N Indira Ramani, Hyderabad V. ITO, Ward 11(2), Hyderabad

ITA 828/HYD/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2629 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1998-1999
• Appeal Filed On: 22-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Reopening of assessment; Unexplained cash credit; Unexplained investment; Gift; Tangible material; Reason to believe; Reassessment proceedings; Borrowed satisfaction
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 828/HYD/2013 ASSESSMENT YEAR: 1998-99 N. INDIRA RAMANI, HYDERABAD [PAN: ABRPN6550A] VS INCOME TAX OFFICER, WARD-11(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 17-11-2017 DATE OF PRONOUNCEMENT : 12-01-2018 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-18, MUMBAI, DA TED 08-03-2013, HOLDING CONCURRENT JURISDICTION OF CIT(A )-VI, HYDERABAD, DATED 08-03-2013. 2. ASSESSEE FILED APPEAL WITH 15 GROUNDS WHICH INC LUDE SUBMISSION AND CASE LAW. ASSESSEE FILED REVISED FO RM 36 ON 24-08-2017, REVISING SOME COLUMNS AND GROUNDS AS WE LL. THE REVISED GROUNDS ARE AS UNDER: REVISED GROUNDS OF APPEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX, (APPEA LS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. I.T.A. NO. 828/HYD/2013 :- 2 - : 2. THE CIT(A) FAILED TO APPRECIATE THAT REOPENING OF A SSESSMENT UNDER SECTION 147 WAS BAD IN LAW; AND THUS OUGHT TO HAVE ANNULLED THE ASSESSMENT. 3. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 18,00,000/- BROUGHT TO TAX AS UNEXPLAINED INVESTMENT UNDER SECT ION 69. 4. WHILE THE ASSESSING OFFICER BROUGHT TO TAX THE AMOU NT OF RS. 18,00,000/- AS UNEXPLAINED INVESTMENT UNDER SECTION 69, THE CIT(A) ERRONEOUSLY CONFIRMED THE SAME AS UNEXPLAINED CASH CREDIT CONSIDERING IT AS AN ADDITION UNDER SECTION 68; AND WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE DISCHARGED THE ONUS CAST UNDER SECTION 68. 5. CRAVE LEAVE TO URGE/RAISE ANY GROUND THAT MIGHT BE NECESSARY AT THE TIME HEARING. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE HAD FILED HE R RETURN OF INCOME ON 21-10-1999 DECLARING A TOTAL INCOM E OF RS. 85,000/-. THIS RETURN WAS PROCESSED U/S 143(1). HOW EVER, A NOTICE U/S. 148 OF THE INCOME TAX ACT [ACT] HAS BEEN ISSUED DT. 11-03- 2005 ON THE REASON THAT THE INCOME HAS ESCAPED ASSESS MENT. THE ASSESSING OFFICER (AO) HAS COMPLETED THE ASSESSMENT U /S. 143(3) R.W.S. 147 VIDE ORDER DT. NIL BY MAKING THE ADDITION O F UNEXPLAINED INVESTMENT OF RS. 18,00,000/-. AO NOTED THAT ASSESSEE HA S INVESTED AN AMOUNT OF RS. 20,41,400/- IN M/S. SANKHYA INFOTECH LTD., AND THE SOURCE OF INVESTMENT WAS RS. 2,41,100/- OUT OF SAVINGS AND RS. 18,00,000/- FROM THE LOANS RAISED. AO ALSO ACKNOWLEDGES THAT ASSESSEE WHILE FINING THE RETURN OF INCOME HAS ENCLOSED CONFIRMATION LETTERS AND ALL OF THEM WERE OBTA INED FROM AGRICULTURISTS. AO ALSO RECORDS THAT THE NOTICES COULD NOT BE SERVED ON ASSESSEE BUT ASSESSEE ACKNOWLEDGED THAT NOTICE U/S. 148 WAS RECEIVED BY HER AND ORIGINAL RETURN WAS FILED. AO A LSO RECORDS THAT ASSESSEE OBJECTED THE RECEIPT OF NOTICE AS IT WAS BARR ED BY LIMITATION OF TIME. SINCE THE ASSESSMENT WAS GETTING TIM E BARRED, I.T.A. NO. 828/HYD/2013 :- 3 - : AO RELIED ON THE ENQUIRIES CAUSED IN THE COMPANYS CA SE AND PUT THE INITIAL BURDEN ON THE ASSESSEE AND STATED THAT LOANS RECEIVED FROM THE FARMERS CANNOT BE ACCEPTED AND TREATED THE SAM E AS ASSESSEES INCOME. 4. BEFORE THE LD.CIT(A), ASSESSEE RAISED TWO GROUNDS MAINLY THAT THE ISSUANCE OF NOTICE U/S. 148 AND REOPENING OF ASSESSMENT IS BAD IN LAW AND OTHER WAS THE ADDITION OF RS. 18,00, 000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT. IT WAS THE CONTENTION OF ASSESSEE THAT THE REOPENING WAS AT THE INSTANCE OF REPO RT OF JCIT, BHUBANESWAR, THAT THE REASONS FOR REOPENING WERE NOT COMMUNICATED, THAT THE NOTICES WERE NOT SERVED PROPERLY. NO ENQUIRIES WERE MADE AND THOSE REPORTS OF ENQUIRY WHIC H WERE RELIED WERE NOT FURNISHED TO ASSESSEE AND NO CROSS-EX AMINATION WAS PROVIDED. FURTHER, RELIANCE OF ENQUIRIES CONDUCTE D IN THE COMPANYS CASE DOES NOT ESTABLISH THE UNACCOUNTED NATURE OF AMOUNTS INVOLVED AND NO FRESH MATERIAL WAS AVAILABLE . IT WAS FURTHER CONTENDED THAT ASSESSEE HAD DISCLOSED THE INVESTM ENTS AND SOURCES IN THE RETURNS FILED ORIGINALLY ALONG WITH CON FIRMATIONS AND THESE RETURNS WERE ACCEPTED WITHOUT ANY SCRUTINY. IN THE PROCEEDINGS BEFORE LD.CIT(A), ASSESSEE SUBMITTED THAT CONFIRMATIONS WERE FILED THREE TIMES BEFORE VARIOUS AU THORITIES AND NO ADVERSE INFERENCE WAS DRAWN. ASSESSEE ALSO FURN ISHED AFFIDAVITS FROM ALL THE LOAN CREDITORS BEFORE CIT(A)-2, HYDERAB AD WHICH WAS HOWEVER, NOT MENTIONED BY THE LD.CIT(A)-VI, HYDERABAD IN HIS ORDER. AS SEEN FROM THE PAPER BOOK, THERE WAS A REPO RT OF INSPECTOR ABOUT THE VERIFICATION DONE ON THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE WHICH WAS FORWARDED BY THE ITO , WARD- I.T.A. NO. 828/HYD/2013 :- 4 - : 11(2), HYDERABAD ON 30-08-2011 WITH FURTHER FORWARDI NG LETTER OF ADDL. CIT, RANGE-11, ON 05-09-2011 . 5. LD.CIT(A), HOWEVER, RELYING ON THE PROCEEDINGS B EFORE THE CIT(A), BHUBANESWAR, HOWEVER, HELD THAT ASSESSEE H AS NOT PROVED THE CREDITWORTHINESS AND GENUINENESS OF THE TRA NSACTION AND HENCE ADDITION MADE BY THE AO WAS UPHELD. 6. LD. COUNSEL EXPLAINED THAT ASSESSEE ALONG WITH OTH ER FAMILY MEMBERS (WHOSE APPEALS ARE SEPARATELY DEALT W ITH) HAS INVESTED IN A COMPANY (M/S SANKHYA INFOTECH LTD, BHUB ANESWAR) PROMOTED BY THEM AND THE INVESTMENT BY ASSESSEE WAS TO THE TUNE OF RS. 20,41,100/-. THE SOURCES OF THE AMOUNTS WER E DISCLOSED IN THE ORIGINAL RETURN FILED AND THE SAME WERE AS UNDER: NOTE: DURING THE YEAR I HAVE INVESTED IN SANKHYA I NFOTECH LIMITED SOME ARE OUT OF SAVINGS 2,41,100 LOANS RAISED 18,00,000 20,41,100 6.1. IT WAS SUBMITTED THAT ASSESSEE HAS BORROWED FROM TH E FOLLOWING PERSONS: SL.NO. NAME OF THE CREDITOR AMOUNT (RS) 1 BALA RAJU 4 2 ,000 2 BAPUJI 3 0,000 3 BHOJI 2 5 ,000 4 CHANDRAIAH 4 3 ,000 5 CHINNAPPA 2 0,000 6 CHITTEMMA 29 ,000 7 EESWARA RAO 2 0,000 8 HARI RAMAKRISHNA 2 5,000 9 JAYA RAJU 32 ,000 1 0 JAYAMMA 3 5,000 I.T.A. NO. 828/HYD/2013 :- 5 - : 1 1 JAYAPAL 4 0 ,000 1 2 JAYARAJU 3 0 ,000 13 KANAKAIAH 45,000 14 17,000 15 KOTESWARAMMA 40,000 16 15,000 1 7 KRISHNA MURTHY 20 ,000 18 MAHALAKSHMI 2 0,000 19 MANDAPATI RAMA 18 ,000 2 0 MANGAMMA 2 5,000 2 1 MANGATAYARU 40 , 000 2 2 MARIYAMMA 55 ,000 2 3 MUNINDRARAO 3 0 ,000 2 4 NAGA SRINIVASA RAO 10 ,000 2 5 NAGAPAMU 1 0,000 2 6 NAGARAJU 32 ,000 27 NAGESWARA RAO 1 8,000 28 NALLAIAH 38 ,000 29 NARESH 47 ,000 30 PAIDEIAH 2 0 ,000 31 PANDURANGARAO 4 0,000 32 PEDDI RAJU 4 0,000 33 PEDD I RAJULU 20 ,000 34 RAMA KRISHNA 20,000 35 RAMALINGESWARA RAO 15,000 36 RAMANJANEYULU 45,000 37 30,000 38 RAMASWAMI 57,000 39 RAMBABU 50,000 40 38,000 41 25,000 42 RANGARAO 48,000 43 SAMBHASIVA RAO 15,000 44 SATYAVATHI 50,000 45 SOMESWARA RA O 20,000 46 SRINIVAS 34,000 47 SURYACHANDRA RAO 20,000 48 TILAPALAMMA 15,000 49 VEERA BABU 31,000 50 VEERA KOTESWARA RAO 16,000 51 VEERABHADRA RAO 42,000 52 VENKANNA 25,000 53 VENKATA NARASIMHA RAO 16,000 54 VENKATA RAMA DEVI 10,000 I.T.A. NO. 828/HYD/2013 :- 6 - : 55 VENKATESWARA RAO 33,000 56 45,000 57 20,000 58 VIJAYA KUMAR 10,000 59 VIJAYA RAMA KRISHNA 32,000 60 YESUPADAM 43,000 61 YUGANDAR 24,000 62 TOTAL: 18,00,000 6.2. IT WAS FURTHER SUBMITTED THAT THE ENQUIRIES WERE ORIGINALLY CAUSED IN THE CASE OF COMPANY AND THERE, TH E PROMOTERS INVESTMENT WAS ENQUIRED BUT THE ADDITION WAS MADE AS UNEXPLAINED INVESTMENT IN MACHINERY. DURING THE ASSESS MENT PROCEEDINGS, THE DDIT, VIJAYAWADA MADE ENQUIRIES OF SOURCES OF SOURCE AND THAT TOO BEHIND THE BACK OF ASSESSEES PROMO TERS AFTER A LAPSE OF TIME AND NO CROSS-EXAMINATION WAS PROVIDED. ASSESSEES FILED DETAILED REPLIES IN THE CASE OF COMPANYS APPEA L AND LD.CIT(A) DELETED THE ADDITIONS SO MADE. ANTICIPATING AN ADVERS E ORDER, THE JCIT, BHUBANESWAR HAS WRITTEN A LETTER TO THE OFFICERS I N HYDERABAD TO REOPEN THE ASSESSMENTS OF PROMOTERS AND TH AT WAS THE BASIS FOR ISSUANCE OF NOTICE. EVEN THOUGH ASSESSE E FILED THE RETURNS OF INCOME DISCLOSING THE INVESTMENTS AND SOURCE S, THE AO WHO HAS NO JURISDICTION, HAD REOPENED THE ASSESSMENT A ND WITHOUT FURTHER ENQUIRIES RELIED ON THE EARLIER REPORTS AND CO MPLETED THE ASSESSMENT. 6.3. REFERRING TO THE ORDER OF LD.CIT(A), IT WAS SUBM ITTED THAT THE REASONS FOR REOPENING WERE NOT COMMUNICATED BY AO AND COMMUNICATED ONLY DURING THE PRESENT APPEAL PROCEEDIN GS. ON MERITS, REFERRING TO THE ORDER OF LD.CIT(A), BHUBANES WAR IN THE COMPANYS APPEAL, IT WAS SUBMITTED THAT THERE ARE ENQUIR IES IN THE I.T.A. NO. 828/HYD/2013 :- 7 - : CASE OF ASSESSEE AND THERE WAS NO DENIAL OF INVESTMEN T. EVEN THOUGH ASSESSEE SUBMITTED AFFIDAVITS IN ALL THE CASES, NO ENQUIRIES WERE CAUSED. LD.CIT(A) WRONGLY RELIED ON THE ORDER OF THE CIT(A), BHUBANESWAR WHICH CLEARLY STATES THAT THE CREDITS ARE NO T BOGUS AND ASSESSING OFFICERS ARE TO MAKE FURTHER ENQUIRIES. IT WAS SUBMITTED THAT ORDER OF THE CIT(A) IS NOT BASED ON FACTS. 6.4. REGARDING THE ISSUE OF REOPENING, THE SUMMARY OF CONTENTIONS ARE AS UNDER: NO TANGIBLE MATERIAL IN THE RETURNS OF INCOME FI LED ORIGINALLY IN ALL THE CASES, NOTES WERE APPENDED TO THE ROI ABOUT INVESTM ENT IN SHARES OF SANKHYA INFOTECH, BHUVANESHWAR. DETAILS OF LOANS TA KEN AND CONFIRMATION LETTER ETC. WERE FILED IN CASE OF RAMAKRISHNA, PARV ATHAVARDINI, INDIRA RAMANI, N. SRIDHAR AND N. GAYATRI. EXCEPT THESE NO TES, EVIDENCES AND THE LETTER RECEIVED FROM ADDLN. CIT, BHUVANESHWAR, TO T AKE ACTION U/S. 147 THERE IS NO TANGIBLE MATERIAL THAT INCOME HAS ESCAP ED ASSESSMENT. RELIED ON JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. ATUL KUMAR SWAMI WHERE REFERENCE TO NOTES FILED ALONG WITH ORIGINAL RETURN OF INCOME ARE MADE. THE ENTIRE REASONS RECORDED FOR RE-OPENING O F ASSESSMENT IS BORROWED SATISFACTION AND NOT THAT OF THE ASSESSI NG OFFICER. REASONS FOR RE-OPENING NOT COMMUNICATED IN ANY OF T HE CASES FATAL TO RE-ASSESSMENT NOT FURNISHING OF REASONS OR ITS NON-COMMUNICATION IS FATAL TO REASSESSMENT PROCEEDINGS. PLS. SEE CASE LAW RELIED UPON AS UNDER SR. NO. CASE LAW ITR PAGE COURT I. CIT VS. TECUMSEH PRODUCT 361 429 AP & TELANGANA II. CIT VS. TREND ELECTRONICS 379 456 MUMBAI III. CIT VS. VIJAYA TALKIES & DISTRIBUTORS 398 13 DELHI IV. CIT VS. KOTHARI MILLS 377 581 KARNATAKA 7. LD.DR, HOWEVER, DEFENDED THE ORDER OF THE AO/CIT( A) VEHEMENTLY. REGARDING THE SATISFACTION, LD.DR INFORME D THAT THE SAME WAS EXTRACTED IN THE ORDER OF THE CIT(A) AND SO, THE ARGUMENT I.T.A. NO. 828/HYD/2013 :- 8 - : THAT THE SAME WERE NOT COMMUNICATED IS NOT CORRECT. IT W AS SUBMITTED THAT THE ENQUIRIES WERE CONDUCTED AND ASSESSEE IS AWARE OF ALL THE PROCEEDINGS AND THERE WAS NON-CO-OPERATION FROM ASSESSEE. HE REFERRED TO VARIOUS ORDERS- THAT OF LD.C IT(A), BHUBANESWAR, THE ORDER OF AO AND CIT(A)- TO SUPPORT THE AOS ACTION. 8. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS AND DOCUMENTS PLACED ON RECORD AND PRECEDENTS RELIED. BEFORE ADVERTING TO THE ADJUDICATION OF ISSUES, THE FO LLOWING FACTS ARE TO BE NOTED: A) ASSESSEE FILED THE RETURN OF INCOME ON 21-10-1999 WITH THE JURISDICTION OF INCOME TAX OFFICER 5(5), ADMITTING INCOMES AND STATING THE SOURCES OF INVESTMENT OF RS. 20,41,100/- IN M/S. SANKYA INFOTECH LTD., AND NECESSARY CONFIRMATIONS WERE ENCLOSED TO THE RETURN. THIS WAS ACCEPTED U/S. 143(1) AND NO SCRUTINY WAS TAKEN UP; B) THE COMPANY M/S. SANKYA INFOTECH LTD., WAS ASSESSE D AT BHUBANESWAR AND ENQUIRIES WERE CONDUCTED IN SOME PRO MOTERS CASES; C) IN THE COMPANY APPEAL, LD.CIT(A), BHUBANESWAR HAS DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS/FINDINGS: IN THIS CASE, THE AO HAS MADE CERTAIN ENQUIRIES THR OUGH THE DDTI (LNV.), HYDERABAD AND VIJAYAWADA REGARDING THE SOU RCES OF INVESTMENT TOWARDS SHARE CAPITAL CONTRIBUTED BY FOUR SHAREHOLDERS NAME LY, (I) SHRI N. RAMAKRISHNA RAO, (II) SMT N. PARAVATHAVARHINI, (III) SMT. N. GA YATRI AND (IV) SMT. N. INDIRA RAMANI. THE AO HAS RELIED UPON THE REPORT OF THE D DLT(LNV.), HYDEMBAD AND I.T.A. NO. 828/HYD/2013 :- 9 - : THE STATEMENTS RECORDED BY HIM ON OATH FROM SHRI BA BU RAO, SHRI SURYANARAYANA AND SHRI G. KANAKAIAH TO STATE THAT T HE LOANS WERE BOGUS AND THAT THE AGENT WHO ARRANGED THE LOANS HAD OBTAINED SIGNATURES ON THE LOAN CONFIRMATION LETTERS AFTER BRIBING THE AGRICULTURIS TS. OF COURSE THIS REPORT WAS NOT CONFRONTED TO THE APPELLANT BY THE AO, BUT THE SAME HAD BEEN CONFRONTED IN COURSE OF THE REMAND PROCEEDING. THE APPELLANT-COMP ANY HAVE ALSO CITED FROM THE SAME REPORT TO CONTEND THAT SHRI G. KANAKAIAH T OGETHER WITH HIS FAMILY MEMBERS HAVE GIVEN MONEY TO SHRI BABU RAO, WHO HAS GIVEN THE MONEY 10 THE APPELLANT-COMPANY AND THAT THE FARMER-CREDITORS HAV E STATED THAT THEY HAVE SIGNED THE LOAN CONFIRMATION LETTERS. THE AO HAS RE LIED UPON THE SAID REPORT TO QUESTION THE CREDITWORTHINESS OF THE FARMERS ON THE GROUND THAT, THE LAND WAS DROUGHT PRONE AREA FOR THE LAST FIVE TO SIX YEARS A ND SUFFICIENT INCOME WAS NOT GENERATED. THE APPELLANT-COMPANY HAS QUOTED FROM TH E SAME REPORT TO ASSERT THAT FROM 1986 TO 1996, PRAWN WAS BEING CULTIVATED IN THE LAND WHERE THE YIELD PER ACRE WAS RS.1 LAKH PER ANUM. THE AO HAS DRAWN A TTENTION TO THE DISCREPANCIES BETWEEN THE PLOT/SURVEY NUMBERS AND T HE EXTENT OF LAND AREA GIVEN BY THE CULTIVATORS AND AS APPEARING IN THE LAND REC ORDS. THIS DISCREPANCY HAS BEEN ATTEMPTED TO BE EXPLAINED BY THE APPELLANT-COM PANY BY ATTRIBUTING THE SAME TO NON-MUTATION OF LAND AND TYPOGRAPHICAL AND UNINTENTIONAL ERROR ETC., ALTHOUGH THE VERACITY OF THE ALLEGATION HAS BEEN AD MITTED IN FEW CASES. THE DIFFERENCE REGARDING THE EXTANT OF LAND AREA WAS AT TRIBUTED TO CAUSES LIKE SALE/GIFT OR SHARING OF LAND SUBSEQUENTLY. BUT, BE THAT AS IT MAY, THE ENQUIRY REPORT DOES NOT INDICATE THAT THE SOURCES OF SOURCE , I.E., THE LOANS ADVANCED BY THE FARMERS TO THE DIRECTORS/SHAREHOLDERS; WERE TOT ALLY BOGUS OR THAT THEY COMPLETELY LACK CREDITWORTHINESS. BUT, THERE APPEA RS TO BE SOME SUBSTANCE IN THE ASSERTION OF THE AO/JT.CIT THAT CERTAIN ELEMENT S LIKE THE GENUINENESS OF THE TRANSACTIONS AND COMPLETE CREDITWORTHINESS OF THE F ARMERS WAS NOT CONCLUSIVELY ESTABLISHED. THESE MATTERS NEVERTHELESS REQUIRE FUR THER ENQUIRY AS ONLY SIXTEEN OUT OF SEVENTY FIVE FARMER-CREDITORS, WHO HAVE ADVA NCED LOANS TO THE FOUR SHARE HOLDERS HAVE BEEN EXAMINED. NO ENQUIRY HAS BEEN CON DUCTED IN RESPECT OF LOANS AVAILED BY THE TWO PROMOTER-DIRECTORS; NAMELY SHRI N. SRINIVAS AND SHRI N. SRIDHAR. THEREFORE THE AO OR THE CONCERNED AOS CAN CONDUCT FURTHER ENQUIRIES AND IF IT IS FOUND THAT THE LOANS GIVEN BY THE FARM ERS WERE NEITHER CREDIBLE NOR GENUINE; THE ADDITIONS COULD BE MADE IN THE HANDS O F THE SHAREHOLDERS WHO HAVE SUBSCRIBED TO THE SHARES OF THE APPELLANT-COMPANY. THE SOURCES OF FUNDS IN SUCH CASES CAN BE TACKLED BY THE AO IN THE HANDS OF THE SUBSCRIBERS TO THE EQUITY SHARES WHO HAVE AVAILED THE LOANS. THEREFORE, THE AO IS FREE TO CONDUCT FURTHER ENQUIRIES IN THE CASE OF INDIVIDUAL SHARESHOLDERS A S PER THE EXTANT PROVISIONS OF LAW AND CONSIDER THESE AMOUNTS IN THEIR HANDS IN VI EW OF THE DISCUSSIONS IN PARA 4.1 AND 4.2 AND THE JUDICIAL DECISIONS CITED SUPRA . I.T.A. NO. 828/HYD/2013 :- 10 -: D) BEFORE THE ORDER OF LD.CIT(A), BHUBANESWAR WAS PA SSED, THE JCIT HAS REPORTED HIS FINDINGS TO THE OFFICERS AT HYDE RABAD WITH A REQUEST TO REOPEN THE ASSESSMENTS FOR PROTECTING THE INTERE ST OF REVENUE. AS PER THE PAPER BOOK FILED (PAGE 1), THERE WAS A DIRECTION BY ADDL. CIT, RANGE-11, TO ACIT TO SUBMIT PROPOSAL FO R INITIATING ACTION U/S. 147 IMMEDIATELY, BY THE LETTER DT. 09-03-20 05; E) THE REOPENING BY THE AO, ASST. COMMISSIONER OF INC OME TAX(OSD), RANGE-11, WAS CONSEQUENTIAL TO THE ABOVE LE TTER AND AO RECORDED THE SATISFACTION AS UNDER: REASONS FOR THE BELIEF THAT INCOME HAS ESCAPED ASS ESSMENT: THE ASSESSEE ADMITTED AN INCOME OF RS. 85,000/- BEI NG AMOUNT RECEIVED TOWARDS ACCOUNTING SERVICE FOR SANKHYA MAN AGEMENT SERVICES PVT. LTD. UNDER THE HEAD INCOME FROM PROFESSION. TH E RETURN OF INCOME WAS PROCESSED U/S 143(1) ON 11.11.1999. IN THE COMPUTAT ION OF TOTAL INCOME IT WAS MENTIONED THAT DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAS INVESTED RS. 20,41,100/- IN SANKHYA INFOTECH LT D. THE SOURCES OF INVESTMENT WAS RS. 2,41,100/- OUT OF SAVINGS AND RS . 18 LAKHS FROM LOANS RAISED. WHILE FILING THE RETURN OF INCOME, THE ASSE SSEE ENCLOSED CONFIRMATION LETTERS FOR THE LOANS RAISED. ALMOST A LL THE CONFIRMATION LETTERS WERE OBTAINED FROM THE AGRICULTURAL LISTS AND ENCLO SED TO THE RETURN OF INCOME. THE ASSESSEE IS ONE OF THE PROMOTERS OF SAN KHYA INFOTECH LTD., 12B, METRO TOWER, ACHRYA VIHAR SQUARE, BHUVANESHAR. DURING THE COURSE OF PENDENCY OF THE ASSESSMENT PRO CEEDINGS IN THE CASE OF SANKHYA INFOTECH LTD., FOR THE ASST. YEAR 1 998-99 THE AO NOTICED THAT CASH CREDITS FOUND IN THE BOOKS OF THE COMPANY ON ACCOUNT OF INTRODUCTION OF SHARE APPLICATION MONEY BY THE PROM OTERS DO NOT HAVE ADEQUATE MEANS TO INTRODUCE SUCH MONEY AND ALSO THE ALLEGED TRANSACTIONS OF UNSECURED LOANS OBTAINED BY THE PRO MOTERS FROM VARIOUS FARMERS OF KRISHNA DISTRICT OF ANDHRA PRADESH WERE NOT FOUND TO BE GENUINE. THE A.O. REQUESTED THE DDIT (INV.,) VIJAY AWADA TO CONDUCT ENQUIRIES ABOUT THE GENUINENESS OF THE LOANS RAISED AND REPORT. THE DDIT (INV.,) VIJAYAWADA CONDUCTED THE ENQUIRIES WHICH RE VEALS THAT THE TRANSACTIONS OF LOANS FROM FARMERS ARE NOT GENUINE AND THEY ARE ONLY PAPER TRANSACTIONS. IN VIEW OF THE ABOVE, THE CLAI M OF THE ASSESSEE THAT SHE HAS RAISED LOANS FROM THE FARMERS IS NOT GENUIN E. THE INVESTMENT MADE BY THE ASSESSEE REPRESENTS HER INCOME. I.T.A. NO. 828/HYD/2013 :- 11 -: I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX FOR THE ASST. YEAR 1998-99 HAS ESCAPED ASSESSMENT WITHIN THE MEAN ING OF SECTION 147 OF THE I.T. ACT. I REQUEST THE ADDL. CIT, RANGE-11, HYDERABAD TO AC CORD PERMISSION TO ISSUE NOTICE U/S. 148 OF THE I.T. ACT FOR THE A. Y. 1998-99. F) ASSESSEE WAS ISSUED NOTICE U/S. 148 DT. 11-03-2005 , BUT THE REASONS RECORDED WERE NOT COMMUNICATED EITHER DURING ASSESSMENT PROCEEDINGS OR DURING APPEAL PROCEEDINGS, INSPITE OF RQUESTING THE SAME. G) THE ADDL. CIT, RANGE-11, DID IN FACT CAUSE CERTAI N ENQUIRIES THROUGH THE ITI, WHO HAS GIVEN A REPORT AS UNDER: AS DIRECTED BY THE ADDL. CIT, RANGE-11, HYDERABAD, I HAVE GONE FOR ENQUIRY ON 08-08-2011. ON 08-08-2011, I HAVE VISIT ED PEDAPATNAM, KAANURU, TALLAPALEM, JANJERU VILLAGES OF MACHILIPAT NAM MANDAL, KRISHNA DISTRICT AND ENQUIRED THE WHEREABOUTS OF THE PERSON S WHO HAVE ADVANCED THE AMOUNTS TO SMT. N. PARVATHA VARDHINI, N. INDIRA RAMANI AND GAYATRI. I HAVE ENQUIRED REGARDING THEIR PRESENT LAND HOLDIN G AND OTHER ASPECTS AT RANDOM. 1. I HAVE MET THE PEOPLE WHO ARE PRESENT AT THE TIM E OF MY VISIT IN THE VILLAGES IE., PEDAPATNAM, KAANURU, TALLAPALEM, JANJ ERU. ON PRIMA-FACIE IT APPEARS THAT THEY ARE VERY SMALL FARMERS EARNING IN COME OF HAND TO MOUTH. AS DIRECTED, I HAVE SERVED THE SUMMONS ON T HE FOLLOWING PERSONS, TO EXAMINE THE CREDITWORTHINESS OF THE FARMERS: SL.NO. NAME OF THE PERSONS S/SRI/SMT. IN THE CASE OF 1 BUNGA PADMA, PEDAPATNAM N. PARVATHAVARDHINI 2 MOODUGUMADI NAGESWARA RAO, KAANURU N. INDIRA RAMA NI 3 MOODUGUMADI NAGESWARA RAO, KAANURU N. PARVATHAVAR DHINI 4 MOODUGUMADI NAGESWARA RAO, KAANURU N. GAYATRI 5 PEDDI RAJULU, KAANURU N. INDIRA RAMANI 6 PEDDI RAJULU, KAANURU N. PARVATHAVARDHINI 7 KANKAIAH G. KAANURU N. PARVATHAVARDHINI 8 KANKAIAH G. KAANURU N. INDIRA RAMANI 9 KANKAIAH G. KAANURU N. GAYATRI 10 G. CHITTIMMA, KAANURU N. INDIRA KUMARI I.T.A. NO. 828/HYD/2013 :- 12 -: 11 G. CHITTIMMA, KAANURU N. PARVATHAVARDHINI 12 V. ANKAMMA W/O. V. VAKALAIAH, TALLAPALEM N. GAYATRI 13 VANKA PUSHPAVATHI W/O VANKA RAMUDU, TALLAPALEM N. GAYATRI 14 P. GOPI TALLAPALEM N. GAYATRI 15 Y. ESWAR RAO, PEDAPATNAM N. INDIRA RAMANI 16 Y. ESWAR RAO, PEDAPATNAM N. GAYATRI 17 Y. ESWAR RAO, PEDAPATNAM N. PARVATHAVARDHINI 18 LELLA JOJI, PADAPATNAM N. INDIRA RAMANI 19 LELLA JOJI, PADAPATNAM N. GAYATRI 20 LELLA JOJI, PADAPATNAM N. PARVATHAVARDHINI 21 G. YESUPADAM, PEDAPATNAM N. INDIRA RAMANI 22 G. YESUPADAM, PEDAPATNAM N. PARVATHAVARDHINI 23 G. CHINNAPPA, PEDAPATNAM N. PARVATHAVARDHINI 24 G. CHINNAPPA, PEDAPATNAM N. GAYATRI 25 G. CHINNAPPA, PEDAPATNAM N. INDIRA RAMANI 26 K. BAPUJI, KAANURU N. INDIRA RAMANI 27 K. BAPUJI, KAANURU 28 J. MAHALAKSHMI, KAANURU N. INDIRA RAMANI 29 J. MAHALAKSHMI, KAANURU N. PARVATHAVARDHINI 30 J. MAHALAKSHMI, KAANURU N. GAYATRI 31 PUPPALA RAMBABU, KAANURU N. GAYATRI 32 PUPPALA RAMBABU, KAANURU N. PARVATHAVARDHINI 33 G. VEMLATA RAMADEVI, VUNDRAPUDI N. INDIRA RAMANI 34 G. VEMLATA RAMADEVI, VUNDRAPUDI N. GAYATRI 35 DIVI SAMBASIVA RAO, PEDAPATNAM N. GAYATRI 36 DIVI SAMBASIVA RAO, PEDAPATNAM N. INDIRA RAMANI 37 D. MANGATHAYARU, KANURU N. PARVATHAVARDHINI 38 D. MANGATHAYARU, KANURU N. INDIRA RAMANI 39 MUNIDRA RAO, JANJERU N. INDIRA RAMANI 40 MUNIDRA RAO, JANJERU N. PARVATHAVARDHINI 41 G. VEERA KOTESWARA RAO, KAANURU N. PARVATHAVARDH INI 42 G. VEERA KOTESWARA RAO, KAANURU N. INDIRA RAMANI 2. I HAVE OBTAINED CERTIFICATE OF RESIDENCE AS PROO F OF THEIR STAY IN THE VILLAGE IN THE FOLLOWING CASES AT RANDOM: SL.NO. NAME OF THE PERSONS S/SRI/SMT. NAME OF THE VILLAGE 1 G. VENKATESWARA RAO KAANURU 2 G. KANAKAIAH -DO- 3 G. CHITTEMMA -DO- 4 K. RAMALINGESWARA RAO -DO- 5 RAJAMOHANA RAO -DO- 6 SUBRAMANYESWARA RAO -DO- I.T.A. NO. 828/HYD/2013 :- 13 -: 7 S. PANDU RANGA RAO -DO- 8 RAMBABU -DO- 9 G. CHANDRAYYA -DO- 10 SRINIVASA RAO -DO- 11 P. RAMBABU -DO- 12 D. SAMBASIVA RAO PEDAPATNAM 13 P. JAYALAKSHMI -DO- 14 BUNGA PADMA -DO- 15 Y. YUGANDHAR -DO- 16 Y. VENKATESWARA RAO -DO- 17 M. RAYAPPA -DO- 18 Y. RAMBABU -DO- 19 B. VENKATESWARAMMA -DO- 20 G. RAJU -DO- 21 Y. ESWARA RAO -DO- 22 CHINNAPPA -DO- 23 LELLA JOJI RAJU -DO- 24 V. SUBBA RAO TALLAPALEM 25 V. VAKALLAIAH -DO- 26 V. RAMA SWAMY -DO- 27 P. GOPI -DO- 3. I HAVE VISITED THE RESPECTIVE VROS OFFICE AND P ERSONALLY VERIFIED THE PAHANIS/HADANGALS AND OBTAINED THE COPIES OF PAHANI S/HADANGALS, AS A PROOF OF LAND HOLDING, IN THE FOLLOWING PERSONS AT RANDOM: SL.NO. NAME OF THE PERSONS S/SRI/SMT. NAME OF THE VILLAGE 1 G. VENKATESWARA RAO KAANURU 2 RAMALINGESWARA RAO KAANURU 3 G. CHITTEMMA KAANURU 4 G. KANAKAYYA KAANURU 5 G. YESUPADAM PEDAPATNAM 6 Y. VENKATESWARA RAO PEDAPATNAM 7 M. DAVID PEDAPATNAM 8 Y. RAMBABU PEDAPATNAM 9 M. BABY PEDAPATNAM 10 G. RAJU PEDAPATNAM 11 B. VENKATESWARA RAO PEDAPATNAM 12 P. JAYAPAL PEDAPATNAM 13 G. YESOBU PEDAPATNAM 14 Y. ESWARA RAO PEDAPATNAM 15 VURA CHINNAPPA PEDAPATNAM 16 D. SAMBASIVA RAO PEDAPATNAM 17 V. PAIDAIAH TALLAPALEM I.T.A. NO. 828/HYD/2013 :- 14 -: 18 V. VAKALAIAH TALLAPALEM 19 P. GOPI TALLAPALEM 20 V. SUBBA RAO TALLAPALEM 4. ON ENQUIRY IT WAS LEARNT THAT THE FOLLOWING PERS ONS HAVE EXPIRED. IN THIS REGARD I HAVE OBTAINED CERTIFICATE FROM VRO. SL.NO. NAME OF THE PERSONS S/SRI/SMT. 1 JAYAPAL, PEDAPATNAM 2 JAYARAJU, PEDAPATNAM 3 MARIYANNA, PEDAPATNAM 4 BUNGA RAJU, PEDAPATNAM 5 RAMAPPA, PEDAPATNAM 6 KRISHNA MURTHY, KAANURU 7 VENKATA NARASIMHA RAO, KAANURU 5. IT WAS ALSO CAME TO KNOW THAT SOME OF THE PERSON S HAVE MIGRATED TO SOME OTHER PLACES ON THEIR PERSONAL GROUNDS. SUBMI TTED FOR INFORMATION, PLEASE. ENCL: AS ABOVE SD/- (MD. SAYED BAJI) ITI :: RANGE-11 H) AO AND CIT(A) RELIED ON THE ENQUIRY REPORTS OF YEA R 2001 IN THE COMPANYS CASE EVEN THOUGH THE ENQUIRIES WERE CON DUCTED THROUGH THE ITI. 9. NOW, COMING TO THE MERITS OF THE ADDITION, THE FINDI NGS OF AO AND CIT(A) ARE NOT BASED ON FACTS. THE RELIANCE ON CIT(A), BHUBANESWAR ORDER BY THE PRESENT CIT(A), HYDERABAD IS ALSO MISPLACED. IN FACT, THE ORDER OF CIT(A) HAS THIS TO S TATE: BUT, BE THAT AS IT MAY, THE ENQUIRY REPORT DOE S NOT INDICATE THAT THE SOURCES OF SOURCE, I.E., THE LOANS ADVANCE D BY THE FARMERS TO THE DIRECTORS/SHAREHOLDERS; WERE TOTALLY BOGUS OR THAT THEY COMPLETELY LACK CREDITWORTHINESS. BUT, THERE APPEARS TO BE SOME SUB STANCE IN THE ASSERTION OF THE AO/JT.CIT THAT CERTAIN ELEMENTS LI KE THE GENUINENESS OF I.T.A. NO. 828/HYD/2013 :- 15 -: THE TRANSACTIONS AND COMPLETE CREDITWORTHINESS OF T HE FARMERS WAS NOT CONCLUSIVELY ESTABLISHED. THESE MATTERS NEVERTHELES S REQUIRE FURTHER ENQUIRY AS ONLY SIXTEEN OUT OF SEVENTY FIVE FARMER- CREDITORS, WHO HAVE ADVANCED LOANS TO THE FOUR SHARE HOLDERS HAVE BEEN EXAMINED. NO ENQUIRY HAS BEEN CONDUCTED IN RESPECT OF LOANS AVAILED BY T HE TWO PROMOTER- DIRECTORS; NAMELY SHRI N. SRINIVAS AND SHRI N. SRID HAR. THEREFORE, THE AO OR THE CONCERNED AOS CAN CONDUCT FURTHER ENQUIRIES AND IF IT IS FOUND THAT THE LOANS GIVEN BY THE FARMERS WERE NEITHER CREDIBL E NOR GENUINE; THE ADDITIONS COULD BE MADE IN THE HANDS OF THE SHAREHO LDERS WHO HAVE SUBSCRIBED TO THE SHARES OF THE APPELLANT-COMPANY. THE SOURCES OF FUNDS IN SUCH CASES CAN BE TACKLED BY THE AO IN THE HANDS OF THE SUBSCRIBERS TO THE EQUITY SHARES WHO HAVE AVAILED THE LOANS. THER EFORE, THE AO IS FREE TO CONDUCT FURTHER ENQUIRIES IN THE CASE OF INDIVIDUAL SHAREHOLDERS AS PER THE EXTANT PROVISIONS OF LAW AND CONSIDER THESE AMOUNTS IN THEIR HANDS IN VIEW OF THE DISCUSSIONS IN PARA 4.1 AND 4.2 AND THE JUDICIAL DECISIONS CITED SUPRA. THUS, THE OBSERVATION OF CIT(A) INDEED DOES NOT STATE TH AT THE SOURCES ARE TOTALLY BOGUS AND AO WAS IN FACT, ASKED TO MAKE FURTHER ENQUIRIES. PRIMA-FACIE THE REPORT OF THE INSPECTOR DOES INDICATE THAT MANY OF THE PEOPLE ARE EXISTING AND THEY HA VE LANDS. EVEN THOUGH THE INSPECTOR SEEMS TO HAVE ISSUED SUMMONS TO THEM TO APPEAR, THE VERIFICATION OF THE NAMES OF CREDITORS WI TH THE NAMES TO WHOM SUMMONS WERE ISSUED INDICATE THAT THERE ARE CERTA IN MISMATCHES. FOR EXAMPLE, THE LELLA JOJI, PEDAPATNAM WA S NOT SHOWN AS CREDITOR IN THE CASE OF ASSESSEE. HOW SUMM ONS COULD BE ISSUED TO SUCH PERSON COULD NOT BE EXAMINED. THE REPO RT OF THE ITO INDICATES THAT THERE WAS NO RESPONSE TO THE SUMMONS ISSU ED BUT ASSESSEE FILED FURTHER CONFIRMATIONS BEFORE THE AO. H OWEVER, AO REPORTED THAT CREDITS ARE NOT GENUINE. I AM UNABLE TO U NDERSTAND HOW THE CONCLUSIONS WERE DRAWN JUST ON THE BASIS OF N ON- APPEARANCE OF SOME OF THE PERSONS BEFORE THE AO AT HY DERABAD, WHEN ITIS FIELD ENQUIRY REVEALED THAT THEY ARE EXISTIN G AND THEY HAVE LANDS IN THEIR NAME. SOME OF THE PERSONS ALSO R EPORTED TO HAVE BEEN DIED BY THE TIME ENQUIRIES WERE CONDUCTED. S INCE SO MUCH TIME HAS LAPSED AND THE AFFIDAVITS FURNISHED DT. 25-10-2007 I.T.A. NO. 828/HYD/2013 :- 16 -: HAVE NOT BEEN DISPROVED, THE CONTENTIONS OF ASSESSEE IN THIS REGARD HAS MERIT. I AM OF THE OPINION THAT REVENUE WRONGLY RE LIED ON THE REPORTS IN THE CASE OF COMPANY AND ON THE ORDER OF C IT(A), BHUBANESWAR AND HAS NOT MADE ANY SERIOUS ENQUIRY IN ASSESSEE CASE TO DISPROVE THE CREDITS CLAIMED. IN THE CIRCUMSTAN CES, I DIRECT THE AO TO ACCEPT THE CREDITS AS SUCH, AS GENUINE. 10. THAT LEAVES US THE MATTER OF REOPENING. EVEN THOUG H THE SAME IS ACADEMIC NOW, IN VIEW OF THE ACCEPTANCE OF ISSUE OF CREDITS ON MERIT, IT IS TO BE PLACED ON RECORD THAT THE CONTENTIONS ON THE ISSUE HAVE MERIT. FIRST OF ALL, ASSESSEE HAS D ISCLOSED THE INVESTMENT AND ENCLOSED THE CONFIRMATIONS TO THE ORIGIN AL RETURN WHICH WAS ACCEPTED. THERE WAS A DIRECTION BY ADDL. C IT, RANGE-11 TO REOPEN THE ASSESSMENT. ANOTHER OFFER (WHOSE JURISDI CTION IS NOT EXAMINED) HAS ISSUED THE NOTICES, EVEN THOUGH ASSESSEE WAS ASSESSED EARLIER. THE REASONS FOR REOPENING WERE NO T COMMUNICATED VIOLATING THE DIRECTIONS OF HON'BLE SUPREM E COURT IN THE CASE OF GKN DRIVE SHAFT, [259 ITR 19] (SC). THE CONTENTIONS EXTRACTED IN ASSESSEE COUNSELS SUBMISSIONS AND THE CASE LAW RELIED, SUPPORT THE CONCLUSION THAT THE REOPENING ITSE LF IS BAD IN LAW. 11. ON THESE REASONS, THE ORDER OF AO AND CIT(A) CA NNOT BE UPHELD. THE GROUNDS ARE ALLOWED. 12. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY, 2018 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 12 TH JANUARY, 2018 TNMM I.T.A. NO. 828/HYD/2013 :- 17 -: COPY TO : 1. SMT. N. INDIRA RAMANI, C/O. SHRI K.C. DEVDAS, CH ARTERED ACCOUNTANTS, R.P. ROAD, SECUNDERABAD. 2. THE INCOME TAX OFFICER, WARD-11(2), HYDERABAD. 3. CIT (APPEALS)-18, MUMBAI. 4. CIT(APPEALS)-VI, HYDERABAD 5. CIT-5/6, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.