Manne Venkateswara Rao, Visakhapatnam V. THE ITO, Visakhapatnam

ITA 79/VIZ/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6642 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R GOVINDARAJAN
• Keywords: Unexplained cash credit; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 79 / VIZ /201 5 (ASST. YEAR : 20 11 - 12 ) MANNE VENKATESWARA RAO, D.NO. 28 - 10 - 23/2 - 3, LEELA MAHAL JUNCTION, VISAKHAPATNAM V S . IT O , WARD - 1( 2 ), VISAKHAPATNAM. PAN NO. BFCPM 2840 E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI R. GOVINDA RAJAN - SR. DR DATE OF HEARING : 19 / 0 9 /201 7 . DATE OF PRONOUNCEMENT : 27 / 0 9 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , VISAKHAPATNAM , DATED 30 /0 1 /201 5 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS IN SALE OF INDIAN MANUFACTURED FOREIGN LIQUOR IN THE NAME OF STYLE OF VENKATESWARA WINES , FILED HIS RETURN OF INCOME BY DECLARING TOTAL INCOME OF 8,95,240/ - . THE RETURN FILED BY THE ASSESSEE WAS INITIALLY PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT') , THEREAFTER SELECTED FOR 2 ITA NO. 79/VIZ/2015 ( MANNE VENKATESWARA RAO ) SCRUTINY. AFTER FOLLOWING DU E PROCEDURE , ASSESSEE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. THE ONLY ADDITIONS AGITATED BEFORE US ARE IN RESPECT OF UNEXPLAINED CREDITS OF 47,82,000/ - AND INTEREST INCOME OF 19,47,890/ - . 3 . SO FAR AS UNEXPLAINED CREDITS OF 47,82,000/ - IS CONCERNE D, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS SHOWN UNSECURED LOANS OF 2,45,59,100/ - AND ACCORDINGLY CALLED UPON THE ASSESSEE TO PROVE THE CREDITS. THE ASSESSING OFFICER NOTED TH A T IN SOME OF THE CASE S LETTERS WERE ISSUED TO THE CREDITORS , WERE RETUR NED UNSERVED AND IN SOME OF THE CASE, ASSESSEE FILED CONFIRMATION LETTERS. THE ASSESSING OFFICER FURTHER NOTED TH A T IN THE FOLLOWING CASES, THE ASSESSEE FAILED TO FURNISH CONFIRMATION LETTERS OR LE DGER EXTRACT OR COPY OF RETURN OF INCOME TO PROVE THE CREDITS: - I GEESALA JAGADESWARA RAO SKML WINES 5,00,000/ - II KOMPALLI JAGADEESH SURYA WINES 15,00,000/ - III KUBIREDDI APPALANAIDU LAKSHMI WINES 10,00,000/ - IV KALLADI DEMUD MANIKANTHA WINES 5,00,000/ - V KARRI SRINIVASA RAO, BHARAT WINES 10,00,000/ - VI DANNALA JANARDHANA RAO , 2,82,000 / - THEREFORE, THE ASSESSING OFFICER MADE THE ADDITION OF 47,82,000/ - 4 . ON APPEAL BEFORE THE LD. CIT(A) , THE ASSESSEE HAS FILED CONFIRMATION LETTERS IN RESPECT OF ABOVE CREDITORS BEFORE THE ASSESSING OFFICER. I N SUPPORT , HE R ELIED ON THE COPIES OF THE LETTERS FILED BEFORE THE ASSESSING OFFICER VIDE LETTERS DATED 10/06/2013, 30/10/2013, 20/11/2013. THE ASSESSEE ALSO RELIED ON THE CORRESPONDENCE MADE BY THE ASSESSING OFFICER VIDE LETTERS DATED 11/11/2013 & 13/01/2014 3 ITA NO. 79/VIZ/2015 ( MANNE VENKATESWARA RAO ) WHEREIN THE ASSESSEE WAS A S KED TO FILE CERTAIN DETAILS WITH REFERENCE TO CONFIRMATION LETTERS. THE ASSESSING OFFICER FURTHER REPRESENTED TH A T IN RESPECT OF CREDITORS NAMELY, G. JAGADEESWARA RAO, K.JAGADEESH, ASSESSEE HAS FILED LEDGER EXTRACT S AS APPEARING IN THE BOOKS OF CREDITORS, BANK STATEMENT S ALONG WITH THE CONFIRMATION LETTERS. IN CASE OF D. JANARDHAN RAO, THE LEDGER EXTRACT AS APPEARING IN THE BOOKS OF CREDITOR WAS SAID TO BE FILED ALONG WITH CONFIRMATION LETTER. THE ASSESSEE ALSO SUBMITTED THAT ALL THE ABOVE SIX CREDITORS ARE ASSESSED TO TAX AND THEREFORE THERE IS NO JUSTIFICATION FOR MAKING THE IMPUGNED ADDITION. 5. THE LD. CIT(A) BY CONSIDERING THE ABOVE EXPL ANATION GIVEN BY THE ASSESSEE ASKED THE ASSESSING OFFICER TO SUBMIT THE ACTUAL POSITION AS TO WHETHER CONFIRMATION LETTERS AND OTHER DETAILS WERE FILED AS CLAIMED BY THE ASSESSEE S COUNSEL . THE ASSESSING OFFICER GAVE HIS REPORT ON 29/01/2015 IN THE CASE OF S. SRINIVASA RAO , WHEREIN HE STATED THAT HE WAS PERUSED THE ASSESSMENT FOLDER . IT IS NOTED TH A T THE ASSESSEE HAD FILED A LETTER DATED 10/06/2013 ALONG WITH CONFIRMATION LETTERS FROM THE ABOVE SIX CREDITORS. THE SAID CONFIRMATION LETTERS W ERE INCOMPLETE , IN THE SENSE THERE WAS NO INFORMATION AS TO THE MODE OF PAYMENT AND CONNECTED PARTICULARS. IN THESE CONFIRMATION LETTERS, THE ALLEGED CREDITORS HAVE STATED TH A T THE IMPUGNED AMOUNTS ADVANCED TO THE ASSESSEE W ERE REFLECTED IN THEIR BALANCE SHEET AND BOOKS OF ACCOUNT , AS PER WHICH RETURNS OF INCOME WERE FILED. THERE WAS NO SPECIFIC REFERENCE AS TO THE SOURCE FOR ADVANCING THESE AMOUNTS. THE BALANCE SHEETS IN WHICH THE IMPUGNED TRANSACTION S WERE CL A IMED TO BE RE F L ECTED WERE NOT 4 ITA NO. 79/VIZ/2015 ( MANNE VENKATESWARA RAO ) FILED WITH THE CONFIRMATION LETTER S . THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH OTHER PARTICULARS , SUCH AS CHEQUE NOS. , DD NOS. , AND ALSO TO SUBSTANTIATE THE CREDITWORTHINESS OF THESE CREDITORS AND GENUINENESS OF THE TRANSACT ION S . THE ASSESSING OFFICER ALSO ISSUED LETTERS TO THESE CREDITORS AS PER THE ADDRESS GIVEN IN THE CONFIRMATION LETTERS. ALL THESE LETTERS HAVE RETURNED UNSERVED AND THE ASSESSEE WAS ASKED TO GIVE THE COMPLETE AND CORRECT ADDRESS ES . THE ASSESSEE HAS FIL ED REVISED CONFIRMATION LETTERS FROM FIVE OF THE ABOVE REFERRED CREDITORS EXCEPT K. SRINIVASA RAO . THE ONLY MODIFICATION NOTED IN THESE CONFIRMATION LETTERS WAS THAT THEY HAVE STATED THE CHEQUE NOS. OR DD NOS. OR RTGS NOS. FOR THE IMPUG N ED TRANSACTION. NO SPECIFIC EXPLANATION WAS GIVEN FOR THE SOURCE FOR ADVANCING THE IMPUGNED ADDITIONS. IN THE CASE OF JAGADEESWARA RAO, THE LEDGER EXTRACT AND BANK STATEMENT WAS FILED. BUT , COPIES OF ACKNOWLEDGE FOR THE RETURNS AND COP IES OF BALANCE SHEET WERE NOT FILED IN ALL THESE CASES. THE LD.CIT(A) BY CONSIDERING ALL THE DETAILS , OBSERVED THAT IN ALL THE ABOVE CASES, THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION TO PROVE THE CREDITW OR THINESS OF SIX CREDITORS TO MAKE THE IMPUG N ED ADVANCES. THE CLAIM MADE WAS TH A T THEY ARE ASSESSED TO TAX AND THE AMOUNT WAS REFLECTED IN THEIR BALANCE SHEET , BUT THE IT ACKNOWLEDGEMENT AND COPIES OF BALANCE SHEET WERE NOT FILED . UPON CONSIDERING ALL THE ABOVE FACTS, HE CONSIDERED THAT THE ASSESSING OFFICER IS JUSTIFIED IN MA K ING THE IMPUGNED ADDITION IN RESPECT OF SIX CREDITORS AS THE CREDITWORTHINESS OF 5 ITA NO. 79/VIZ/2015 ( MANNE VENKATESWARA RAO ) THESE CREDITORS AND GENUINENESS OF TRANSACTIONS WERE NOT PROVED. ACCORDINGLY, ADDITION WAS CONFIRMED. 6 . ON APPEAL BEFORE US, THE COUNSEL FOR THE ASSESSEE HAS NOT FILED ANY MATERIAL TO PROVE THAT THE CREDITORS HAV ING CREDITWORTHINESS AND THE TRANSACTIONS ARE GENUINE. HE SIMPLY SUBMITTED THAT THE ORDER PASSED BY THE LD. CIT(A) IS NOT CORRECT. WE HAVE CONSIDERED THE ASSESSMENT ORDER AND ALSO THE ORDER OF LD. CIT(A). THE LD. CIT(A) BY CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE , CALLED THE ASSESSMENT FOLDER . B Y CONSIDERING THE ASSESSMENT FOLDER , REPORT GIVEN BY THE ASSESSING OFFICER AND ALSO A LETTER FIELD BY THE ASSESSEE DATED 10/06/2013 , HE CAME TO A CONCLUSION THAT THE ASSESSE E HAS FAILED TO PROVE CREDITWORTHINESS OF THE CREDITORS AND ALSO GENUINENESS OF THE TRANSACTIONS . EVEN BEFORE US, THE ASSESSEE IS NOT ABLE TO FILE ANY EVIDENCE TO SHOW THAT THE TRANSACTION S ARE GENUINE AND CREDITORS HAVING CREDITWORTHINESS. UNDER THESE F ACTS AND CIRCUMSTANCES OF THE CASE , WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 7 . INSOFAR AS INTEREST INCOME OF 19,47,890/ - IS CONCERNED, THE ASSESSING OFFICER TREATED THE SAME AS INCOME FROM OTHER SOURCES . ON APPEAL, LD. CIT(A) HAS OBSERVED THAT THE SOURCE OF THE INCOME OF 19,47,890/ - IS FROM BANK DEPOSITS AND NOT FROM HIS BUSINESS ACTIVITY . THEREFORE, IT CANNOT BE CONSTRUED AS A BUSINESS INCOME . ACCORDINGLY, ADDITION WAS CONFIRMED. 6 ITA NO. 79/VIZ/2015 ( MANNE VENKATESWARA RAO ) 8 . BEFORE US, THE ASSESSEES COU N SEL HAS SUBMITTED THAT ASSESSEE HAS BORROWED HUGE AMOUNTS FROM BANK AND PAID BANK CHARGES & INTEREST OF 15,89,604/ - , AND ALSO PAID INTEREST ON LOANS OF 9,67,022/ - (PAGE NO. 4 OF THE PAPER BOOK) . HE ALSO SUBMITTED THAT THE LOANS BORROWED BY THE ASSESSEE WERE ADVANCED TO THE THIRD PARTIES AND THE INTEREST WAS RECEIVED. HE FURTHER SUBMITTED THAT NETTING OF INTEREST MAY BE ALLOWED. 9. LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS NOT RAISED THIS GROUND BEFORE THE LD. CIT(A), THEREFORE, THE SAME MAY BE DISMISSED. 10 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 11 . IT IS A FACT THAT THE ASSESSEE HAS BORROWED HUGE AMOUNTS FROM THE BANK AND INTEREST IS PAID. IT IS ALSO A FACT TH A T THE ASSESSEE ISSUED CERTA IN LOANS AND RECEIVED INTEREST ALSO. THE ASSESSEE HAS NOT FILED ANY DETAILS IN RESPECT OF FUNDS BORROWED AND LOANS ADVANCED. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE OPINION TH A T WHEN ASSESSEE HAS BORROWED FUNDS & PAID INTEREST , AND OUT OF BORROWED FUNDS, HE HAS AGAIN ISSUED LOANS TO THE THIRD PARTIES AND INTEREST IS RECEIVED . I N OUR OPINION, THE CLAIM OF THE ASSESSEE THAT NETTING OF INTEREST SHOULD BE PERMITTED. IN VIEW OF THE ABOVE, WE SET ASIDE TH E ORDER PASSED BY TH E LD. CIT(A) AND REMIT THIS ISSUE BACK TO THE ASSESSING OFFICER TO EXAMINE THE DETAILS AND PASS THE ORDERS DENOVO IN ACCORDANCE WITH LAW . 7 ITA NO. 79/VIZ/2015 ( MANNE VENKATESWARA RAO ) 12 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 2 7 T H DAY OF SEP . , 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 7 T H SEPTEMBER , 201 7 . VR/ - COPY TO: 1. THE ASSESSEE - MANNE VENKATESWARA RAO, D.NO. 28 - 10 - 23/2 - 3, LEELA MAHAL JUNCTION, VISAKHAPATNAM 2. THE REVENUE ITO, WARD - 1(2), VISAKHAPATNAM. 3. THE CIT - 1, VISAKHAPATNAM. 4. THE CIT(A) - 1, VISAKHAPATNAM. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.