Ganjikunta Kishore Babu(HUF), Dharmavaram, Chennai V. ITO, Ward-1, Ananthapur, Anantapur

ITA 839/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6274 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: J PRABHAKAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Opportunity of being heard; Cost of acquisition; Fair market value
• Section: 50C; 56; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 839/HYD/2015 ASSESSMENT YEAR: 2011-12 GANJIKUNTA KISHORE BABU (HUF), DHARMAVARAM. PAN AAFHG 7199 R VS. INCOME-TAX OFFICER, WARD I, ANANTAPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J. PRABHAKAR REVENUE BY : SHRI K.E. SUNIL BABU DATE OF HEARING 09-08-2016 DATE OF PRONOUNCEMENT 24-08-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A), KURNOOL, DATED 04/03/2013 FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS THE PROPRIETOR OF STS HANDLOOM SILKS, DHARMAVARAM IN HI S HUF CAPACITY. ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HANDLOOM SILK SAREES. IT E-FILED ITS RETURN OF INCO ME ON 03/09/2011 ADMITTING INCOME OF RS. 4,27,640/-. IN SCRUTINY ASS ESSMENT, THE AO ASSESSED THE INCOME OF THE ASSESSEE AT RS. 48,62,23 0/- BY MAKING THE FOLLOWING ADDITIONS: I) RECEIPTS OF IMMOVABLE/MOVABLE PROPERTIES WITHOU T CONSIDERATION/INADEQUATE CONSIDERATION U/S 56(2)(VII) A) BUILDING A/C RS. 22,13,152/- B) HANDLOOM MACHINERY A/C RS. 15,79,809/- RS. 37,92,961/- 2 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) II) ADDITION ON ACCOUNT OF INFLATED SALES RS. 6 ,41,625/- 3. THE AO OBSERVED THAT ON VERIFICATION OF CAPITAL ACCOUNT OF HUF IT WAS FOUND THAT THE FOLLOWING MOVABLE AND IMMOVAB LE PROPERTIES WERE RECEIVED BY HUF FROM INDIVIDUAL STATUS OF SRI G. KISHORE BABU: DESCRIPTION IMMOVABLE PROPERTY (BUILDING) MOVABLE PROPERTY (MACHINERY) TOTAL COST RS. 5,71,152/- RS. 21,79,809/- CONSIDERATION PAID BY HUF TO INDIVIDUAL RS. 35,00,000/- RS. 6,00,000/- DIFFERENCE RS. 22,13,152/- RS. 15,79,809/- TOTAL RS. 37,92,961/- 3.1 AO BROUGHT THE ABOVE OF RS. 37,92,961/- TO TAX U/S 56(2)(VII) AS THE HUF PAID INADEQUATE CONSIDERATION. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). 5. THE CIT(A) REFERRING TO THE PROVISIONS OF SECTIO N 56(2)(VII), OBSERVED THAT AS PER CLAUSE (E) OF SECTION 56(2)(VI I) RELATIVE IN CASE OF HUF IS ANY MEMBER OF THE FAMILY. THEREFORE, THE CIT(A) HELD THAT SINCE THE ASSESSEE HUF RECEIVED IMMOVABLE PROPERTY FROM A RELATIVE (INDIVIDUAL) THE PROVISIONS OF SECTION 56 ARE NOT A PPLICABLE. HENCE, HE DELETED THE AMOUNT OF RS. 22,13,152/- BEING THE INA DEQUATE CONSIDERATION PAID BY HUF ON TRANSFER OF BUILDING. 5.1 HOWEVER, HE OBSERVED THAT SUCH EXEMPTION CANNOT BE GIVEN TO TRANSFER OF MACHINERY FROM INDIVIDUAL TO HUF AS MAC HINERY IS NOT INCLUDED IN THE DEFINITION OF PROPERTY UNDER CLAUSE (D) OF SECTION 56(2)(VII). HE, THEREFORE, CONFIRMED THE ADDITION O F RS. 15,79,809/- BEING THE INADEQUATE CONSIDERATION PAID FOR RECEIVI NG MACHINERY. 6. THE AO MADE ANOTHER ADDITION OF RS. 6,41,625/- T OWARDS INFLATED SALES FOR THE FOLLOWING REASONS: 3 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) (A) THE ASSESSEE STARTED HIS BUSINESS ON 01.04.201 0. ON THE VERY FIRST DAY HE STARTED HIS PURCHASES AND SALES. (B) IN THIS LINE OF BUSINESS, WEAVING A SAREE FROM THE RAW MATERIALS TAKE AT LEAST 15 DAYS - WHICH INCLUDES WINDING OF R ESHAM/WARP, ACHU (WARP JOINT) DYING, DOUBLING, EMBROIDERY WORKS ETC. (C) WHEN THE EXPLANATION WAS CALLED FOR AS TO HOW T HE SALES WERE MADE FROM 01.04.2010 ONWARDS WITHOUT ANY SAREES ON HAND, IT WAS EXPLAINED BY THE ASSESSEE VIDE HIS LETTER DATED 16. 08.2013 THAT THE RAW-MATERIALS WERE GIVEN TO THE WEAVER ABOUT 10 TO 15 DAYS AGO SO AS TO MAKE THE SAREES AVAILABLE ON THE AUSPICIOUS DAY OF OPENING OF BUSINESS ON 01.04.2010. 6.1 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE FOR THE FOLLOWING REASONS : (A) THAT THE HUF DID NOT HAVE ANY SAREES ON HAND ON 01.04.2010. (B) THE ASSESSEE DID NOT PURCHASE ANY SAREES FROM A NY OTHER PERSON NOR SUBMITTED ANY PURCHASE BILLS. (C) THE ASSESSEE DID NOT PURCHASE RAW-MATERIAL OR S AREES FROM THE INDIVIDUAL STATUS. NEITHER ANY SAREES WERE TRANSFER RED FROM INDIVIDUAL STATUS TO HUF. THERE IS NO RECORD/EVIDENCE IN FAVOU R OF THE ASSESSEE THAT THE RAW-MATERIALS WERE PURCHASED/SAREES WERE P URCHASED/ SAREES WERE TRANSFERRED FROM INDIVIDUAL STATUS TO H UF STATUS. (D) THE ASSESSEE DO NOT HAVE SUFFICIENT FUNDS TO MA KE PURCHASES OF RAW-MATERIALS PRIOR TO STARTING OF BUSINESS. THEREFORE, THE SALES MADE FROM 01.04.2010 TO 10.04. 2010 WERE TREATED AS INFLATION OF SALES. THE SALES MADE DURIN G 01.04.2010 TO 10.04.2010 TOTALLING TO RS.6,14,625/- WAS TREATED A S UNEXPLAINED SALES / INFLATION OF SALES. (E) ON SUBSEQUENT DATE, ON 18.12.2013 THE ASSESSEE HAD COME UP WITH NEW EXPLANATION STATING THAT THERE WERE NO SAL ES ON 01.04.2010, IN REAL SENSE, ALL CASH INVOICES WERE RAISED ON THE AUSPICIOUS DAY OF STARTING OF BUSINESS AND THE DELIVERY WAS GIVEN TWO WEEKS LATER. 4 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) (F) THIS EXPLANATION OF THE ASSESSEE IS TOTALLY IN CONTRADICTION TO THE EXPLANATION GIVEN ON 16.08.2013 WHEREIN THE ASSESSE E HAD STATED THAT RAW-MATERIAL WAS GIVEN TO THE WEAVERS 10 TO 15 DAYS PRIOR TO 01.04.2010. IN VIEW OF THE ABOVE REASONS, THE ASSESSING OFFICE R MADE ADDITION OF RS.6,41,625/- AS UNEXPLAINED SALES / INFLATION OF S ALES. 7. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE SAID ADDITION BY OBSERVING THAT THE C ORRESPONDING PURCHASES FOR THE SALES MADE DURING THE FIRST 10 DA YS OF THE BUSINESS COULD NOT BE EXPLAINED BY THE ASSESSEE WITH ANY REL IABLE EVIDENCE. 8. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 9. GROUND NOS. 1 TO 4 ARE PERTAINING TO ADDITION OF RS. 15,79,809/- MADE U/S 56(2)(VII) OF THE ACT. GROUND NOS. 5 TO 12 ARE PERTAINING TO THE ADDITION OF RS. 6,41,625/-. GROUND NO. 13 IS PE RTAINING TO LEVY OF INTEREST U/S 234C OF THE ACT. GROUND NOS. 14 TO 16 ARE GENERAL IN NATURE. 10. AS REGARDS THE ADDITION OF RS. 15,79,809/-, THE LD AR SUBMITTED THAT THE FIRST APPELLATE AUTHORITY HAS MISUNDERSTOO D THE PURPORT OF SECTION 56 (2) (VII) WHICH SEEKS TO TAX ASSETS, HIT HERTO TREATED AS EXEMPT CAPITAL ASSETS WITHIN THE MEANING OF SECTION 2 (14) OF THE ACT. SECTION 2 (14) OF THE ACT, INTER-ALIA, INCLUDES PRO PERTY OF ANY KIND, HELD BY AN ASSESSEE UNCONNECTED WITH HIS BUSINESS B UT EXCLUDED PERSONAL EFFECTS FOR THE PURPOSE OF IMPOSING CAPITA L GAINS TAX. . THUS, IMMOVABLE PROPERTIES, BEING CAPITAL ASSETS, WERE SU BJECTED TO CAPITAL GAINS TAX; CERTAIN TRANSFERS OF IMMOVABLE PROPERTIE S SUCH AS GIFTS AND SETTLEMENTS WERE NOT TREATED AS LIABLE FOR CAPITAL GAINS TAXATION AND HENCE THE LOOPHOLE WAS BEING MISUSED BY GIFTING OR SETTLING IMMOVABLE PROPERTIES BETWEEN NON RELATIVES INSTEAD OF OUTRIGHT SALE 5 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) TO AVOID PAYMENT OF TAXES. THIS MISUSE WAS SOUGHT TO BE PLUGGED BY AMENDING SECTION 56 TO BRING TO TAX, TRANSFER OF CA PITAL ASSETS, INCLUDING IMMOVABLE PROPERTIES, BETWEEN NON-RELATIV ES AND UNCONNECTED PERSONS. PRO-TANTO, THE DEFINITION OF ' PERSONAL EFFECTS' WERE ALSO AMENDED TO EXCLUDE ASSETS SUCH AS SHARES, JEWELLERY, ARCHEOLOGICAL COLLECTIONS PAINTINGS ETC TO BRING TH ESE INTO THE TAX NET FOR CAPITAL GAIN PURPOSES. CORRESPONDING EFFECT WAS GIVEN IN EXPLANATION (D) TO SECTION 56 (2) (VII) TO ROPE IN THE ABOVE CLASSIFICATION OF CAPITAL ASSETS SO AS TO TAX THERE ON IN THE RECIPIENT NON-RELATIVE'S HANDS. 10.1 IN VIEW OF ABOVE, THE LD. AR SUBMITTED THAT THE ATTEMPT OF THE CIT (A) TO DISREGARD THE REAL MEANING OF THE ABOVE SECTIONS AND PERFUNCTORILY ATTRIBUTING ABSENCE OF THE TERM 'MACH INERY' IN THE EXPLANATION (D) TO SECTION 56 (2) (VII) IS INCORREC T APPRECIATION OF THE LEGAL PURPORT OF SAID SECTION. MOREOVER, IF THE VI EW OF THE CIT (A) IS TO BE TREATED AS CORRECT, THEN THE ENTIRE TRANSACTION OF MACHINERY PURCHASED BY THE HUF FROM THE INDIVIDUAL, CANNOT BE TAXED UNDER SECTION 56 IN THE ABSENCE OF PROPER DEFINITION OF T HE TERM 'PROPERTY' TO INCLUDE MACHINERY WITHIN ITS AMBIT, SINCE 'ANY PROP ERTY' UNDER CLAUSE ( C) DOES NOT INCLUDE MACHINERY WITH ITS DEFINITION UNDER EXPLANATION (D) THERE UNDER. THUS THERE IS NO GROUND FOR SUSTAI NING THE ADDITION OF RS.15,79,809/- WHICH IS THE BALANCE AMOUNT DUE TO T HE INDIVIDUAL AS AT THE YEAR END AND NOT THE AGREED VALUE FOR THE TR ANSFER OF ASSET. IN ANY EVENT, THE TRANSACTION IS EXEMPT AS TRANSFER TO A RELATIVE AS THE HUF RECEIVED THE SAME FROM A MEMBER THEREOF (INDIVI DUAL). 11. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 12. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD. LD. AR SUBMITTED THAT THE PROPERTY DEFINITION GIVEN IN SECTION 56(2)(VII) IS ONLY ILLUSTRATIVE AN D DOES INCLUDE THE ASSETS GIVEN AS GIFT BETWEEN THE RELATIVES, IRRESPE CTIVE OF KIND OF ASSETS. WE HAVE CAREFULLY ANALYSED THE SECTION 56(2 )(VII) OF THE ACT, 6 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) WHICH WAS INTRODUCED IN FINANCE ACT, 2009. THE SUB- SECTION IN THAT FINANCE ACT STOOD AS BELOW: (VII) WHERE AN INDIVIDUAL OR A HINDU UNDIVIDED FAM ILY RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS ON OR AFTER THE 1ST DAY OF OC TOBER, 2009, (A) ANY SUM OF MONEY, WITHOUT CONSIDERATION, THE A GGREGATE VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF THE AGGREGATE VALUE O F SUCH SUM; (B) ANY IMMOVABLE PROPERTY, (I) WITHOUT CONSIDERATION, THE STAMP DUTY VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE STAMP DUTY VALUE OF SUCH PROPERTY; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE STA MP DUTY VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE STAMP D UTY VALUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION; PROVIDED THAT WHERE THE DATE OF THE AGREEMENT FIXIN G THE AMOUNT OF CONSIDERATION FOR THE TRANSFER OF IMMOVABLE PROPERTY AND THE DATE OF REGISTRATION ARE NOT THE SAME, THE STAMP DUTY VALUE ON THE DATE OF AGREEMENT MAY BE TA KEN FOR THE PURPOSES OF THIS SUB- CLAUSE. PROVIDED FURTHER THAT THE SAID PROVISO SHALL APPLY ONLY IN A CASE WHERE THE AMOUNT OF CONSIDERATION REFERRED TO THEREIN, OR A PART THEREO F, HAS BEEN PAID BY ANY MODE OTHER THAN CASH ON OR BEFORE THE DATE OF THE AGREEMENT FO R THE TRANSFER OF SUCH IMMOVABLE PROPERTY. (C) ANY PROPERTY, OTHER THAN IMMOVABLE PROPERTY, (I) WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKE T VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF THE AGGREGATE FAIR MA RKET VALUE OF SUCH PROPERTY; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE AGG REGATE FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE A GGREGATE FAIR MARKET VALUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION: PROVIDED THAT WHERE THE STAMP DUTY VALUE OF IMMOVAB LE PROPERTY AS REFERRED TO IN SUB- CLAUSE (B) IS DISPUTED BY THE ASSESSEE ON GROUNDS M ENTIONED IN SUB-SECTION (2) OF SECTION 50C, THE ASSESSING OFFICER MAY REFER THE VALUATION OF SUCH PROPERTY TO A VALUATION OFFICER, AND THE PROVISIONS OF SECTION 50C AND SUB- SECTION (15) OF SECTION 155 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE STAMP DUTY VALU E OF SUCH PROPERTY FOR THE PURPOSE OF SUB-CLAUSE (B) AS THEY APPLY FOR VALUATION OF CAPIT AL ASSET UNDER THOSE SECTIONS: PROVIDED FURTHER THAT THIS CLAUSE SHALL NOT APPLY T O ANY SUM OF MONEY OR ANY PROPERTY RECEIVED (A) FROM ANY RELATIVE; OR (B) ON THE OCCASION OF THE MARRIAGE OF THE INDIVIDU AL; OR (C) UNDER A WILL OR BY WAY OF INHERITANCE; OR ( D) IN CONTEMPLATION OF DEATH OF THE PAYER OR DONOR, AS THE CASE MAY BE; OR (E) FROM ANY LOCAL AUTHORITY AS DEFINED IN THE EXPL ANATION TO CLAUSE (20) OF SECTION 10; OR (F) FROM ANY FUND OR FOUNDATION OR UNIVERSITY OR OT HER EDUCATIONAL INSTITUTION OR HOSPITAL OR OTHER MEDICAL INSTITUTION OR ANY TRUST OR INSTIT UTION REFERRED TO IN CLAUSE (23C) OF SECTION 10; OR (G) FROM ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) 'ASSESSABLE' SHALL HAVE THE MEANING ASSIGNED TO IT IN EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 50C; ( 7 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) B) 'FAIR MARKET VALUE' OF A PROPERTY, OTHER THAN AN IMMOVABLE PROPERTY, MEANS THE VALUE DETERMINED IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED; (C) 'JEWELLERY' SHALL HAVE THE MEANING ASSIGNED TO IT IN THE EXPLANATION TO SUB-CLAUSE (II) OF CLAUSE (14) OF SECTION 2; (D) 'PROPERTY' MEANS (I) IMMOVABLE PROPERTY BEING LAND OR BUILDING OR BO TH; (II) SHARES AND SECURITIES; (III) JEWELLERY; (IV) ARCHAEOLOGICAL COLLECTIONS; (V) DRAWINGS; (VI) PAINTINGS; (VII) SCULPTURES; OR (VIII) ANY WORK OF ART; 12.1 SUBSEQUENTLY IN FINANCE ACT, 2010, INCLUDED TH E ASSETS BULLION. ON CAREFUL READING OF THE SECTION, IT IS CLEAR THAT THE LEGISLATURE INTENDED TO EXCLUDE THE PROPERTIES WHICH ARE PERSON AL BELONGINGS LIKE LAND AND BUILDINGS, SHARES, SECURITIES AND PERSONAL EFFECTS. IT WAS NEVER INTENDED TO EXCLUDE THE BUSINESS ASSETS LIKE STOCK-IN-TRADE, MACHINERY ETC. ON SAFE AND INFALLIBLE PRINCIPLE IS TO READ THE WORDS THROUGH AND SEE IF THE RULE IS CLEARLY STATED. IF T HE LANGUAGE EMPLOYED GIVES THE RULE IN WORDS OF SUFFICIENT CLARITY AND P RECISION, NOTHING MORE REQUIRES TO BE DONE, IN SUCH A CASE, THE TASK OF INTERPRETATION CAN HARDLY BE SAID TO ARISE. ABSOLUTA SENTENTIA EXPOSITORE NON INDIGET. THE LANGUAGE USED BY THE LEGISLATURE BEST DECLARES ITS INTENTION AND MUST BE ACCEPTED AS DECISIVE OF IT. HENCE, IT IS CL EAR THAT THE INTENTION OF THE LEGISLATURE NOT TO INCLUDE BUSINESS ASSETS I N THE EXCLUSION LIST, IT HAS TO BE ACCEPTED AS SUCH. CONSIDERING THE ABOV E DISCUSSION, WE ARE OF THE VIEW THAT THE DEFINITION OF THE CAPITAL ASSETS FOR EXCLUSION DOES NOT INCLUDE THE ASSETS, MACHINERY. HENCE, TH E DEFINITION CANNOT BE EXPANDED BEYOND WHAT IS NOT INTENDED TO INCLUDE. ACCORDINGLY, THE ADDITION MADE BY THE AO IN THIS REGARD IS SUSTAINED . 13. AS REGARDS THE ADDITION OF 6,41,625/- ON ACCOUN T OF INFLATED SALES, THE LD. AR SUBMITTED THAT THE CIT (A) HAS T AKEN A JAUNDICED VIEW OF THE EXPLANATIONS MADE TO COUNTENANCE THE F UNDAMENTAL FLAW IN THE ADDITIONS MADE ON A SUBJECT MATTER WHICH F ORMS PART OF THE ACCOUNTED TRANSACTIONS. IT IS SUBMITTED THAT TH E TREATMENT OF SALES 8 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) MADE DURING THE FIRST 10 DAYS OF ACCOUNT OPENING AS ALLEGED INFLATION OF SALES IS UNWARRANTED AND ILLEGAL, IN AS MUCH AS THE ENTIRE TRANSACTIONS ARE ALREADY FOUND RECORDED IN THE REGU LAR BOOKS OF ACCOUNT AS SALES AND THERE CANNOT BE A DOUBLE ADDIT ION THEREON BY TREATING THE SAME AS IF IT IS AN UNACCOUNTED TRANSA CTION AND BRINGING THE ENTIRE SALE TO TAX. MOREOVER OUT OF THE TOTAL S ALES MADE IN THE 10 DAY PERIOD, THERE ARE CASH SALES MADE ONLY FOR 3 DA YS AGGREGATING TO RS. 2,22,125/- AND THE BALANCE SALES ARE MADE TO GR OUP CONCERN (T.R.SILKS) WHICH ARE ARMS LENGTH SALES AND CANNOT BE DOUBTED SINCE IT IS FOUND RECORDED IN BOTH THE ENTITIES. THE REA SONS TOUTED BY THE ASSESSING OFFICER TO DISBELIEVE THE TRANSACTION ON THE GROUND THAT THERE ARE NO FRESH SAREE PURCHASES (FINISHED STOCK) ON THE OPENING STOCK IS CONTRADICTED BY THE ASSESSING OFFICER HIMS ELF AT PARA 3 PAGE 5 OF THE ASSESSMENT ORDER THAT MANUFACTURING OF HAN D LOOM SAREES IN SHEDS AB-INITIO IS ACCEPTED AND HENCE CORRESPONDING PURCHASES ARE ALSO ACCEPTED. IF THIS IS ACCEPTED AS CORRECT THAN HAVING ACCEPTED THE PURCHASE COST OF SAREES ARE AVAILABLE ON THE THRESH OLD DATE, THERE IS NO REASON TO DISBELIEVE THE CORRESPONDING SALES WIT HIN THE 15 DAY WINDOW AND ASSESS A SUM OF RS. 6,41, 625/-. 13.1 ON THE CONTRARY THE EXPLANATION OFFERED BY TH E ASSESSEE THAT PRIOR TO COMMENCEMENT OF BUSINESS, THE WEAVING OF S TOCK OF SAREES, 15 DAYS PRIOR THERETO SHOULD HAVE BEEN UNDERSTOOD I N THE CORRECT PERSPECTIVE. THE ASSESSEE BY ASKING THE WEAVERS TO COMMENCE WEAVING OPERATIONS PRIOR TO AUSPICIOUS DAY OF OPENI NG, PROCURED RAW MATERIALS ON CREDIT AND ON THE DAY OF OPENING, MADE PURCHASES OF RAW MATERIALS SUCH AS ZARI, RESHAM AND WARP AND BOOK TH E BILLS THEREFOR ON THE DATE OF OPENING TO SQUARE UP THE CREDIT PURC HASES FOR THE 15 DAYS CREDIT. REFERENCE IS INVITED TO THE RECENT DEC ISION OF THE HONBLE BOMBAY HIGH COURT RENDERED ON 4TH FEBRUARY 2015 IN THE CASE OF CI T - 8 VS. HARIRAM BHAMBHANI IN 1. T.A. NO 313 OF 2013 WHEREIN IT WAS HELD THAT THE ENTIRE UNACCOUNTED SALES CANNOT BE AS SESSED AS UNDISCLOSED INCOME PARTICULARLY IF THE PURCHASES HA VE BEEN ACCOUNTED FOR. ONLY THE NET PROFIT ON SUCH UNACCOUNTED SALES CAN BE TAKEN AS 9 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) INCOME; HOWEVER IN THE PRESENT CASE NO UNACCOUNTED SALE OR PURCHASE HAS BEEN UNEARTHED BUT THE ASSESSING OFFIC ER SIMPLY DISBELIEVES THE OPENING DAY SALES WHICH IS DULY ACC OUNTED WHILE ACCEPTING THE PRO TANTO PURCHASES THEREFOR. HENCE T HERE IS NO GROUND FOR ADDING A SUM OF RS.6,41,625/-AS ALLEGED INFLATI ON IN SALES, WHEN THE SAID SALES ARE ALREADY PART OF THE RECORDED TRA NSACTIONS AND THE ASSESSING OFFICER HAS ACCEPTED THE PRO TANTO PURCHA SES AND MANUFACTURING OPERATIONS AS CORRECT. 13.2. LD. AR SUBMITTED THAT IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSING OFFICER HAVING ACCEPTED THE PURCHASES ARE AVAILABLE, VIDE HIS OBSERVATION IN PARA 3, PAGE 5 OF THE ASSESSMENT ORDER, THERE IS NO CASE FOR SUSPECTING THAT THE SALES ARE BOGUS. HOWEV ER, IN VIEW OF THE INHERENT INCONSISTENCIES IN THE ACCOUNTS RENDERED P ER-SE, THE ADDITIONS THAT, CAN BE CONTEMPLATED ON THIS ALLEGED BOGUS SALE IS ONLY A SUM OF RS.37,000/- ON BASIS OF DECIDED CASE LAWS AFORESAID. 14. LD. DR ON THE OTHER HAND RELIED ON THE ORDERS O F REVENUE AUTHORITIES. 15. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD. WE OBSERVE FROM THE SUBMI SSIONS AND RECORDS PRODUCED BEFORE US THAT THERE IS SALES TAKE N PLACE AT THE COMMENCEMENT OF THE BUSINESS WHICH IS FACT. FOR SAL ES TO COMPLETE THERE HAS TO BE STOCK FOR SUCH PURPOSE. IN THE GIV EN CASE, ASSESSEE HAD MADE SALES IN THE COMMENCEMENT OF THE YEAR. THE RE HAS TO BE SOME EXPENDITURE WITHOUT WHICH THE STOCK WOULD NOT HAVE APPEARED FOR MAKING SALES. MOREOVER, THE ASSESSEE HAD MADE S ALES TO ITS OWN SISTER CONCERNS. THERE HAS TO BE STOCK TO MAKE SALE S. IN OUR CONSIDERED VIEW, NO BUSINESSMAN WILL MAKE BOGUS SAL ES IN THE COMMENCEMENT OF THE VENTURE. IT IS WRONG TO TREAT S UCH SALES AS UNEXPLAINED OR INFLATED SALES. THE ASSESSEE HAS MAD E SALES WITH STOCK BUT FAILED TO EXPLAIN THE SOURCE OF SUCH ARRA NGEMENT. THIS IS ALSO FACT THAT THE SISTER CONCERNS OF THE ASSESSEE ARE ALSO IN THE SAME LINE OF BUSINESS. IT MAY BE INTERNAL ARRANGEME NT TO MAKE SURE TO 10 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) HAVE INITIAL SALES ON THE FIRST DAY OF COMMENCEMENT OF THE BUSINESS. IN OUR CONSIDERED VIEW, THE AO MUST HAVE BROUGHT TH E ELEMENT OF PROFIT TO TAX INSTEAD OF WHOLE VALUE OF SALES. WE D IRECT THE AO TO TAX ONLY THE PROFIT. WE REMIT THE MATTER BACK TO THE FI LE OF THE AO TO DETERMINE THE PROFIT CONSIDERING THE INDUSTRY AND C ALCULATION OFFERED BY THE ASSESSEE. NEEDLESS TO SAY THAT ASSESSEE MUST BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. 16. AS REGARDS GROUND NO. 13 PERTAINING TO CHARGING OF INTEREST U/S 234C, IT IS OBSERVED THAT CHARGING OF INTEREST U/S 234C IS CONSEQUENTIAL IN NATURE. IT IS DIRECTED THAT THE INTEREST U/S 234C S HALL BE REVISED ON THE BASIS OF LIABILITY COMPUTED AS PER THIS ORDER. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 24 TH AUGUST, 2016 KV COPY TO:- 1) GANJIKUNTA KISHORE BABU (HUF), C/O J PRABHAKAR, CA., RESIDENCY APARTMENTS, 245, TTK ROAD, ALWARPET, CHENNAI. 2) ITO, WARD 1, ANANTAPUR. 3) CIT(A), KURNOOL 4) CIT, KURNOOL 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 11 ITA NO. 839/H/15 GANJIKUNTA KISHORE BABU (HUF) 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