE SUBMITTED AS UNDER: THE LIABILITY ON OWN CHIT IS CONSIDERED IN THE IMM EDIATE PRECEDING YEAR WHERE THE AO HAS TAKEN THE DIFFERENC E RS.28,13,000/- IN THE A.Y. 2004-05. THE ASSESSEE SU BMITTED THAT AN AMOUNT OF RS.65,95,440/- WAS SHOWN AS 'LIAB ILITY ON OWN CHITS' WHEREAS AT THE SAME TIME IN THE ASSETS-SIDE 'INVESTMENT IN OWN CHITS' SHOWN AT RS.33,63,500/- IN THE BOOKS OF ACCOUNTS. BUT IN THE RETURN, THESE ARE SHOWN AT RS.31,42.500/ - AND RS.2,65,000/- RESPECTIVELY, IF ALL THESE AMOUNTS CO NSIDERED AND CONTRA ENTRIES ARE MADE THEN THE LIABILITY ON OWN C HITS WILL BE REDUCED FROM RS.65,95,440/- TO RS.32,31,940- AFTER ADJUSTING INVESTMENT IN OWN CHITS SHOWN IN ASSETS. SIMILARLY, THE RETURNED 9 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. FIGURE WILL BE REDUCED TO RS.28,77,500/-. FOR THE R EMAINING DIFFERENCES OF RS.3,54,440/-. HOWEVER, THE CIT(A) REJECTED THE SUBMISSIONS OF THE ASSESSEE AND CONFIRMED THE ADDITION. SIMILAR ISSUE CAME UP FOR C ONSIDERATION BEFORE THE COORDINATE BENCH IN AY 2004-05 (SUPRA) WHEREIN THE BENCH HAS HELD AS UNDER: 8. AO HAS ADDED AN AMOUNT OF RS. 5,74,132/- ON THE DIFFERENCE BETWEEN THE CLOSING BALANCE IN CERTAIN ITEMS AS ON 31- 03-2003 I.E., FINAL ACCOUNTS ENCLOSED TO THE RETURN OF INCOME IN AY. 2003-04 AND OPENING BALANCE AS ON 01-04-2003 IN THE BOOKS OF AC COUNT FOR THIS YEAR. AO HAS LISTED THE DIFFERENCE IN LIABILITIES S IDE AND ASSETS SIDE AND MAJOR DIFFERENCE IS WITH REFERENCE TO ARREAR OF CHIT SUBSCRIPTIONS AND CASH IN HAND. THE DIFFERENCE OF LIABILITIES SID E IS ONLY RS. 446/-. IT WAS THE EXPLANATION OF ASSESSEE BEFORE THE LD. C IT(A) (AS WELL AS BEFORE THE AO) THAT THE FINAL STATEMENTS FILED ALON G WITH RETURN OF INCOME ARE AFTER ADJUSTING THE PARTNERS CAPITAL ACC OUNTS, WHEREIN EACH OF THE PARTNERS HAVE CONTRIBUTED RS. ONE LAKH EACH TOTALLING TO RS. 5 LAKHS DURING THAT YEAR AND THOSE AMOUNTS HAVE NOT BEEN CARRIED OVER AS OPENING BALANCE IN THE BOOKS OF ACC OUNT FOR THIS YEAR. SINCE THE ENTRIES ARE SHOWN IN THE FINAL ACCO UNTS FILED FOR THE EARLIER YEAR, THE DISCREPANCY OF RS. 5 LAKHS IN CAS H RECEIPT HAS COME IN THE OPENING CASH BALANCE OF THIS YEAR. FURTHER, AN AMOUNT OF RS. 79,312/- WAS COLLECTED FROM THE SUBSCRIPTIONS ON TH E CHITS, WHICH WAS SHOWN AS A DIFFERENCE IN THE STATEMENTS, WHEREAS TH IS AMOUNT COLLECTED WAS ADJUSTED IN THE FINAL ACCOUNTS. THUS, THE TOTAL AMOUNT OF RS. 5,79,312/- HAS AFFECTED NOT ONLY THE CASH DI FFERENCE BUT ALSO VARIOUS OTHER ACCOUNTS. SINCE THE PARTNERS HAVE CON TRIBUTED THE AMOUNT IN THE EARLIER YEAR WHICH WAS ALREADY ACCEPT ED, AN AMOUNT OF RS. 5 LAKHS CANNOT BE CONSIDERED AS 'DISCREPANCY ' IN THIS YEAR. WITH REFERENCE TO THE AMOUNT OF RS. 79,312/- COLLEC TED FROM VARIOUS SUBSCRIBERS, THIS HAS COME IN FOR ADJUSTMENT IN VAR IOUS CHIT SUBSCRIPTIONS ACCOUNT, THEREFORE, AS PER THE BOOKS, THE CHITS SUBSCRIPTION AMOUNT WAS AT RS. 25,93,234/-. BUT IN THE FINAL STATEMENTS IT WAS RS. 25,93,234/-. SINCE THESE AMOU NTS HAVE BEEN RECONCILED/RECONCILABLE, ADDITION IS NOT WARRANTED. LD. CIT(A) DID NOT AGREE WITH THE CONTENTION AND UPHELD THE ADDITI ON AND ASSESSEE HAS RAISED THE GROUND ON THIS. 8.1. AFTER CONSIDERING THE EXPLANATION OF ASSESSEE AND EXAMINING THE RECORD, WE ARE OF THE OPINION THAT THE ADDITION CAN NOT BE SUSTAINED. THE EXPLANATION IS PROPER AS PER THE FINAL ACCOUNTS SUBMITTED TO THE DEPARTMENT NOT ONLY THIS YEAR BUT ALSO IN EARLIER Y EAR. IN VIEW OF THIS, GROUND OF ASSESSEE IS ALLOWED. 10 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. FOLLOWING THE SAID DECISION, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION RS. 5,18,009/- MADE ON ACCOUNT OF UNEXPLAINED CREDIT TOWARDS EXCESS OF LIABILITIES IN BOOKS. THIS GROUND IS ALLOWED. 10. AS REGARDS THE ADDITION OF RS. 1,31,455/- TOWAR DS SUPPRESSION OF INCOME AS DEMONSTRATED BY THE AO IN A TABLE IN PAGE 6 OF ASSESSMENT ORDER, THE CIT(A) OBSERVED THAT THE DIFF ERENCE AROSE ON ACCOUNT OF PENALTIES RECEIVED BY THE ASSESSEE FROM CHIT BUSINESS. SINCE, ASSESSEE DID NOT OFFER ANY EXPLANATION, THE CIT(A) CONFIRMED THE ADDITION. 10.1 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. BY WAY OF TABULAR FORM AT PAGES 5 & 6 OF HIS ORDER, AO NOTICED THAT THE ASSESSEE SUPPRESSED THE INCOME AND FOUND THAT THE DIFFERENCE AROSE ON ACCOUNT OF PENALTIES RECEIVED B Y THE ASSESSEE FROM CHIT BUSINESS. SINCE THERE WAS NO EXPLANATION AND EVIDENCE FROM THE ASSESSEE, ADDITION OF RS. 131,455/- WAS MADE BY THE REVENUE AUTHORITIES. 10.2 THIS ISSUE ALSO CAME UP FOR CONSIDERATION IN A Y 2004-05 WHEREIN THE COORDINATE BENCH DELETED THE ADDITION B Y HOLDING THAT SINCE AO HAS NOT VERIFIED THE FINAL STATEMENTS AND HIS SO CALLED DISCREPANCIES ARE BASED ON INCOMPLETE BOOKS OF ACCO UNT, WE DO NOT SEE ANY REASON TO CONFIRM THE NET DISCREPANCY SO AR RIVED AT BY THE AO. FOLLOWING THE SAID CONCLUSIONS, WE DIRECT THE A O TO DELETE THE ADDITION MADE ON THIS COUNT. 11. AS REGARDS THE ADDITION OF RS. 3,72,300/- TOWAR DS INFLATION OF EXPENDITURE, THE CONTENTION OF THE ASSESSEE BEFORE THE REVENUE AUTHORITIES WAS THAT PROPER ADJUSTMENTS WERE MADE W HILE FINALIZING THE ACCOUNT. EXPECTING SUCH ARGUMENT, NO OTHER EXPL ANATION OR 11 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. RECONCILIATION STATEMENTS WERE PROVIDED DURING THE APPELLATE PROCEEDINGS, THE CIT(A) SUSTAINED THE ADDITION. 11.1 LD. AR SUBMITTED THAT SIMILAR ISSUE AROSE IN A Y 2004-05 AND THE COORDINATE BENCH HAS DELETED THE ADDITION. HE S UBMITTED THAT THE ISSUE IS SIMILAR IN CURRENT AY, THE ADDITION MAY BE DELETED. 11.2 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORI TIES. 11.3 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. THE AO MADE THE ADDITION OF RS. 3,72,300 /- TOWARDS INFLATION OF EXPENDITURE BY OBSERVING THAT SOME OF THE EXPENDITURES SUCH AS DONATION WERE INADMISSIBLE AND SOME OF THE EXPENDITURES WERE ALSO INFLATED, WHICH WAS DEMONSTRATED BY THE A O IN HIS ORDER BY WAY OF TABULAR FORM AT PAGES 7 & 8 OF HIS ORDER. T HE CONTENTION OF THE ASSESSEE IS THAT PROPER ADJUSTMENTS WERE MADE WHILE FINALIZING THE ACCOUNT. SINCE NO OTHER EXPLANATION OR RECONCILIATI ON STATEMENTS WERE PROVIDED DURING THE APPELLATE PROCEEDINGS, THE CIT( A) CONFIRMED THE ADDITION MADE BY THE AO. 11.4 IN AY 2004-05 (SUPRA), THE COORDINATE BENCH WH ILE DELETING THE ADDITION MADE ON SIMILAR ISSUE, HELD AS UNDER: 13.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE A RE SURPRISED THAT AO EVEN AFTER RECONCILING THE AMOUNT AS NOTED DOWN THE LAST COLUMN OF THE TABLE THOUGHT IT FIT TO DISALLOW THE AMOUNT. CONSIDERING THE VERY SAME EXPLANATION, WE ARE OF TH E OPINION THAT NO DISALLOWANCE IS CALLED FOR AS THE SO CALLED DISCREPANCIES AROSE BECAUSE OF COMPARISONS UNDER TAKEN ON THE BAS IS OF INCOMPLETE BOOKS OF ACCOUNT AND FINAL STATEMENTS. T HERE CANNOT BE ANY INFLATION OF EXPENDITURE, WHEN ALL TH E EXPENDITURES WERE CORRECTLY CLAIMED BY ASSESSEE IN THE FINAL STATEMENTS. GROUND OF ASSESSEE IS ALLOWED. 11.4 AS THE ISSUE IS SIMILAR IN THE CURRENT AY, FOL LOWING THE DECISION IN AY 2004-05, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO 12 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. DELETE THE ADDITION MADE ON THIS ACCOUNT. THUS, THI S GROUND IS ALLOWED. 12. AS REGARDS THE ADDITION OF RS. 3,12,640/- TOWAR DS PARTNERS SITTING FEE, THE AO EXAMINED THE ACCOUNTS AND OBSER VED THAT PARTNERS SITTING FEE ACCOUNT IS A CASH IMPREST ACCOUNT MANAG ED BY THE MANAGING PARTNER AND THE MANAGING PARTNER USED TO D RAW CERTAIN AMOUNT THROUGH SELF CHEQUES. AFTER EXAMINING THE D OCUMENTS PRODUCED DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT SOME OF THE EXPENDITURE RELATED TO REGULAR BUSINESS EXPENDITURES BUT SOME OF THE EXPENDITURES ARE NOT ALLOWABLE IN ACCOR DANCE WITH THE PROVISIONS OF THE ACT. ACCORDINGLY, HE MADE THE ADD ITION OF RS. 3,12,640/-. IT INCLUDES RS. 65,040/-, WHICH IS IN T HE NATURE OF BRIBES/PERSONAL EXPENSES AND RS. 2,47,600/- TOWARDS PARTNERS INTEREST. 12.1 SINCE THE ASSESSEE ADMITTED THAT THE BOOKS OF ACCOUNT DO NOT INDICATE THESE TRANSACTIONS, THE CIT(A) HELD THAT T HE AO IS JUSTIFIED IN MAKING THE SAID ADDITION OF EXCESS PAYMENT OF INTER EST OF RS. 2,47,600/- BEING IN EXCESS IN INTEREST @12%. 12.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. THE AO MADE THE ADDITION OF RS. 3,12,640 /- ON ACCOUNT OF PARTNERS SITTING FEE. AFTER EXAMINING THE DOCUMENTS PRODUCED DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT SO ME OF THE EXPENDITURE RELATED TO REGULAR BUSINESS EXPENDITURE S BUT SOME OF THE EXPENDITURES ARE NOT ALLOWABLE IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT. THE ASSESSEE SUBMITTED THAT THE BOOKS OF A CCOUNT OF THE PARTNERS SUCH PAYMENTS WERE NOT RECORDED AND THEREF ORE INTEREST WOULD NOT WORK OUT FROM THE SAID FIGURES. FURTHER I T WAS SUBMITTED THAT HOWEVER, BASED ON THE ACTUAL AMOUNT OF INVESTMENTS MADE BY THE PARTNERS, THE FIGURES AS SHOWN IN THE FINAL ACCOUNT S ARE CORRECT AND THE SAME WAS CORRECTLY CLAIMED BY THE ASSESSEE. SI NCE THE ASSESSEE 13 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. ADMITTED BEFORE THE CIT(A) THAT THE BOOKS OF ACCOUN T DO NOT INDICATE THESE TRANSACTIONS, THE CIT(A) CONFIRMED THE ADDITI ON. 12.3 SIMILAR ISSUE AROSE IN AY 2004-05 AND THE COOR DINATE BENCH DELETED THE ADDITION BY OBSERVING AS UNDER: 14.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE UNABLE TO UNDERSTAND HOW THE INTEREST AT 12% OF RS. 1,59,6 00/- CAN BE DISALLOWED. AS SEEN FROM THE FINAL STATEMENTS, T HE ENTIRE INTEREST ON PARTNER'S CAPITAL CLAIMED WAS ONLY RS. 51,800/- AND THE AMOUNT CLAIMED IN THE P&L A/C WAS RS. 51,80 0/- ONLY. HOW AN AMOUNT OF RS. 1,59,600/- COULD BE DISA LLOWED IS NOT EXPLAINABLE. THEREFORE, WE DO NOT FIND ANY R EASON TO CONFIRM THE ADDITION SO MADE, BASED ON THE SO CALLE D ENTRIES IN THE PARTNERS' SITTING FEE ACCOUNT IN CASH IMPRES T MAINTAINED BY MANAGING PARTNER. HOWEVER, WITH REFER ENCE TO THE DISALLOWANCE OF RS. 15,791/- CONSIDERED TO B E MISCELLANEOUS EXPENDITURE, WE CONFIRM THE DISALLOWA NCE AS THE INTEREST FOR BUSINESS PURPOSES IS NOT EXPLAINED . THEREFORE, WHILE CONFIRMING THE AMOUNT OF RS. 15,79 1/-, ASSESSEE GETS RELIEF OF RS. 1,59,600/-. GROUND IS P ARTLY ALLOWED. SINCE THE ISSUE IS SIMILAR IN THIS AY, BY FOLLOWING THE ABOVE DIRECTION, WE SUSTAIN THE DISALLOWANCE OF RS. 65,040/-, WHICH IS BRIBE AND IN PERSONAL NATURE. WITH REGARD TO INTEREST, WE DIRECT THE AO TO ALLOW 12% OF INTEREST ON CAPITAL EMPLOYED BY THE PARTNERS DURING THE YEAR, AS PER THE PROVISION, THE EXCESS CAN BE DISALLOWED. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 14. AS GROUNDS RAISED IN AY 2006-07 ARE IDENTICAL T O 2005-06, FOLLOWING THE CONCLUSIONS DRAWN THEREIN, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DI SMISSED. 14 ITA NO. 657 /H/16 AND OTHERS SRI VENKATESWAARA CHIT FUNDS, NALGONDA. 14. IN THE RESULT, APPEALS OF THE ASSESSEE IN ITA N OS. 657 & 658/HYD/16 ARE PARTLY ALLOWED AND APPEALS OF THE R EVENUE IN ITA NO. 507 & 508/HYD/16 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH OCTOBER, 2017. KV COPY TO:- 1) SHRI VENKATESWARA CHIT FUNDS, C/O SRI S. RAMA RA O, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREE T NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) ADDL. CIT, RANGE 9, INCOME-TAX TOWERS, AC GUAR DS, HYD. 3) ITO, WARD 1, NALGONDA. 4) CIT(A) 5, HYDERABAD 5 PR. CIT - 7, HYDERABAD 6) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 7) GUARD FILE