ACIT, Central Circle-2, Hyderabad V. Sri K. Kranthi Kiran Reddy, Hyderabad

ITA 684/HYD/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4407 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-10-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Unexplained cash credit; Unexplained investment; Revision of order; Income from undisclosed sources; Salary income; Deemed dividend; Commercial expediency; Revised return
• Section: 143(3); 153A; 68; 69; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S.NO. ITA NO. AY ASSESSEE RESPONDENT 1 TO 5 610 TO 614/H/12 2002-03 TO 2006-07 SRI K. RAVINDER REDDY, HYD. PAN ADOPK 7300 A DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 6, HYDERABAD. 6 TO 10 694 TO 698/H/12 2002-03 TO 2006-07 ASST. COMMISS- IONER OF INCOME- TAX, CENTRAL CIRCLE 2, HYDERABAD. SRI K. RAVINDER REDDY, HYD. PAN ADOPK 7300 A 11 TO 13 602/H/12 TO 604/H/12 2002-03, 2005-06 & 2006- 07 SRI K. KRANTHI KIRAN REDDY, HYD. PAN AAGPK 4038 C DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 6, HYDERABAD. 14 TO 18 684 TO 688/H/12 2002-03 TO 2006-07 ASST. COMMISS- IONER OF INCOME- TAX, CENTRAL CIRCLE 2, HYDERABAD. SRI K. KRANTHI KIRAN REDDY, HYD. PAN AAGPK 4038 C ASSESSEE BY : SHRI A. SRINIVAS REVENUE BY : SHRI K.J. RAO DATE OF HEARING 24-10-2016 DATE OF PRONOUNCEMENT 30-11-2016 O R D E R PER BENCH: ALL THESE APPEALS ARE PERTAINING TO TWO DIFFERENT ASSESSES AS WELL AS THE REVENUE DIRECTED AGAINST THE ORDERS OF CIT(A) 1, HYDERABAD, ALL DATED, 21/02/2012 FOR ASSESSMENT YEA RS 2002-03 TO 2006-07. AS IDENTICAL ISSUES ARE INVOLVED IN ALL T HESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER, THEREFORE, A COMMO N ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS IN THE CASE OF SRI K. RAVINDER REDDY. 3. RETURNS OF INCOME WERE ORIGINALLY FILED BY THE ASSESSEE ADMITTING THE FOLLOWING INCOMES: AY TOTAL INCOME (RS.) AGR. INCOME 2002-03 84,257/- 27,32,717 2003-04 (2,12,763/-) 38,98,376 2004-05 60,019/- 42,76,035 2005-06 1,85,517/- 36,48,223 2006-07 4,27,137 32,97,322 3.1 THE ASSESSEE WAS SUBJECTED TO SEARCH U/S 132 OF THE IT ACT ON 19/02/2008. CONSEQUENT TO SEARCH, NOTICES U/S 153A WERE ISSUED AND THE ASSESSEE FILED RETURNS OF INCOME FOR THE AYS 20 02-03 TO 2006-07 ADMITTING INCOMES AS UNDER: AY TOTAL INCOME (RS.) AGR. INCOME 2002-03 16,84,257/- 27,32,717 2003-04 3,31,221/- 33,49,392 2004-05 6,37,881/- 36,90,044 2005-06 3,85,517/- 36,48,223 2006-07 4,24,867/- 32,97,322 3.2 THE AO COMPLETED THE ASSESSMENTS U/S 143(3) REA D WITH SECTION 153A OF THE ACT, BY MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES FOR THE AYS UNDER CONSIDERA TION: ISSUE 2002-03 2003-04 2004-05 2005-06 2006-07 TREATING OF JP AGRO FARM RECEIPTS AS INCOME FROM NON- AGRICULTURAL INCOME 2917717 5064617 56,82,254 55,12,157 47,64,700 RENT FROM KACHIGUDA COMMERCIAL COMPLEX 1,74,936 1,31,618 1,20,884 2,23,077 1,93,207 RENT FROM HIMAYATNAGAR 1,11,825 2,23,012 7,13,563 6,27,882 5,94,350 DEEMED DIVIDEND 1,34,125 36,51,020 48,60,000 10,56,510 84,82,448 3 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY DISALLOWANCE OF INTEREST FROM HOUSE PROPERTY AT BANGALORE 1,37,683 1,65,321 1,55,163 1,14,348 - UNEXPLAINED CASH CREDITS U/S 68 5,00,000 12,00,000 - 30,00,000 17,00,000 DISALLOWANCE OF INTEREST ON RESIDENTIAL PLOT AT BANJARA HILLS 61,834 1,51,655 1,31,292 UNEXPLAINED INVESTMENT IN BADANGPET LANDS OR UNACCOUNTED PAYMENTS FOR PURCHASE OF LANDS 5,00,000 2,00,000 RENTAL INCOME FROM NAGOLE PLOT 4,03,200 RENTAL INCOME FROM MARUTHI NAGAR BLDG. 5,06,934 UNEXPLAINED INVESTMENT IN KOTHAPET LAND 17,00,980 4. AGGRIEVED BY THE ORDERS OF AO, THE ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE THE CIT(A). 4.1 THE CIT(A) PASSED A CONSOLIDATED ORDER FOR ALL THE ASSESSMENT YEARS 2002-03 TO 2006-07 BY SUSTAINING SOME OF THE ADDITIONS AND DELETING SOME OF THE ADDITIONS MADE BY THE AO AS ME NTIONED IN THE AFORESAID TABLE. 5. AGAINST THE ORDER OF CIT(A), BOTH THE ASSESSEE A S WELL AS REVENUE ARE IN APPEALS BEFORE US. 4 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY FIRST WE WILL TAKE UP THE APPEALS OF THE ASSESSEE 6. THE ASSESSEE IS IN APPEAL ON TWO ISSUES, NAMELY AGAINST THE ADDITION ON ACCOUNT OF RENTAL INCOME AND THE ADDITI ON MADE ON ACCOUNT OF UNEXPLAINED CREDIT U/S 68 OF THE ACT, WH ICH ARE COMMON IN ALL THE APPEALS. 7. AS REGARDS THE ADDITION RELATING TO THE RENTAL I NCOME FROM HIMAYATHNAGAR COMMERCIAL PROPERTY , IT IS OBSERVED THAT PART OF THIS BUILDING WAS USED FOR RESIDENCE OF THE ASSESSEE AND THE REST IS OCCUPIED BY VARIOUS FIRMS OF THE ASSESSEE AND A SMA LL PORTION IS LET OUT TO THIRD PARTIES. ASSESSEE HAS NOT OFFERED RENT AL INCOME FROM HIS FIRMS AND ONLY A SMALL AMOUNT IS RECEIVED FROM THIR D PARTIES AS RENT. THE AO, APPLYING THE PROVISIONS OF SEC.23 OF THE AC T, ARRIVED AT THE REASONABLE RENT PER SQUARE FOOT EXPECTED TO BE RECE IVED DURING THE YEAR. MULTIPLYING THE SAME WITH THE TOTAL AREA OF T HE BUILDING AS REDUCED BY THE AREA OCCUPIED BY ASSESSEE FOR HIS RE SIDENCE, DIVIDING THE SAME INTO TWO HALVES AND AFTER CONSIDERING THE RENTAL INCOME ALREADY OFFERED AND. ALSO ALLOWING THE ELIGIBLE DED UCTIONS U/S. 24, THE AO ARRIVED AT THE NET ADDITION UNDER THIS HEAD FOR ALL THE YEARS UNDER APPEAL AY 2002-03 TO 2006-07 AND ADDED TO THE TOTAL INCOME. 7.1 THE CIT(A) OBSERVED THAT AS FAR AS RENTAL INCOM E FROM THIS PROPERTY IS CONCERNED, IT IS TO BE HELD THAT THE PO RTION OF THE PROPERTY LET OUT TO THE FIRMS IN WHICH THE ASSESSEE IS A PAR TNER IS ALSO ASSESSABLE IN THE HANDS OF THE ASSESSEE TO THE EXTE NT OF HIS SHARE BASED ON ANNUAL LET OUT VALUE. THE ARGUMENT PUT FOR TH BY THE ASSESSEE BEFORE CIT(A) IN RESPECT OF THE PROVISIONS OF SEC.22 THAT WHERE ANY PROPERTY IS IN OCCUPATION OF THE OWNER FO R THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM, THE P ROFITS OF WHICH ARE CHARGEABLE TO INCOME-TAX ARE NOT CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY, CIT(A) HAS NOT ACCEPTED ASSESSEES CONTENTION. BECAUSE THE SAID PORTION OF THE PROPER TY, AS ADMITTED BY 5 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY THE ASSESSEE, IS IN THE OCCUPATION OF THE FIRMS WHI CH ARE CARRYING ON BUSINESS AND FIRM IS ALTOGETHER A DIFFERENT TAXABLE ENTITY, CANNOT BE EQUATED AS BUSINESS CARRIED ON BY THE ASSESSEE HIMS ELF. PARTNER AND FIRM ARE DIFFERENT TAXABLE ENTITIES AND THEIR INCOM ES SUBJECTED TO TAX SEPARATELY. BUSINESS OF THE FIRM CANNOT BE REGARDED AS BUSINESS OF THE PARTNER ALTHOUGH ULTIMATELY PROFITS ARE DIVISIB LE TO THE PARTNERS. INCOME-TAX ACT RECOGNIZES THE PARTNERSHIP FIRM AS S EPARATE ASSESSABLE ENTITY WITH THAT OF PARTNERS. HENCE THE ARGUMENT OF THE ASSESSEE TO TREAT THE BUSINESS OF THE FIRM AS THAT OF THE PARTNER, IN THIS CASE THE ASSESSEE BEING THE OWNER OF THE PROPE RTY, IS NOT IN CONSONANCE WITH THE PROVISIONS OF THE LAW. THE CIT( A) RELYING ON THE DECISION OF THE HON'BLE HIGH COURT OF CALCUTTA IN T HE CASE OF PRODIP KUMAR BOTHRA VS. CIT 244 CTR 0346 IN SUPPORT OF THE PROPOSITION THAT CO-OWNER OF A PROPERTY LET OUT A PORTION OF A PROPERTY TO THE OCCUPATION OF A FIRM IN WHICH HE IS A PARTNER, WILL NOT BE ENTITLED TO THE BENEFIT OF EXCLUSION PROVIDED IN SEC.22 OF THE IT. ACT. AS FAR AS THE ALTERNATIVE CONTENTION THAT THE ASSESSMENT MADE IN THE CASE OF WIFE OF THE ASSESSEE I.E. SMT. K.PRIYAMVADA REDDY, CONSEQUE NT TO THE DIRECTIONS U/S.263 OF THE I.T. ACT FOR THE AY 2004- 05 IS CONCERNED, THE CIT(A) OBSERVED THAT IN THE ASSESSMENT FRAMED U/S.1 43(3) R.W.S.263 OF THE I.T. ACT FOR THE AY 2004-05, THE AO HELD THA T THE SAID PROPERTY IS IN OCCUPATION OF THE ASSESSEE THEREFORE THE ALV IS TAKEN AT NIL. WHEREAS THE ASSESSEE HIMSELF HAS ADMITTED THAT ONLY A PORTION IS IN HIS OCCUPATION AND THE REST ARE GIVEN TO THE FIRMS TO CARRY ON THEIR BUSINESS AND A PORTION TO OTHERS ON RENTAL BASIS. T HEREFORE, THERE IS A DIFFERENCE OF MATERIAL FACT EMANATING IN THE CURREN T ASSESSMENTS WHICH ARE MADE IN CONSEQUENCE OF ACTION U/S.132 OF I.T. ACT. BASING ON THE ADMISSION OF THE ASSESSEE, THE RENTAL INCOME IS BEING SUBJECTED TO TAX FROM THE PROPERTY HIMAYATHNAGAR BU ILDING. IT IS ALSO NOT KNOWN ABOUT THE CONSTITUTION OF THE FIRMS WHICH ARE OCCUPYING THE BUILDING OF THE ASSESSEE AS TO WHETHER IT CONSISTS OF ASSESSEE AND HIS WIFE ALONE ARE PARTNERS OR SOME OTHERS ALSO AS PART NERS. IF THE ASSESSEE CARRIES ON BUSINESS AS A PROPRIETARY CONCE RN THEN THERE IS A 6 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY CASE FOR THE ASSESSEE TO TAKE BENEFIT OF PROVISION OF SEC.22 OF THE ACT. BUT IT IS NOT SO. HENCE THE ASSESSEE CANNOT TAKE SH ELTER UNDER THE EARLIER SCRUTINY ASSESSMENT FRAMED CONSEQUENT TO TH E SET ASIDE ORDER U/S 263 OF THE ACT. IN VIEW OF THE ABOVE DISCUSSION , AND PROVISIONS OF THE LAW, THE CIT(A) HELD THAT THE PORTION OF THE PR OPERTY OCCUPIED BY THE FIRMS FOR THEIR BUSINESS PURPOSES IS REQUIRED T O BE BROUGHT UNDER THE COMPUTATION OF INCOME FROM HOUSE PROPERTY BY TA KING THE ALV OF THE PROPERTY. HE DIRECTED THE AO TO TAKE THE ALV B ASED ON COMPARABLE CASES AS WELL AS ASSESSEE'S OWN CASE IN RESPECT OF THE PORTION OF THE PROPERTY LET OUT TO THIRD PARTIES F OR ALL THE ASSESSMENT YEARS FROM AY 2002-03 TO 2006-07. FOLLOWING THE ABO VE DIRECTIONS, RENTAL INCOME FROM THIS BUILDING IS TO BE RECOMPUTE D FOR THESE ASSESSMENT YEARS. 7.2 LD. AR OF THE ASSESSEE SUBMITTED THAT THE ABOV E PROPERTY WAS LET OUT TO A BUSINESS FIRM IN WHICH THE ASSESSEE IS ALSO A PARTNER. SINCE ASSESSEE IS RUNNING A BUSINESS ON THE SAID PR OPERTY, AS PER THE PROVISIONS OF SECTION 22, WHERE ANY PROPERTY IS IN OCCUPATION OF THE OWNER FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM, THE PROFITS OF WHICH ARE CHARGEABLE TO INCOME TAX ARE NOT CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HE SUBMITTED THAT THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. MUSTAFA KHAN, 270 ITR 601 HAS HELD THAT INCOME FROM HOUSE PROPERTY OWNED BY AN ASSESSEE AND USE IN BUSINESS CARRIED ON BY THE FIRM IN WHICH THE ASSESSEE IS A PARTNER WOULD QUALIFY FOR E XEMPTION AS PROVIDED IN SECTION 22 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 7.3 LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND SUBMITTED THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRODEEP KUMAR BOTHRA (SUPRA) HAS HELD THAT EXEMPTION U/S 22 OF THE ACT IN RESPECT OF A PROPERTY NOT OWNED BY TH E PARTNERSHIP FIRM CANNOT BE AVAILED BY AN INDIVIDUAL CO-OWNER MERELY BECAUSE HE 7 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY HAPPENS TO BE A PARTNER OF A FIRM IN OCCUPATION OF A PART OF THE PROPERTY. 7.5 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE FACTS ARE, ASSESSEE OWNS THE PROPERT Y ALONG WITH HIS WIFE, LET OUT A PORTION OF THE PROPERTY TO THE FIRM IN WHICH HE IS A PARTNER. ASSESSEE CLAIMS THAT BEING A PARTNER IN TH E BUSINESS, HE OCCUPIES SUCH PORTION OF THE PROPERTY AS USED FOR R UNNING A BUSINESS BY HIMSELF AND CLAIMING DEDUCTION U/S 22 OF THE ACT . BY GOING THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS MATTER, WE FIND THAT EXEMPTION OF INCOME FROM PROPERTY USED FOR ASSESSEE S BUSINESS MUST ALSO BE GRANTED IN CASE WHERE THE PROPERTY OF THE ASSESSEE IS USED BY A PARTNERSHIP BUSINESS IN WHICH THE ASSESSE E IS ALSO A PARTNER. IN THE FOLLOWING CASES, THE RESPECTIVE HIG H COURTS HAVE HELD THE DECISION ON THIS ISSUE, IN FAVOUR OF THE ASSESS EE, THEY ARE AS FOLLOWS: 1. CIT VS. THOMAS [1990] 181 ITR 256 (KER.) 2. CIT VS. SYYED ANWAR HUSSAIN, [1990] 186 ITR 749 (PAT.) 3. CIT VS. RABINDRANATH BHOL [1995] 211 ITR 799 (O R.) 4. CIT VS. MUSTAFA KHAN 270 ITR 601 (ALL.) 7.6 AT THE SAME TIME, IN THE FOLLOWING CASES, THE H IGH COURTS OF KARNATAKA AND CALCUTTA DECIDED IN FAOVUR OF THE REV ENUE: 1. CIT VS. GURUSWAMY (K.N.) [1984] 146 ITR 34 (KAR N.) 2. PRODEEP KUMAR BOTHRA (SUPRA) 7.7 AS THERE IS NO JURISDICTIONAL HIGH COURTS DECI SION ON THIS MATTER, WE ARE BOUND TO FOLLOW THE DECISION OF OTHE R HIGH COURTS. SINCE VARIOUS HIGH COURTS HAVE HELD DIFFERENT VIEWS , WE ARE BOUND TO FOLLOW THE DECISION WHICH IS FAVOURING TO THE ASSES SEE AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. VEGETABLE PRODUCTS LTD., 88 ITR 192 (SC) . FOLLOWING THE ABOVE DECISION, WE ADJUDICATE THIS MATTER IN FAVOUR OF TH E ASSESSEE FOLLOWING 8 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CAS E OF MUSTAFA KHAN (SUPRA). HENCE, THE GROUND RAISED BY THE ASSESSEE I S ALLOWED. 8. AS REGARDS THE RENTAL INCOME FROM NAGOLE BUILDIN G FOR THE A Y 2006-07 IS CONCERNED , IN THE ASSESSMENT, THE AO HAS TAKEN A SUM OF RS.4,03,200/- AS INCOME FROM THE PROPERTY SITUATED AT NAGOLE. IT IS A 12000 SQUARE FEET BUILDING GIVEN ON RENT TO AN EDUC ATIONAL SOCIETY. BUT THE ASSESSEE HAS NOT OFFERED ANY RENTAL INCOME ON THIS PROPERTY. ACCORDINGLY, THE AO ESTIMATED THE RENT @ RS.8 PER S QUARE FOOT AND ASSESSED 50% AS TO THE SHARE OF THE ASSESSEE. 8.1 IN THE APPELLATE PROCEEDINGS, THE AR HAS VEHEME NTLY CONTESTED THAT THE PROPERTY WAS OCCUPIED BY A CHARITABLE SOCI ETY, OF WHICH THE ASSESSEE IS A TRUSTEE/OFFICE BEARER AND THE SAID SO CIETY RUNS AN EDUCATIONAL INSTITUTION FROM THAT PREMISES. IT IS F URTHER ARGUED THAT IN VIEW OF PROVISIONS OF SEC.22, NO AMOUNT OF INCOME C AN BE ASSESSED FROM THESE PREMISES. ALTERNATIVELY, HE HAS OBJECTED TO THE VALUATION OF RS.8/- PER SQUARE FOOT WHICH IS ON HIGHER SIDE AND WITHOUT ANY BASIS OR COMPARISON, THE AO ADOPTED THE HIGHER VALUE. ACC ORDINGLY, THE ASSESSEE ARGUED TO DELETE THE ADDITION. 8.2 THE CIT(A) REJECTING THE SUBMISSIONS OF THE ASS ESSEE, OBSERVED THAT THE SAID 'PROVISION OF SEC.22 HAS NO APPLICATI ON TO THE FACTS OF THE CASE. THE PROPERTY HAS BEEN GIVEN TO A CHARITABLE S OCIETY WHICH IS RUNNING A SCHOOL. THE ASSESSEE COULD NOT FILE ANY O THER DETAILS ABOUT THE STATUS OF THE SOCIETY WHETHER IT HAS REGISTRATI ON U/ S .12AA OF THE I.T. ACT OR NOT AND THE OTHER MEMBERS/TRUSTEES ASSO CIATED WITH THE SOCIETY WHICH IS RUNNING THE SCHOOL. HOWEVER, ON PE RUSAL OF THE FACTS IT IS CLEAR THAT ASSESSEE IS DIFFERENT FROM THE SOC IETY WHICH IS A SEPARATE PERSON ASSESSABLE UNDER THE I.T. ACT. THER EFORE, THE ASSESSEE CANNOT TAKE THE PLEA THAT NO AMOUNT OF REN T CAN BE ASSESSED IN THE HANDS OF THE ASSESSEE BECAUSE BUSIN ESS IS CARRIED ON IN THAT PREMISES BY AN ENTITY IN WHICH THE ASSES SEE HAS STAKE. 9 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY ASSESSEE AND THE SOCIETY ARE TOTALLY DIFFERENT ENTI TIES, CANNOT BE TREATED AS ONE FOR THE PURPOSE OF TAXATION.CIT(A) R ELYING ON THE DECISION OF THE HON'BLE HIGH COURT OF CALCUTTA IN T HE CASE OF PRODIP KUMAR BOTHRA VS. CIT 244 CTR 0346 IN SUPPORT OF THE PROPOSITION THAT CO-OWNER OF A PROPERTY LET OUT A PORTION OF A PROPERTY TO THE OCCUPATION OF A FIRM IN WHICH HE IS A PARTNER, WILL NOT BE ENTITLED TO THE BENEFIT OF EXCLUSION PROVIDED IN SEC.22 OF THE I.T. ACT. THEREFORE, THE CONTENTION OF THE ASSESSEE DOES NOT STAND TO THE FA CTS OF THE CASE. ACCORDINGLY, IN PRINCIPLE, THE ACTION OF THE AO IS SUSTAINED TO COMPUTE THE, RENTAL INCOME ON THIS PROPERTY. HOWEVER, THE A O IS NOT CORRECT TO ESTIMATE THE RENTAL INCOME ON HYPOTHETICAL BASIS WI THOUT ANY REASONABLE MATERIAL TO DO SO. ACCORDINGLY, HE IS DI RECTED TO MAKE REASONABLE ESTIMATION BY COLLECTING DATA IN RESPECT OF THE RENTAL INCOME IN THAT AREA WHICH ARE IN CLOSE PROXIMITY TO THE PROPERTY OF THE ASSESSEE SITUATED. BY TAKING SUCH COMPARABLE CASES, THE AO, IS DIRECTED TO RECOMPUTE THE RENTAL INCOME. 8.3 THE LD. AR SUBMITTED THAT ASSESSEE HAS LET OUT THE PROPERTY SITUATED AT NAGOLE ON RENT TO EDUCATIONAL SOCIETY I N WHICH ASSESSEE IS ALSO A MANAGING TRUSTEE, HENCE, SUCH PROPERTY SHOUL D BE EXCLUDED FROM CHARGING TO INCOME-TAX APPLYING THE PROVISIONS OF SECTION 22 OF THE ACT. 8.4 LD. DR, HOWEVER, OBJECTED TO THE ABOVE SUBMISSI ON AND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 8.5 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. ASSESSEE HAS LET OUT THIS BUILDING AT NA GOLE ON RENT TO AN EDUCATION SOCIETY IN WHICH ASSESSEE IS A MANAGING T RUSTEE. HOWEVER, IT WILL NOT AMOUNT TO RUNNING OF BUSINESS BY ASSESS EE ON SUCH PROPERTY. AS PER THE PROVISIONS OF SECTION 22, THE CONDITION TO GET EXEMPTION IS THE PROPERTY SHOULD BE IN OCCUPATION O F THE OWNER FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM, THE PROFITS 10 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY OF WHICH ARE CHARGEABLE TO INCOME TAX. IN THE PRESE NT CASE, RUNNING A SCHOOL IS NOT THE BUSINESS OF THE ASSESSEE NOR TH E INCOME OF THE EDUCATIONAL SOCIETY IS CHARGEABLE TO INCOME TAX, AT LEAST, IT HAS NOT BROUGHT ON RECORD TO SHOW THAT THE ABOVE BUSINESS P ROFITS ARE CHARGEABLE TO INCOME-TAX. IN OUR CONSIDERED VIEW, T HE EDUCATIONAL SOCIETY IS A SEPARATE TAXABLE ENTITY AND, THEREFORE , NOTHING TO DO WITH THE ASSESSEE, HENCE, THE CONTENTION OF THE ASSESSEE IS REJECTED AND THE FINDINGS GIVEN BY THE CIT(A) ON THIS ISSUE ARE PROPER. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS REJECTED. 9. AS REGARDS THE RENTAL INCOME FROM MARUTHI NAGAR BUILDING FOR THE AY 2006-07 , AS IN PROPERTY IN RESPECT OF NAGOLE BUILDING, THE AO COMPUTED THE PROPERTY INCOME BY TAKING RS. 8/- PER SQUARE FOOT AND ASSESSED 50% SHARE TO THE ASSESSEE'S CREDIT AT RS.5 ,06,934/-. IT IS SUBMITTED THAT THE ASSESSEE ALONG WITH HIS WIFE OWN S THIS PROPERTY WHICH IS COMMERCIAL IN NATURE. THE SAID PROPERTY WA S OCCUPIED BY A CHARITABLE SOCIETY WHICH IS RUNNING AN EDUCATIONAL INSTITUTION. ASSESSEE CHARGED RENT ON THIS PROPERTY AND DECLARED A SUM OF RS.80,000/- AS RENTAL INCOME. HOWEVER, THE AO ADOPT ED HIGHER VALUE AT RS.8/- PER SFT AND RECOMPUTED AS ABOVE. 9.1 THE CIT(A) DIRECTED THE AO TO RECOMPUTE THE REN TAL INCOME OF THIS PROPERTY AS DIRECTED IN CASE OF THE NAGOLE BU ILDING (SUPRA). 9.2 THE LD. AR SUBMITTED THAT ASSESSEE HAS LET OUT THE PROPERTY SITUATED AT MARUTI NAGAR ON RENT TO EDUCATIONAL SOC IETY IN WHICH ASSESSEE IS ALSO A MANAGING TRUSTEE, HENCE, SUCH PR OPERTY SHOULD BE EXCLUDED FROM CHARGING TO INCOME-TAX APPLYING THE P ROVISIONS OF SECTION 22 OF THE ACT. 9.3 LD. DR, HOWEVER, OBJECTED TO THE ABOVE SUBMISSI ON AND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 11 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 9.4 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. ASSESSEE HAS LET OUT THIS BUILDING AT MA RUTHI NAGAR ON RENT TO A CHARITABLE SOCIETY IN WHICH ASSESSEE IS A MANA GING TRUSTEE. HOWEVER, IT WILL NOT AMOUNT TO RUNNING OF BUSINESS BY ASSESSEE ON SUCH PROPERTY. AS PER THE PROVISIONS OF SECTION 22, THE CONDITION TO GET EXEMPTION IS THE PROPERTY SHOULD BE IN OCCUPATI ON OF THE OWNER FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED O N BY HIM, THE PROFITS OF WHICH ARE CHARGEABLE TO INCOME TAX. IN T HE PRESENT CASE, RUNNING A CHARITABLE SOCIETY IS NOT THE BUSINESS O F THE ASSESSEE NOR THE INCOME OF THE CHARITABLE SOCIETY IS CHARGEABLE TO INCOME TAX, AT LEAST, IT HAS NOT BROUGHT ON RECORD TO SHOW THAT TH E ABOVE BUSINESS PROFITS ARE CHARGEABLE TO INCOME-TAX. IN OUR CONSID ERED VIEW, THE CHARITABLE SOCIETY IS A SEPARATE TAXABLE ENTITY AND , THEREFORE, NOTHING TO DO WITH THE ASSESSEE, HENCE, THE CONTENTION OF T HE ASSESSEE IS REJECTED AND THE FINDINGS GIVEN BY THE CIT(A) ON TH IS ISSUE ARE PROPER. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS REJECTED. 10. AS REGARDS THE ADDITION MADE U/S 68 OF THE ACT ON ACCOUNT OF UNEXPLAINED CASH CREDITS, FOR AYS 2002-03, 2003-04, 2005-06 AND 2006-07, THE AO OBSERVED THAT THE ASSESSEE HAD SHOW N CASH LOANS FROM HIS MOTHER SMT. K.VAJRAMMA, SRI K.PURUSHOTHAM REDDY, SRI K.RAGHUMOHAN REDDY, ETC FOR THE ABOVE YEARS. IN CAS E OF SMT. K.VAJRAMMA, IT WAS CONTENDED THAT THE SOURCES OF TH E SAID LOANS WERE FROM HER SHARE OF AGRICULTURAL INCOME FROM JP AGRO FARMS AND JP FARMS. AS THE ASSESSEE FAILED TO PRODUCE ANY EVIDEN CE REGARDING AGRICULTURAL INCOME OF MOTHER AND FATHER AS WELL AS OTHER CREDITORS SOURCES AND ALSO FOR THE REASON THAT ASSESSEE'S SHA RE OF AGRICULTURAL INCOME FROM JP AGRO FARMS AND JP FARMS WAS ALREADY DISALLOWED, THE CASH RECEIPTS WERE TREATED AS UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESS EE IN THE RESPECTIVE ASSESSMENT YEARS. 12 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 11. THE CIT(A) OBSERVED THAT FOR THE AY 2002-03 AND 2003-04, ASSESSEE HAS SHOWN RS.5 LAKHS AND RS. 10,05,000/- A S CASH CREDITS RECEIVED FROM HIS MOTHER SMT. K. VAJRAMMA. THE CONT ENTION ADVANCED BY THE ASSESSEE IN SUPPORT OF THESE TWO CREDITS IS THAT SMT. VAJRAMMA IS ASSESSED TO TAX AND SHE IS HAVING SUBSTANTIAL IN COME FROM AGRICULTURE, THEREFORE, THE AO IS NOT JUSTIFIED IN TREATING THE SAID CASH CREDITS AS UNEXPLAINED. AFTER PERUSING THE FACTS IN RESPECT OF SMT. K. VAJRAMMA, THE CIT(A) OBSERVED THAT AS PER THE RETUR N, SHE IS HAVING SHARE OF PROFIT FROM JANAPRIYA ENGINEERS SYNDICATE AND AGRICULTURAL INCOME. THE MAIN ISSUE IS TO BE EXAMINED IS WHETHER THE CASH CREDIT TRANSACTION HAS BEEN PROVED BEYOND DOUBT OR NOT. IT IS THE DUTY OF THE ASSESSEE TO ESTABLISH THE IDENTITY OF THE PERSON WH O ADVANCED THE MONEY, CONFIRMATION FROM SUCH PERSON THAT THE AMOUN T HAS BEEN ADVANCED AS A LOAN WITH OR WITHOUT INTEREST, AND SO URCES OF SUCH ADVANCES WITH REASONABLE EVIDENCES. UNLESS THESE CO NDITIONS ARE FULFILLED IT IS VERY DIFFICULT TO BELIEVE THAT THE SAID CREDITS ARE GENUINE. IT IS ONLY THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT HAS BEEN RECEIVED FROM HIS MOTHER BUT THERE IS NO INDEPENDEN T EVIDENCE TO CONFIRM THAT THIS AMOUNT HAS BEEN RECEIVED AS LOAN FROM HER, THERE IS NO CONFIRMATION TO THAT EFFECT FROM SMT. K. VAJRAM RNA. SHE MAY BE HAVING RESOURCES. ANOTHER IMPORTANT POINT TO BE MEN TIONED HERE IS THAT THESE AMOUNTS ARE RECEIVED IN CASH. IT IS VERY DIFFICULT TO BELIEVE HOW SMT. K.VAJRAMMA IS NOT HAVING ANY BANK A/C DESP ITE HAVING HUGE INCOMES TO HER CREDIT. THERE ARE NO SUPPORT TO THE CONTENTION OF THE ASSESSEE. EVEN TILL DATE, THE SAID LOAN IS STILL AP PEARING IN THE BOOKS OF THE ASSESSEE WITHOUT ANY REPAYMENT TO HER . THER EFORE, THE ONUS CASTS ON THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE CASH CREDIT TRANSACTION HAS NOT BEEN FULFILLED. CONSEQUENTLY, T HE CASH CREDITS APPEARING IN THE NAME OF SMT. K. VAJRAMMA CANNOT BE ACCEPTED AS GENUINE AND THE AO HAS RIGHTLY ASSESSED THESE AMOUN TS AS UNEXPLAINED INCOME OF THE ASSESSEE. THE ACTION OF T HE AO IS THUS CONFIRMED BY THE CIT(A). 13 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 11.1 IN THE ASSESSMENT YEAR 2003-04, THE CIT(A) OB SERVED THAT THERE IS ANOTHER CASH CREDIT OF RS.1,95,000/- APPEA RING IN THE NAME OF ASSESSEE'S FATHER SRI PURUSHOTHAMA REDDY. IT IS ARG UED THAT THIS CREDIT IS OUT OF AGRICULTURAL INCOME OF HIS FATHER. BUT NO EVIDENCES ARE FORTHCOMING IN SUPPORT OF LOAN RECEIVED FROM HIS FA THER AND HIS CONFIRMATION AS WELL AS FINANCIAL SOUNDNESS. STILL THE LOAN IS REMAINING UNPAID. THEREFORE, ALL THE CONDITIONS OF ESTABLISHING GENUINE CREDITS HAVE NOT BEEN COMPLIED WITH AND ACC ORDINGLY CASH CREDIT OF RS.1,95,000/ - IS TO BE TREATED AS UNACCO UNTED INCOME OF THE ASSESSEE. THE AO'S ACTION IS THUS CONFIRMED BY THE CIT(A). 11.2 IN RESPECT OF AY 2005-06, THE ASSESSEE HAS SHO WN A SUM OF RS.30 LAKHS AS RECEIVED FROM MR. K.RAGHUMOHAN REDDY . THE MAIN ARGUMENT OF THE ASSESSEE IS THAT THIS LOAN WAS APPE ARING EVEN IN THE ORIGINAL RETURN THEREFORE, THE AO CANNOT RELOOK INT O SUCH FINANCIAL AFFAIRS OF THE ASSESSEE AND AS SUCH LOAN IS EXPLAIN ED. THE CIT(A) DID NOT SUBSCRIBE TO THE VIEW OF THE ASSESSEE THAT THE AO CANNOT EXAMINE THE FINANCIAL AFFAIRS WHEN THE ORIGINAL ASSESSMENT WAS NOT SUBJECTED TO SCRUTINY U/S.143(3) OF THE ACT. HE OBSERVED THAT ALL THE MORE, THE AO IS COMPETENT TO EXAMINE THE ISSUES CONSEQUENT TO SEARCH U/S.132 FOR THE REASON THAT IN THE COURSE OF SEARCH AND SEI ZURE OPERATIONS THE DEPARTMENT COULD LAY THEIR HANDS ON MANY UNACCOUNTE D TRANSACTIONS OF THE ASSESSEE WHICH WAS ADMITTED WHILE FILING THE RETURNS OF INCOME IN RESPONSE TO NOTICE U/S.153A OF THE I.T. ACT. THE REFORE, THE ASSESSEE IS NOT LEGALLY CORRECT TO OBJECT TO THE AC TION OF THE AO IN EXAMINING VARIOUS ISSUES. IN THE COURSE OF APPELLAT E PROCEEDINGS, THE ASSESSEE FILED A CONFIRMATION LETTER FROM MR. K.RAG HUMOHAN REDDY IN RESPECT OF LOAN OF RS. 30 LAKHS GIVEN TO THE ASSESS EE. IT IS STATED THAT THE SAID AMOUNT WAS GIVEN VIDE CHEQUE DRAWN ON INDI AN OVERSEAS BANK AND THE SAID ACCOUNT BELONGS TO HIS SON WHO IS RESIDING IN USA. IT IS NOT KNOWN WHETHER SHRI K.RAGHUMOHAN REDDY IS ACTING AS POWER OF ATTORNEY OF HIS NRI SON OR NOT. NO EVIDENCES HAV E BEEN FILED IN RESPECT OF THE ABOVE CRUCIAL FACT. THERE IS NO INDE PENDENT 14 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY CONFIRMATION FROM THE NRI SON OF MR. RAGHUMOHAN RED DY. IT IS NOT KNOWN WHO SIGNED THE CHEQUE AND WHO IS OPERATING TH E 'ACCOUNT IN INDIA; THERE IS. NO EXPLANATION ABOUT THE QUERY RAI SED IN THE APPEAL PROCEEDINGS OF REPAYMENT OF LOAN TO THE ABOVE CREDI TOR. THESE FACTS CLEARLY DEMONSTRATE THAT THE CREDIT APPEARING IN TH E BOOKS OF THE ASSESSEE HAS NOT BEEN EXPLAINED AS CONTEMPLATED UND ER THE PROVISIONS OF LAW. THEREFORE, IT IS VERY DIFFICULT TO INTERFERE WITH THE ACTION OF THE AO IN MAKING THE ADDITION OF RS.30 LA KHS AS UNACCOUNTED INCOME OF THE ASSESSEE IN THE ASSESSMEN T ORDER FOR AY 2005-06. ACCORDINGLY, THE ACTION OF THE AO IS CONFI RMED BY THE CIT(A). 12. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. 12.1 AS REGARDS THE ADDITION OF RS. 5,00,000/- U/S 68 IN AY 2002-03, THE LD. AR OF THE ASSESSEE BROUGHT TO OUR KNOWLEDGE THAT SMT. VAJRAMMA HAS INCOME FROM AGRICULTURAL INCOME TO THE EXTENT OF RS. 7,02,050/-. IN SUPPORT OF SUCH CLAIM, A COPY OF THE RETURN OF INCOME WAS FILED (REFER PAGE 5 OF PAPER BOOK). EVEN THOUGH , THERE IS NO CONFIRMATION LETTER FROM SMT. VAJRAMMA, SHE IS BEIN G A MOTHER, CAN ALWAYS GIVE CASH TO HER SON. SINCE SMT. VAJRAMMA HA S SOURCE OF INCOME TO MAKE SUCH CASH, WE CONFIRM THAT SHE HAS A PROPER SOURCE TO GIVE CASH TO THE ASSESSEE, WHICH IS A GENUINE ON E, THE ADDITION MADE BY THE AO ON THIS COUNT IS ACCORDINGLY DELETED . 12.2 IN AY 2003-04, THE ASSESSEE HAS RECEIVED CASH FROM HIS MOTHER SMT. K. VAJRAMMA TO THE EXTENT OF RS. 10,05,000/-, FOR WHICH LD. AR OF THE ASSESSEE HAS SUBMITTED RETURN OF INCOME FILED B Y HER, WHICH IS PLACED AT PAGE 17 OF PAPER BOOK, IN WHICH SHE HAS D ECLARED RS. 12,05,450/- AS AGRICULTURAL INCOME. EVEN THOUGH, TH ERE IS NO CONFIRMATION LETTER FROM SMT. VAJRAMMA, SHE IS BEIN G A MOTHER, CAN ALWAYS GIVE CASH TO HER SON. SINCE SMT. VAJRAMMA HA S SOURCE OF INCOME TO MAKE SUCH CASH, WE CONFIRM THAT SHE HAS A PROPER SOURCE 15 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY TO GIVE CASH TO THE ASSESSEE, WHICH IS A GENUINE ON E, THE ADDITION MADE BY THE AO ON THIS COUNT IS ACCORDINGLY DELETED . 12.3 IN AY 2003-04, THERE IS ANOTHER CASH CREDIT OF RS. 1,95,000/- APPEARING IN THE NAME OF ASSESSEES FATHER SHRI PUR SHOTHAMA REDDY. NO EVIDENCE WAS SUBMITTED BY THE LD. AR OF THE ASSE SSEE ABOUT THE SOURCE OF INCOME OF THE ASSESSEES FATHER TO GIVE C ASH TO ASSESSEE AND SINCE THE ASSESSEE FAILED TO SUBSTANTIATE THE S AID CLAIM, WE CONFIRM THE ADDITION MADE BY THE REVENUE AUTHORITIE S ON THIS COUNT. 12.4 AS REGARDS THE GROUND NOS. 4 & 5 RAISED BY THE ASSESSEE IN AY 2004-05 REGARDING THE ADDITION OF RS. 5,00,000/- AS UNEXPLAINED INVESTMENT U/S 69 OF THE ACT, THE AR OF THE ASSESSE E HAS NOT PRESSED THIS GROUND AT THE TIME OF HEARING BEFORE US, THERE FORE, THE SAME IS DISMISSED AS NOT PRESSED. 12.5 AS REGARDS THE ADDITION OF RS. 30 LAKHS AS REC EIVED FROM MR. K. RAGHUMOHAN REDDY IN AY 2005-06, IT IS OBSERVED THAT THE ASSESSEE HAS TAKEN A LOAN FROM MR. K. RAGHUMOHAN REDDY THROU GH BANKING CHANNEL FOR WHICH THE AO & CIT(A) HAVE ALREADY CONF IRMED THAT THERE IS A CREDIT IN THE BANK BOOK OF THE ASSESSEE. CIT(A ) HAS STATED THAT THE CHEQUE WAS DRAWN FROM THE INDIAN OVERSEAS BANK, WHICH BELONGS TO MR. K. RAGHUMOHAN REDDYS SON, WHO IS NRI. CIT(A ) RAISED A DOUBT THAT HE IS NOT SURE WHETHER BANK ACCOUNTS WER E HANDLED BY MR. K. RAGHUMOHAN REDDY AND WHETHER THE CHEQUES WERE SI GNED BY HIS SON OR HIMSELF. HOWEVER, LD. AR SUBMITTED THAT LOAN WAS TAKEN THROUGH BANKING CHANNEL AND THE SAME WAS ALREADY DE CLARED IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE. IT IS IMPORTANT THAT THE MONEY WAS RECEIVED THROUGH BANKING CHANNEL, HENCE, IT IS IRRELEVANT WHETHER WHO WAS SIGNED AT THIS POINT OF TIME, AS LO NG AS THE MONEY WAS TRANSFERRED THROUGH A PROPER BANKING CHANNEL AN D THE IDENTIFICATION OF THE CREDITOR IS IDENTIFIED, IT AM OUNTS TO A GENUINE TRANSACTION. ACCORDINGLY, THE ADDITION MADE IN THIS REGARD IS DELETED. 16 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 12.6 AS REGARDS THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE IN AY 2005-06 REGARDING THE ADDITION OF RS. 2,00,000/- AS UNEXPLAINED INVESTMENT U/S 69 OF THE ACT, ON PERUSAL OF CIT(A) S ORDER WE FIND THAT THE CIT(A) HAS NOT ADJUDICATED THIS GROUND, AS THE APPEAL IS AGAINST THE ORDER OF CIT(A) IN WHICH THIS GROUND HAS NOT AD JUDICATED. HOWEVER, ON MERIT ALSO, THE ASSESSEE HAS ACCEPTED T HAT IT IS AN UNACCOUNTED TRANSACTION DURING THE SEARCH PROCEEDIN GS. THEREFORE, THIS GROUND IS ACCORDINGLY REJECTED. ITA NOS. 602, 603 & 604/HYD/12 IN CASE OF SHRI K. K RANTHI KIRAN REDDY FOR AYS 2002-03, 2005-06 AND 603/HYD/2012. 13. IN AY 2002-03, THE ASSESSEE HAS RAISED A GROUND THAT THE AO OUGHT NOT TO HAVE ADDED THE OPENING BALANCE OF THE CAPITAL ACCOUNT AS UNEXPLAINED INVESTMENT AMOUNTING TO RS. 5,50,000 /-. 13.1 THE AO MADE THE ADDITION ON THE GROUND THAT TH E ASSESSEE HAS SHOWN OPENING CASH BALANCE OF RS. 5,66,084/- IN HIS CAPITAL ACCOUNT. BEFORE THE CIT(A) IT WAS ARGUED THAT THE OPENING CA SH BALANCE IS NOTHING BUT ACCUMULATED INCOME OVER THE PERIOD REPR ESENTING AGRICULTURAL INCOME. FURTHER, IT WAS ARGUED THAT TH E AO CANNOT ASSUME JURISDICTION FOR THE EARLIER YEARS. THE CIT( A) REJECTING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ADDITION MADE BY THE AO BY HOLDING THAT IN THE ABSENCE OF ANY PROPER EXPLAN ATION TO THAT OPENING BALANCE, IT IS PRESUMED THAT THE SAID AMOUN T IS NOTHING BUT ASSESSEES OWN INCOME NOT DISCLOSED IN THE RETURN O F INCOME. 13.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. THE SUBMISSION OF THE AR OF THE ASSESSEE IS THAT THE OPENING CASH BALANCE IS AN ACCUMULATED INCOME OVER THE PERIOD REPRESENTING AGRICULTURAL INCOME. THEREFORE, WE ARE OF THE VIEW THAT THE OPENING BALANCE CANNOT BE TREATED AS UNEXPLAINE D MONEY U/S 69A OF THE ACT AS THE SAME WAS NOT EARNED DURING THE AY UNDER 17 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY CONSIDERATION AND ACCORDINGLY, WE DELETE THE ADDITI ON MADE ON THIS COUNT. 14. IN AY 2005-06, THE ASSESSEE HAS RAISED GROUND N OS. 4 & 5 THAT THE AO OUGHT NOT TO HAVE ADDED AN AMOUNT OF RS. 50, 000/- AS CASH CREDITS, WHEN THE IDENTITY AND SOURCES WERE PROVED. THIS GROUND HAS NOT PRESSED BY THE LD. AR AT THE TIME OF HEARING BE FORE US, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 15. ANOTHER GROUND IS RAISED IN AY 2005-06 AND 2006 -07 WITH REGARD TO THE RENTAL INCOME FROM MIYAPUR BUILDING. 16. AS THE ISSUE IS MATERIALLY IDENTICAL TO THE ISS UE RAISED IN THE CASE OF SHRI K. RAVINDER REDDY, FOLLOWING THE CONCL USIONS DRAWN VIDE PARA NO. 8.5 (SUPRA), THIS GROUND OF THE ASSESSEE I S DISMISSED IN BOTH THE YEARS UNDER CONSIDERATION. APPEALS OF THE REVENUE IN THE CASE OF SHRI K. RAVIN DER REDDY FOR AYS. 2002-03 TO 2006-07 17. IN ALL THESE APPEALS, THE REVENUE HAS RAISED TH E FOLLOWING GROUNDS: 1) THE CIT(A) HAS ERRED ON BOTH THE FACTS AND LAW. 2) THE CIT(A) OUGHT TO HAVE HELD THAT THE ONUS IS O N THE ASSESSEE TO PROVE HIS CLAIM OF AGRICULTURAL INCOME, WHICH WAS NOT DISCHARGED BY THE ASSESSEE AND THE ENTIRE INCOME SH OWN AS AGRICULTURAL INCOME HAS TO BE TREATED AS INCOME FRO M OTHER SOURCES. 3) THE CIT(A) HAS ERRED IN LAW IN HOLDING THAT ONLY CLOSING DEBIT BALANCES AT THE END OF THE YEAR AFTER CONSIDERING T HE CREDIT ENTRIES DURING THE YEAR HAS TO BE TAKEN FOR ARRIVIN G OF THE DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE U/S 2(22)( E) OF THE IT ACT, INSTEAD OF THE TOTAL AMOUNTS CREDITED BY THE COMPAN Y TO THE ACCOUNT OF THE ASSESSEE. 18 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 4) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F APPEAL HEARING. 18. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE. 19. AS REGARDS GROUND NOS. 2 PERTAINING TO AGRICULT URAL INCOME, THE AO OBSERVED THAT ASSESSEE HAD SHOWN IN THE RECEIPTS AND PAYMENTS A/C, CASH RECEIPTS FROM JP AGRO FARMS AND FROM JP F ARMS, BUT NO EVIDENCE FOR AGRICULTURAL SALE PRODUCE OR AGRICULTU RE EXPENDITURE WAS FOUND EITHER IN THE OFFICE OR IN THE RESIDENCE OF A SSESSEE DURING SEARCH. NO EVIDENCE IN SUPPORT OF AGRICULTURAL RECE IPTS AND AGRICULTURAL EXPENDITURE COULD BE FILED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS, THEREFORE, THE AO TREATED T HE RECEIPTS FROM JP AGRO FARMS AND JP FARMS AS INCOME FROM OTHER SOU RCES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR ALL T HE ASSESSMENT YEARS UNDER APPEAL. 20. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS FILED RETURN OF INCOME IN RESPONSE TO THE NOTIC E ISSUED U/S.153A OF I.T.ACT DISCLOSING ADDITIONAL INCOME OF RS.16 LA KHS FOR THE AY 2002-03, IN ADDITION TO THE ORIGINAL INCOME ADMITTE D AS PER THE RETURN. THE AO MADE ARBITRARY ADDITION OF RS.29,17,717/-, R S. 50,64,617/-, RS.56,82,254/-, RS. 55,12,157/- AND RS. 47,64,700/- FOR THE AY 2002- 03 TO 2006-07 RESPECTIVELY AS INCOME FROM OTHER SOU RCES AS AGAINST THE CLAIM OF THE ASSESSEE UNDER AGRICULTURAL INCOME . THE ASSESSEE DERIVES AGRICULTURAL INCOME FROM JP AGRO FARMS AND JP FARMS DIRECTLY AND THE SAME WERE REFLECTED IN THE CASH FLOW STATEM ENT SUBMITTED TO THE ASSESSING AUTHORITIES. THE AGRICULTURAL INCOME DERIVED BY THE ASSESSEE WAS DULY SHOWN IN THE ORIGINAL RETURNS OF INCOME FILED FOR ALL THE YEARS UNDER REFERENCE. IN FACT, THE ORIGINAL RE TURNS OF ASSESSMENT YEAR 2003-04 AND 2004-05 WERE SUBJECTED TO SCRUTINY U/S.143(3) AND THE AO HAS DISCUSSED IN DETAIL ABOUT THE LAND HOLDI NGS, NATURE OF CROP GROWN AND OTHER DETAILS PERTAINING TO THE AGRICULTU RAL OPERATIONS AND 19 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY COMPLETED THE ASSESSMENT BY MAKING CERTAIN DISALLOW ANCES AND ASSESSED THE AGRICULTURAL INCOME FOR AY 2003-04 AT RS.33,49,391/- AS AGAINST RS.38,98,376/- DECLARED BY THE ASSESSEE, AN D FOR THE AY 2004-05, DETERMINED THE AGRICULTURAL INCOME AT RS. 36,79,807/- AS AGAINST DISCLOSURE OF AGRICULTURAL INCOME BY THE AS SESSEE AT RS.42,76,633/-. ACCORDINGLY, IN THE REVISED RETURNS FILED IN RESPONSE TO NOTICE U/S.153A, THE ASSESSEE HAS SHOWN THE AGRI . INCOME AS DETERMINED BY THE AO IN THE ORIGINAL SCRUTINY ASSES SMENTS. THEREFORE, THE AO IS TOTALLY INCORRECT IN REJECTING THE CLAIM OF THE ASSESSEE AND TREATING THE AGRICULTURAL INCOME AS NON-AGRICULTURA L INCOME WITHOUT ANY BASIS OR MATERIAL FOUND EITHER DURING THE SEARC H OR DURING THE ASSESSMENT PROCEEDINGS. HE MADE ARBITRARY ADDITIONS IN RESPECT OF AGRI. INCOME FOR ALL THE YEARS WITHOUT ANY APPLICAT ION OF MIND. ACCORDINGLY, THE ASSESSEE PLEADED FOR DELETION OF T HE ADDITIONS WHICH HAVE NO EVIDENCE TO STAND. 21. ON APPEAL, THE CIT(A) HELD AS FOLLOWS: 9.0 I HAVE DULY CONSIDERED THE ARGUMENTS OF THE AS SESSEE AS WELL AS FACTS OF THE CASE. THERE IS NO DISPUTE ABOU T ORIGINAL SCRUTINY ASSESSMENTS IN RESPECT OF ASST. YEAR 2003- 04 AND 2004- 05 WHEREIN THE AO HAS GIVEN A CATEGORICAL FINDING A BOUT THE AGRICULTURAL INCOME, NATURE OF CROP, FERTILITY OF T HE LAND ETC. AFTER CONSIDERING VARIOUS FACTORS, HE HAS PARTLY DISALLOW ED THE AGRI. INCOME AND ASSESSED A SUM OF RS.5,48,984/- AS NON A GRICULTURAL INCOME AS AGAINST THE CLAIM OF THE ASSESSEE OF AGRI . INCOME AT RS.38,98,376/- FOR THE AY 2003-04, AND FOR AY 2004- 05, A SUM OF RS.5,96,826/- WAS ASSESSED AS NON-AGRI. INCOME AS A GAINST TOTAL AGRI. INCOME DISCLOSED OF RS.42,76,633/- IN THE RET URN. THEREFORE, THE FACT OF AGRI. INCOME CANNOT BE DENIED ALTOGETHE R WITHOUT ANY COGENT EVIDENCES BROUGHT ON RECORD. IN THE BALANCE OF THE YEARS UNDER APPEAL, I.E. AY 2002-03, 2005-06 AND 2006-07, NO SCRUTINY ASSESSMENTS U/S.143(3) HAVE BEEN COMPLETED ORIGINAL LY. THEREFORE, THE AO IS EMPOWERED TO REVISIT THE CLAIM OF THE ASSESSEE IN RESPECT OF AGRI. INCOME. IT IS FOR THE ASSESSEE TO PLACE ALL THE EVIDENCES IN SUPPORT OF THE PARTICULA R CLAIM OF EXEMPTED INCOME. AT THE SAME TIME, ONE CANNOT OVERL OOK THE EXISTENCE OF AGRICULTURAL INCOME IN THE HANDS OF TH E ASSESSEE. GOING BY THE EARLIER ASSESSMENTS, I AM OF THE VIEW THAT THE AGRICULTURAL INCOME DISCLOSED IN THE RETURNS BY THE ASSESSEE IS ON HIGHER SIDE. HENCE, A REASONABLE PORTION OF SUCH IN COME NEEDS 20 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY TO BE DISALLOWED AND ASSESSED AS INCOME FROM OTHER SOURCES. IN THE AY 2002-03, THE ASSESSEE CLAIMED RS.27,32,717/- AS AGRI. INCOME. FOLLOWING THE EARLIER SCRUTINY ASSESSMENTS, I FEEL AROUND RS.3,85,000/- IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES OUT OF TOTAL AGRICULTURAL INCOME CLAIMED BY THE ASSESSEE. WHEREAS FOR THE AY 2005-06, RS. 5,11,000- IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES OUT OF THE AGRICULTURAL I NCOME OF RS. 36,48,223/- CLAIMED BY THE ASSESSEE. SO ALSO IN THE AY 2006-07, RSA,65,000/- IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES OUT OF AGRICULTURAL INCOME CLAIMED OF RS.32,97,322/-. T HE AO IS DIRECTED TO SUBSTITUTE THE ABOVE AMOUNTS OF RS.3,85 ,000/-, RS.5,11,000/- AND RS.4,65,000/- AS INCOME FROM OTHE R SOURCES FOR THE AYS 2002-03, 2005-06 AND 2006-07 RESPECTIVE LY AND BALANCE ADDITIONS MADE BY HIM ARE TO BE DELETED FRO M THE TOTAL INCOME. IN RESPECT OF AY 2003-04 AND 2004-05, NO SE PARATE ADDITION IS REQUIRED TO BE MADE IN RESPECT OF AGRIC ULTURAL INCOME AS IN THE ORIGINAL ASSESSMENTS THE ADDITIONS WERE M ADE U/S.143(3) AND THE SAME HAVE BEEN DISCLOSED IN THE RETURNS OF INCOME FILED BY THE ASSESSEE IN RESPONSE TO NOTICE U/S.153A. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDIT IONS SO MADE FOR THESE TWO YEARS ALTOGETHER, I.E, AY 2003-04 AND 2004-05 IN RESPECT OF AGRICULTURAL INCOME. 22. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO PROVE THAT HE CARRIED ON THE AGRICULTUR AL ACTIVITIES. THE ONUS OF PROOF IS WITH THE ASSESSEE. HE RELIED ON TH E ORDER OF AO. 23. LD. AR ON OTHER HAND RELIED ON CIT(A)S ORDER. 24. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. THE AGRICULTURAL INCOME WAS TREATE D AS OTHER INCOME DUE TO THE FACT THAT THERE WAS NO MATERIAL FOUND DU RING SURVEY TO CORROBORATE THE EVIDENCE TO SHOW THAT ASSESSEE HAS ACTUALLY CARRIED OUT AGRICULTURAL ACTIVITIES. BUT THE ASSESSEE HAS DISCLOSED AGRICULTURAL INCOME IN ALL THE YEARS. ONLY IN AY 2003-04 AND AY 2004-05, THERE WAS SCRUTINY ASSESSMENT AND IN WHICH THE AO HAS VER IFIED THE RECORDS AND MADE ADJUSTMENTS TO THE AGRICULTURAL INCOME. HE PARTLY ACCEPTED AGRICULTURAL INCOME AND HE TREATED PART OF THE INCO ME AS INCOME FROM OTHER SOURCES. IT SHOWS THAT THE AO HAD APPLIED HIS MIND AND DETERMINED THE AGRICULTURAL INCOME. THE SAME CANNOT BE DENIED 21 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY SIMPLY BECAUSE ASSESSEE COULD NOT SUBMIT ANY EVIDEN CE DURING SEARCH. IN OUR CONSIDERED VIEW, THE DEPARTMENT CANN OT HAVE TWO VIEWS ON THE SAME MATTER. THE AO IN THE EARLIER ASS ESSMENT, DETERMINED THE AGRICULTURAL INCOME AFTER APPLYING H IS MIND. NOW, THE PRESENT AO CANNOT DOUBT THE WISDOM OF THE EARLIER A O. CONSIDERING THE ABOVE, THE INCOME DETERMINED U/S 143(3) HOLDS G OOD FOR ASSESSMENT U/S 153A ALSO. TAKING THE FINDINGS OF LD . CIT(A) IN ASSESSMENT U/S 143(3) AS STANDARD AND ACCEPT THE AG RICULTURAL INCOME IN AY 2002-03, 2005-06 AND 2006-07. HENCE, G ROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. 25. AS REGARDS THE GROUND NO. 3 PERTAINING TO THE A DDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT, THE AO OBSERVED THAT ASSESSEE WAS IN RECEIPT OF ADVANCE/LOAN FROM T HE FIRM ENGINEERS SYNDICATE INDIA PVT LTD FOR THE ASSESSMENT YEARS 20 02-03 TO 2006-07. AS THE ASSESSEE IS HAVING MORE THAN 10% SHARE HOLDI NG IN THE COMPANY, THE AO ASKED THE ASSESSEE AS TO WHY THE AM OUNTS RECEIVED SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S.2(22)( E) OF THE ACT. THE ASSESSEE REPLIED THAT THESE AMOUNTS WERE PAID TO TH E ASSESSEE BY THE COMPANY FOR MAKING PAYMENTS TO LANDLORDS ON BEH ALF OF THE COMPANY, THE TRANSACTION COULD NOT BE MATERIALIZED AND THE AMOUNTS WERE PAID BACK TO THE COMPANY. THE AO HELD THAT THE EXPLANATION WAS NOT ACCEPTABLE AS NO EVIDENCE WAS PRODUCED AND TREA TED THE AMOUNTS RECEIVED BY THE ASSESSEE AS DEEMED DIVIDEND FOR THE ASSESSMENT YEARS 2002-03 TO 2006-07. 26. BEFORE THE CIT(A), IT WAS ARGUED THAT: BASED O N THE CASH FLOW STATEMENT SUBMITTED TO THE AO, THE AO HAS DETERMINE D THAT THERE WAS A DEEMED DIVIDEND U/S.2(22)(E) OF THE IT. ACT. THIS APPROACH OF THE AO IS TOTALLY MISCONCEIVED AND IS FLAWED. THE AO HA S TO FIND OUT THE NET BALANCE OUTSTANDING AT THE END OF THE YEAR. IF THE AMOUNT IS IN DEBIT, IT HAS TO BE ANALYZED AS TO HOW MUCH IS TO T HE PERSONAL BENEFIT AND HOW MUCH IS NOT TO THE PERSONAL BENEFIT. ONLY T HAT PORTION OF THE 22 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY BALANCE WHICH IS FOR THE PERSONAL BENEFIT OF THE AS SESSEE WOULD FALL WITHIN THE AMBIT OF SEC.2(22)(E) OF THE ACT. IN FAC T, THE AO PROCEEDED ON THE BASIS OF CASH FLOW STATEMENTS WITHOUT EXAMIN ING THE TRUE NATURE OF RECEIPT SHOWN IN THE ACCOUNTS OF THE ASSE SSEE. HE HAS ONLY TAKEN AMOUNTS DRAWN FROM THESE COMPANIES I.E. ENGIN EERS SYNDICATE INDIA PVT. LTD AND JANAPRIYA ENGINEERS SYNDICATE IN DIA AS ADVANCES WITHOUT VERIFYING THE NET BALANCE AT THE END OF THE YEAR. THESE AMOUNTS FROM THESE TWO CONCERNS REFLECT THE REMUNER ATION RECEIVED FROM THEM FOR THE SERVICES RENDERED BY THE ASSESSEE . THESE AMOUNTS WERE DULY REFLECTED IN THE RETURN OF INCOME AS REM UNERATION RECEIVED FROM THESE TWO ENTITIES IN ALL THE YEARS WHICH ARE SUBJECT MATTER OF APPEAL. NO AMOUNT CAN BE BROUGHT UNDER DEEMED DIVID END U/S.2(22)(E) OF THE I. T. ACT AS THESE RECEIPTS ARE ALREADY SUBJECTED TO TAX AS SALARY INCOME. IT WAS THEREFORE ARGUED THAT THE ACTION OF THE AO TANTAMOUNTS TO DOUBLE TAXATION OF THE SAME INCOM E UNDER THE HEADS SALARY AS WELL AS DIVIDEND INCOME. 27. THE CIT(A), AS FAR AS 2002-03 IS CONCERNED, OBS ERVED THAT: IT IS CLEAR THAT THE AO HAS TAKEN THE DEBIT ITEMS AS PER THE CASH FLOW STATEMENT AND COMPUTED THE DEEMED DIVIDEND WITHOUT VERIFYING THE CREDIT ENTRIES IN THE A/C OF THE ASSESSEE IN VARIOU S CONCERNS. ONE THING EMANATING UNDISPUTEDLY IS THAT WHATEVER AMOUN TS DRAWN FROM VARIOUS CONCERNS BY THE ASSESSEE HAVE NO NEXUS WITH ANY BUSINESS TRANSACTIONS WITH THOSE CONCERNS. NO EVIDENCES HAVE BEEN FURNISHED TO SUGGEST SO. THEREFORE, THESE AMOUNTS UNDOUBTEDLY REPRESENT DEEMED DIVIDEND AS CONTEMPLATED U/S.2(22)(E) OF THE IT. ACT. HOWEVER, THE AO HAS TO VERIFY THE NET CLOSING BALAN CE IN ORDER TO COMPUTE THE DEEMED DIVIDEND FOR EACH YEAR UNDER REF ERENCE. IN THE ASST. YEAR 2002-03, THE ADDITION RS. 1,34,125/- BEI NG THE AMOUNT RECEIVED FROM M/S. ENGINEERS SYNDICATE INDIA PVT. L TD, THE AO PRIMA FACIE PROCEEDED TO COMPUTE THE DEBIT BALANCES BASED ON CASH FLOW STATEMENT BUT NOT ON THE BASIS OF ACCOUNT OF THE AS SESSEE IN THE BOOKS OF THE ABOVE REFERRED COMPANY, ON VERIFICATIO N, IT IS FOUND THAT 23 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY AT THE END OF THE YEAR, I.E. 31-3-2002, THERE IS A CREDIT BALANCE OF RS.8,50,962/- IN THE NAME OF THE ASSESSEE IN THE BO OKS OF THE ABOVE COMPANY. THEREFORE, IT IS NOT CORRECT TO COMPUTE DE EMED DIVIDEND SOLELY ON THE BASIS OF ONLY DEBIT ITEMS WITHOUT CON SIDERING THE CREDITS APPEARING IN THE A/C OF THE ASSESSEE. ONLY THE NET CLOSING BALANCE IS TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE D EEMED DIVIDEND. THEREFORE, CIT(A) IS DIRECTED THE AO TO EXAMINE THE BOOKS. OF THE ABOVE COMPANY AND ARRIVE AT THE CORRECT DEEMED DIVI DEND IF ANY ON THE BASIS OF CLOSING BALANCES ONLY. 27.1 IN THE ASST. YEAR 2003-04, THE CIT(A) OBSERVED THAT: IT IS FOUND THAT THERE IS AN OPENING CREDIT BALANCE OF RS. 8,50 ,962/ - AND CLOSING DEBIT BALANCE IS RS.18,71,904/-. IN THE ACCOUNT THE RE IS A CREDIT BALANCE OF RS. 9,77,445/- ON 31-3-2003 REPRESENTING DIRECTOR'S REMUNERATION. HOWEVER, IN THE RETURN OF INCOME FILE D, THE ASSESSEE HAS DISCLOSED ONLY RS.3 LAKHS AS REMUNERATION FROM ENGINEERS SYNDICATE INDIA PVT LTD. THEREFORE, THERE IS A DIFF ERENCE OF RS.6,77,445/- IN THE REMUNERATION. IN ANY CASE, THE RE IS A DEEMED DIVIDEND IN THIS YEAR BECAUSE OF THE CLOSING DEBIT BALANCE OF RS.18,71,904/-. HOWEVER, THE AO HAS TAKEN ONLY THE DEBIT ITEMS APPEARING IN THE NAME OF THE ASSESSEE AND COMPUTED THE DEEMED DIVIDEND WHICH IS NOT THE CORRECT WAY OF ASSESSING THE DEEMED DIVIDEND AS CONTEMPLATED U/S.2(22)(E) OF THE ACT. FROM THE ABOVE FACTS, IT IS UNDISPUTED ABOUT THE DEEMED DIVIDEND R ECEIVED BY THE ASSESSEE FROM ENGINEERS SYNDICATE INDIA LTD FOR THI S ASST. YEAR TO THE EXTENT OF RS.18,71,904/-. AO SHOULD ALSO EXAMINE AB OUT THE DISCREPANCY IN THE REMUNERATION RECEIVED BY THE ASS ESSEE FROM THE ABOVE COMPANY FOR THIS ASSESSMENT YEAR. THERE IS NO PROPER EXPLANATION COMING FORWARD FROM THE ASSESSEE ABOUT THE DIFFERENCE OF REMUNERATION DECLARED BY HIM IN THE RETURN OF INCOM E AND ACCOUNTED BY THE COMPANY IN THE A/C OF THE ASSESSEE IN THE BO OKS OF ACCOUNT OF THE COMPANY. AFTER VERIFYING THE DETAILS, THE AO IS DIRECTED TO ASSESS THE DIFFERENCE OF RS.6,77,445/- AS ADDITIONAL REMUN ERATION AND RS. 24 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 18,71,904/- (SUBJECT TO VERIFICATION OF THE ENTRIES ) AS DEEMED DIVIDEND U/S.2(22)(E) OF THE LT. ACT. 27.2 AS REGARDS ASSESSMENT YEAR 2004-05, THE CIT(A ) OBSERVED THAT DEEMED DIVIDEND WAS QUANTIFIED AT RS.48,60,000/- RE PRESENTING RS.38,60,000/- FROM ENGINEERS SYNDICATE INDIA LTD A ND RS. 10,00,000/- FROM JANAPRIYA ENGINEERS SYNDICATE INDI A. AGAIN THE AO HAS TAKEN THE QUANTUM OF DEBITS ALONE WITHOUT CONSI DERING THE CREDITS IN THE A/C OF THE ASSESSEE. IN THE CASE OF ENGINEER S SYNDICATE INDIA PVT LTD, THERE IS OPENING DEBIT BALANCE OF RS.18,71 ,904/ - AND CREDITS OF RS. 10 LAKHS ON 3-7-2003 AND RS.3,17,550/- ON 31 -3-2004 TOWARDS REMUNERATION AND THE CLOSING DEBIT BALANCE IS RS.44 ,59,454/-. THEREFORE, THE NET DEBIT BALANCE AFTER CONSIDERING THE OPENING DEBIT BALANCE COMES TO RS.25,87,550/- ONLY. SIMILARLY, IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE INDIA THE DEBIT BALAN CE IS RS. 10,66,000/-. BOTH THESE DEBIT BALANCES REPRESENT DE EMED DIVIDEND AS PER THE PROVISIONS OF SEC. 2(22)( E) OF I.T. ACT. T HEY, REPRESENT CLEAR LOAN ADVANCES FROM THE ABOVE TWO CONCERNS FOR THE P URPOSES OF PERSONAL BENEFIT OF THE ASSESSEE ONLY. THERE IS NO COMMERCIAL EXPEDIENCY IN THESE LOANS TAKEN FROM THE COMPANIES IN WHICH THE ASSESSEE IS HAVING SUBSTANTIAL INTEREST BESIDES HOL DING THE POST OF DIRECTOR. THERE IS NO DISPUTE ABOUT THE NATURE OF T RANSACTION BETWEEN THE ASSESSEE AND THESE TWO CONCERNS. ACCORDINGLY, T HE ACTION OF THE AO IS CONFIRMED IN PRINCIPLE ABOUT ASSESSING THE LO ANS FROM THESE TWO CONCERNS AS DEEMED DIVIDEND TO THE EXTENT OF RS. 36 ,53,550/- (25,87,550 + 10,66,000) SUBJECT TO VERIFICATION OF THE ENTRIES IN THE BOOKS OF THE ABOVE TWO CONCERNS. 27.3 IN RESPECT OF ASST. YEAR 2005-06, THE CIT(A) O BSERVED THAT THE DEEMED DIVIDEND WAS QUANTIFIED AT RS.10,56,510/- RE PRESENTING RS.4,50,000/- FROM ENGINEERS SYNDICATE INDIA LTD AN D RS.6,06,510/- FROM JANAPRIYA ENGINEERS SYNDICATE LTD. IN THE CASE OF ENGINEERS SYNDICATE INDIA LTD THE NET DEBIT BALANCE IS RS. 55 ,91,391/ - AS 25 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY AGAINST THE OPENING DEBIT BALANCE OF RS.44,59,454/- . ONLY TWO ENTRIES ARE APPEARING IN THE A/C OF THE ASSESSEE AS CREDITS WHICH REPRESENT REMUNERATION OF RS.33,393/- ON 1-4-2004 AND RS.3,54 ,512/- ON 31-3- 2005. THUS, THE NET DEBITS TOWARDS ASSESSEE'S A/C COMES TO RS.11,31,937/- ONLY. THEREFORE, THERE IS A CASE FOR ASSESSING THIS AMOUNT AS DEEMED DIVIDEND RECEIVED FROM ESIL SUBJEC T TO VERIFICATION. IN THE CASE OF JANAPRIYA ENGINEERS SY NDICATE LTD, THE CLOSING CREDIT BALANCE IS RS.29,98,502/-. THEREFORE , PRIMA FACIE, THERE IS NO CASE FOR BRINGING THE TRANSACTIONS UNDER THE PURVIEW OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THE ACCOUNTS OF THESE CONCERNS AND ARRIVE AT THE CORRECT QUANTUM OF DEEMED DIVIDEND AND TAKE THE CLOSING BAL ANCES FOR THE PURPOSE OF COMPUTING THE DEEMED DIVIDEND UNDER THE ACT. 27.4 IN ASST. YEAR 2006-07, THE CIT(A) OBSERVED TH AT THE TOTAL DEEMED DIVIDEND IS COMPUTED AT RS.84,82,448/- AS FO LLOWS. A SUM OF RS.18,67,000/- REPRESENTING LOANS FROM ENGINEERS RE DDY HOMES PVT LTD. RS.7,12,048/- FROM ENGINEERS REDDY HOUSING FIN ANCE LTD; RS.24,15,000/- FROM ENGINEERS SYNDICATE INDIA LTD; RS.29,65,000/- FROM JANAPRIYA ENGINEERS SYNDICATE LTD; RS.1,75,000 /- FROM RAVIPRIVA CHIT FUND LTD; AND RS. 3,48,400/- FROM RAVIPRIYA ES TATES PVT LTD. ON VERIFICATION OF THE ACCOUNTS, IT IS CLEAR THAT THE ASSESSEE RECEIVED A SUM OF RS. 7,12,048/- FROM ENGINEERS REDDY HOUSING FINANCE LTD ON DIFFERENT DATES AS A LOAN. IT IS ESTABLISHED THAT T HESE LOANS CLEARLY REPRESENT DEEMED DIVIDEND GAINED BY THE ASSESSEE FR OM HIS COMPANY IN WHICH HE IS HAVING SUBSTANTIAL INTEREST. THE ACT ION OF THE AO IS SUSTAINED IN RESPECT OF LOAN RECEIVED FROM ENGINEER S REDDY HOUSING FINANCE LTD. 27.5 IN RESPECT OF ENGINEERS REDDY HOMES PVT LTD, I T APPEARS THAT THE AO HAS NOT CONSIDERED THE CREDIT ENTRY OF RS. 2 0,65,000/- ON 8-9- 2005 AND PROCEEDED TO COMPUTE ONLY THE DEBIT ENTRIE S. THEREFORE, THE AO IS DIRECTED TO, VERIFY THE CLOSING CREDIT BALANC E OF RS.1,98,000/- 26 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY APPEARING IN THE NAME OF THE ASSESSEE IN THE BOOKS OF ENGINEERS REDDY HOMES PVT. LTD. ON VERIFICATION, IF ANY DEBIT BALANCE IS APPEARING IN THE NAME OF THE ASSESSEE, THE SAME SHO ULD BE TAKEN AS DEEMED DIVIDEND AND IN CASE IT IS FOUND THAT IT IS A CREDIT BALANCE, QUESTION OF DEEMED DIVIDEND DOES NOT ARISE. 27.6 IN THE CASE OF ENGINEERS SYNDICATE INDIA PVT. LTD, THERE IS OPENING DEBIT BALANCE OF RS.55,91,391/- AS ON 1-4-2 005 AND CLOSING DEBIT BALANCE OF RS.62,34,010/- AS ON 31-3-2006. TH US THE NET DEBIT BALANCE AS AT THE END OF THE YEAR IS RS.6,42,619/-. AFTER VERIFICATION OF THE A/C AND REMUNERATION AMOUNT DISCLOSED BY THE AS SESSEE, THE AO IS DIRECTED TO ASSESS THE NET DEBIT BALANCE AS DEEM ED DIVIDEND U/S.2(22)(E) OF THE LT. ACT FROM THIS CONCERN. IN T HE CASE OF ENGINEERS SYNDICATE INDIA LTD, THERE IS OPENING CREDIT BALANC E OF RS.29,98,502/- AND CLOSING CREDIT BALANCE OF RS.16,64,530/- AS ON 10-12-2005. PRIMA FACIE, NO CASE FOR DEEMED DIVIDEND ON THIS TRANSACT ION. ASSESSING OFFICER IS DIRECTED TO VERIFY THE ACCOUNTS AS AT TH E END OF THE YEAR I.E. 31-3-2006 AND RE-COMPUTE THE DEEMED DIVIDEND. IF TH E NET CLOSING BALANCE IS IN DEBIT, THE SAME AMOUNT MAY BE ASSESSE D AS DEEMED DIVIDEND. IN CASE BALANCING FIGURE REPRESENTS CREDI T AMOUNT, NO AMOUNT CAN BE ASSESSED AS DEEMED DIVIDEND. SO ALSO, IN THE CASE OF RAVIPRIYA ESTATES PVT. LTD, THERE IS CREDIT BALANCE OF RS.7,93,476/- AS ON 23-1-2006 IN THE NAME OF THE ASSESSEE. AFTER VER IFICATION, DEBIT BALANCES IF ANY AS ON 31-3-2006 APPEARING IN THE NA ME OF THE ASSESSEE, MAY BE ASSESSED AS DEEMED DIVIDEND AS AGA INST ONLY DEBIT ENTRIES AS COMPUTED BY THE AO. SO FAR AS RS.1,75,00 0/- RECEIVED FROM RAVIPRIYA CHIT FUND IS CONCERNED, PRIMA FACIE, IT H AS TO BE ASSESSED AS DEEMED DIVIDEND FOR THIS ASST. YEAR. HOWEVER, TH E AO IS 'DIRECTED TO EXAMINE THE BOOKS PROPERLY AND THE CORRECT AMOUN TS ONLY BE TAKEN FOR THE PURPOSE OF DEEMED DIVIDEND. AO IS NOT CORRE CT TO TAKE ONLY DEBIT ITEMS AND TOTAL OF SUCH ITEMS AS DEEMED DIVID END IGNORING THE CREDITS APPEARING IN THE SAME ACCOUNT. AT THE SAME TIME, CREDITS UNDER 'REMUNERATION' ARE TO BE CAREFULLY EXAMINED A S TO WHETHER THE 27 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY ASSESSEE HAS DISCLOSED THE SAME IN THE RETURN OF IN COME OR NOT AND ACCORDINGLY RE-COMPUTE THE REMUNERATION AMOUNT WHIL E COMPUTING THE TOTAL INCOME OF THE ASSESSEE, HENCE, THE AO IS DIRE CTED TO RE- COMPUTE THE QUANTUM OF DEEMED DIVIDEND FOR THE A YS 2002-03 TO 2006-07 AS PER THE ABOVE DIRECTIONS AFTER CAREFUL E XAMINATION OF THE BOOKS OF A/C OF VARIOUS CONCERNS VIS-A-VIS THE ACCO UNTS OF THE ASSESSEE. 28. THE LD. DR RELIED ON THE AOS ORDER. 29. LD. AR ON OTHER HAND RELIED ON CIT(A)S ORDER. 30. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. THERE IS NO DISPUTE WITH REGARD TO APPLICATION OF PROVISIONS OF SECTIONS 2(22)(E) IN THIS CASE. CIT(A ) HAS ADJUDICATED THAT THERE EXISTS CREDIT BALANCE IN THE BOOKS OF AC COUNT OF THE RESPECTIVE COMPANY, IN FAVOUR OF THE ASSESSEE, IT H AS TO BE ADJUSTED TO ARRIVE AT THE NET AMOUNT, WHICH CAN BE TREATED A S DEEMED DIVIDEND. THE MUTE QUESTION BEFORE US IS WHETHER THE PAYMENT ITSELF WILL AMOUNT TO DEEMED DIVIDEND OR THERE CAN BE ROOM FOR MAKING ANY ADJUSTMENT AS ADJUDICATED BY THE CIT(A). AS PER THE PROVISIONS OF SECTION 2(22)(E) ANY PAYMENT BY A COMPANY, OF ANY SUM, BY W AY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES, HOLDING NOT LESS THAN 10% OF THE VOTING POWER. AT THE SAME TIME IN EXCLUSION CLAUSE (II), IT EXCLUDES ANY ADVA NCE OR LOAN MADE TO A SHAREHOLDER BY A COMPANY IN THE ORDINARY COURSE O F ITS BUSINESS. THE MEANING ORDINARY COURSE CAN BE BUSINESS OF FINA NCING OR COULD BE IN THE ORDINARY RUNNING OF THE BUSINESS SAY DIRE CTORS MAY BE DEALING ON BEHALF OF COMPANY, IN THAT PROCESS THEY WILL TAKE ADVANCE FOR THAT PURPOSE. THESE KIND OF ADVANCES AND RELATI NG CREDIT IN THEIR RESPECTIVE ACCOUNT SHOULD BE EXCLUDED. LD. AO IS NO T TRACING THE ACTUAL ADVANCE PAYMENT TO DIRECTOR RATHER, HE TAKES ONLY THE DEBIT BALANCES WITHOUT CONSIDERING THE CREDIT BALANCES. W HEN THE DIRECTOR IS 28 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY REPRESENTING AND HABITUALLY TAKING MONEY AND RETURN ING IT, AT THIS SITUATION, ONE HAS TO TAKE THE NET BALANCE. THE MUT E POINT TO CONSIDER IN DEALING WITH THE DEEMED DIVIDEND IS, WHETHER THE DIRECTOR TAKES THE UNDUE ADVANTAGE BY TAKING ADVANCE FROM THE COMPANY. IN THE GIVEN CASE, THERE IS NO SPECIFIC WITHDRAWAL BY THE DIRECT OR AS ADVANCES. IT IS ACCUMULATION OF SMALL ADVANCES, IN THIS CASE, THE D EPARTMENT HAS TO CONSIDER THE NET ADVANCE TAKEN BY THE DIRECTOR. HEN CE, THE FINDINGS OF THE CIT(A) IN THIS CASE IS FOUND TO BE PROPER. THE GROUND RAISED BY THE DEPARTMENT IS DISMISSED. 30.1 MOREOVER, THE SPECIFIC ADVANCE TAKEN BY THE DI RECTOR, THEN ONLY THE CREDIT ENTRY IN THE BOOKS CAN BE ADDED AS DEEME D DIVIDEND THAT IN THE PRESENT CASE THERE IS NO SPECIFIC CREDIT FOR LO AN. HENCE, ONLY THE NET BALANCE ALONE CAN BE TREATED AS DEEMED DIVIDEND . 31. IN THE CASE OF SRI K. KRANTHI KIRAN REDDY, THE REVENUE CAME IN APPEAL FOR THE AYS 2002-03 TO 2006-07. 32. THE ISSUE ON ACCOUNT OF AGRICULTURAL INCOME IS COMMON IN ALL THE AYS 2002-03 TO 2006-07. 33. AS THE ISSUE SIMILAR TO THE ISSUE RAISED BY THE REVENUE IN THE CASE OF SHRI K. RAVINDER REDDY, FOLLOWING THE CONCL USIONS DRAWN THEREIN VIDE PARA NO. 26, THE GROUNDS RAISED BY THE REVENUE IN ALL THE YEARS UNDER CONSIDERATION ARE DISMISSED. 34. THE ISSUE OF DEEMED DIVIDEND U/S 2(22)(E) IS RA ISED IN AY 2003- 04 & 2004-05. 35. AS THE ISSUE SIMILAR TO THE ISSUE RAISED BY THE REVENUE IN THE CASE OF SHRI K. RAVINDER REDDY, FOLLOWING THE CONCL USIONS DRAWN THEREIN VIDE PARA NO. 30, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 29 ITA NO. 610/H/12 AND OTHERS SHRI K. RAVINDER REDDY, HYD. SHRI K. KRANTHI KIRAN REDDY 36. IN THE RESULT, APPEALS OF THE ASSESSEE IN CASE OF SHRI K. RAVINDER REDDY AND SHRI K. KRANTHI KIRAN REDDY ARE PARTLY ALLOWED AND THE APPEALS OF THE REVENUE IN THE CASE OF SAID ASSESSEES ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 30 TH NOVEMBER, 2016 KV COPY TO:- 1. SHRI K. RAVINDER REDDY, M/S JANAPRIA PROPERTIES (P) LTD. 8-2-120/86, PLOT NO. 11 & 12, KEERTHI AND PRIDE TOWERS, ROAD NO. 2, BANJARA HILLS, HYDERABAD 34. 2. SHRI K. KRANTHI KIRAN REDDY, 3. DCIT, CC 6, HYD. 4. ACIT, CC 2, HYDERABAD 5. CIT(A) 1, HYDERABAD 6. CIT (CENTRAL), HYD. 7. DR, ITAT, HYDERABAD 8. GUARD FILE S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER