Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 8486 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 1 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-03-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
02-01-2017
Assessment Year
2005-2006
Appeal Filed On
29-01-2015
Judgement Text
ITA.85/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.85/BANG/2015 (ASSESSMENT YEAR : 2005-06) SHRI. G. PRASAD REDDY, NO.9, V CROSS, III CROSS, KORAMANGALA, BENGALURU 560 095 .. APPELLANT PAN : AARPR8822N V. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. JINITHA CHATTERJEE, ADVOCATE REVENUE BY : SMT. PREETHI GARG, CIT-DR-I HEARD ON : 02.01.2017 PRONOUNCED ON : .03.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT (A)-II, BENGALURU, DT.24.10.2014, FOR THE ASSESSME NT YEAR 2005-06. 02. SHRI. G. PRASAD REDDY, THE ASSESSEE, APART FROM DEVELOPING AND MARKETING RESIDENTIAL LAYOUTS AND BEING A PARTN ER IN ABOUT 8 REAL ESTATE FIRMS, IS ALSO RUNNING A BAR- CUM- REST AURANT. HE HAD FILED HIS RETURN ON 31.10.2005, DECLARING A TOTAL INCOME AT R S.2,66,85,820/-. ITA.85/BANG/2015 PAGE - 2 THERE WAS A SEARCH AND SEIZURE ACTION U/S 132 IN HIS CASE. IN RESPONSE TO THE NOTICE U/S 153A , HE HAD FILED A RE TURN ON 17.4.2006 IN WHICH HE DECLARED THE INCOME AT RS.3,00,19,510/-. I N THE ASSESSMENT MADE U/S 143(3) READ WITH SECTION 153A DATED 2/1/2007, HIS TOTAL INCOME HAD BEEN DETERMINED AT RS.3,37,74, 510/. IN THAT ASSESSMENT, THE AO HAD , INTER ALIA, ALLOWED THE D EDUCTION CLAIMED AT RS.97,00,000/- COST OF LAND INVESTED IN F Y 2003-04 ALREADY DECLARED , NOW CONVERTED INTO STOCK IN TRADE AND RS.22,00,008/- COST OF IMPROVEMENT NAGAWARA ALREADY DECLARED ABOVE, NOW CONVERTED INTO STOCK IN TRADE, AGGREGATING AT RS.1,19,00,000/-. B ESIDES, THE AO FOUND THAT HAS BROUGHT TO TAX RS.37,55,000/- AS ADDITIONAL INCOME BEING THE DIFFERENCE BETWEEN THE AMOUNTS OF RS.1,92,55,000/- AND RS.1,53,00,000/DISCLOSED AS AD DITIONAL INCOME FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. 03. THEREAFTER, THE COMMISSIONER OF INCOME-TAX, KAR NATAKA (CENTRAL), BANGALORE [THE CIT(C)], REVIEWED THE AB OVE ASSESSMENT ORDER U/S 263 AND HELD THE DEDUCTION CLAIMED AN D ALLOWED BY THE AO AT RS.97,00,000/AND RS.22,00,000/- WAS 'CLEARLY NOT IN ACCORDANCE WITH THE LAW AND IT WAS PREJUDICIAL TO T HE INTERESTS OF REVENUE AND HENCE THE CIT ( C ) SET ASIDE THE IM PUGNED ASSESSMENT ORDER AND DIRECTED THE AO TO RE-EXAMINE THE ALLOWAB ILITY OF THE EXPENSES OF RS.97,00,000/- AND RS.22,00,080/- BY A N ORDER DT ITA.85/BANG/2015 PAGE - 3 31/3/2008. THE ASSESSEE FILED AN APPEAL AGAINST T HE CS IT (C) ORDER AND THE HON'BLE ITAT, BANGALORE 'B' BENCH IN IT S ORDER IN ITA.NO.702/ BANG/2008 DATED 23/12/2008 DISPOSED THAT APPEAL. T HE RELEVANT PORTION OF THE ORDER IS REPRODUCED BELOW: '3. THE CONTENTION ON BEHALF OF THE ASSESSEE BEFORE US IS THAT THE CIT OUGHT NOT TO HAVE RECORDED A FINDING THAT THE A SSESSEE'S CLAIM WAS NOT IN ACCORDANCE WITH LAW EVEN WHILE HE SET ASIDE THE ASSESSMENT ORDER TO THE ASSESSING OFFICER FOR B EING MADE DE NOVO VIS-A-VIS THE CLAIM OF THE ASSESSEE FOR DEDUCT ION OF RS.97 LAKHS AND RS.22 LAKHS. WE FIND FORCE IN THE CONTENT ION. THE CIT RIGHTLY ASSUMED JURISDICTION U/S 263 ON THE FOO TING THAT THE CLAIM FOR DEDUCTION OF RS.97 LAKHS AND RS.22 LAKHS WHILE COMPUTING THE PROFITS OF THE BUSINESS HAD NOT BEEN ENQUIRED INTO BY THE ASSESSING OFFICER. THE ASSUMPTION OF JU RISDICTION WAS IN CONFORMITY WITH THE JUDGEMENT OF THE HON'BLE KAR NATAKA HIGH COURT IN THALIBAI P.JAIN (1975) 101 HR 1. THE PURPO RT AND TENOR OFTHE ORDER OF THE CIT ARE ALSO THAT THE CLAIM HAS TO BE ENQUIRED INTO BY THE ASSESSING OFFICER. SO FAR SO G OOD. HOWEVER, IT WAS NOT PROPER FOR THE CIT TO HAVE ALSO RECORDED A FINDING THAT THE ASSESSEE'S CLAIM WAS 'CLEARLY NO T IN ACCORDANCE WITH THE LAW' WHEN AT THE SAME TIME HE W AS DIRECTING THE ASSESSING OFFICER HAD FAILED TO CARRY OUT WHILE COMPLETING THE ASSESSMENT IN THE FIRST INSTANCE. WH ILE THEREFORE UPHOLDING THE ASSUMPTION OF JURISDICTION U/S 263 BY THE CIT, WE MODIFY HIS ORDER BY SAYING THAT THE ASSESSMENT ORDE R IS SET ASIDE WITH THE DIRECTION TO THE ASSESSING OFFICER T O PASS THE SAME AFRESH AFTE4R ENQUIRING INTO THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.97 LAKHS AS COST OF THE LAND INVEST ED AND RS.22 LAKHS AS COST OF IMPROVEMENTS INCURRED IN THE FINAN CIAL YEAR 2003-04. THE ASSESSING OFFICER SHALL TAKE A FRESH D ECISION ON THE ALLOWABILITY OF THE CLAIM IN ACCORDANCE WITH LAW AN D AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . BOTH THE SIDES ARE FREE TO RAISE ALL FACTUAL AND LEGAL CONTE NTIONS THAT ARE AVAILABLE TO THEM ON THIS ISSUE. THE ASSESSING OFFI CER IS NOT BOUND BY THE FINDING RECORDED BY THE CIT THAT THE ASSESSE E'S CLAIM WAS NOT IN ACCORDANCE WITH LAW. HE SHALL TAKE HIS OWN D ECISION ON THE BASIS OF THE MATERIALS AVAILABLE TO HIM BOTH FACTUA L AND LEGAL WITHOUT BEING INFLUENCED BY THE OBSERVATIONS OR FIN DINGS RECORDED BY THE CIT IN HIS ORDER U/S 263. THE DIREC TIONS OF THE CIT ARE MODIFIED AS ABOVE ....... ITA.85/BANG/2015 PAGE - 4 04. COMPLYING WITH THE HON'BLE TRIBUNALS ORDER, TH E AO HAS PASSED A RE-ASSESSMENT ORDER U/SS 143(3) R W SS 15 3A AND 254 DATED 31/12/2009. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO SUSTAINED THE DISALLOWANCES OF RS.1,19,0 0,000 & RS.50,000/- MADE U/S 40A(3), RESPECTIVELY. ON THAT ORDER, THE ASSESSEE FILED THIS APPEAL WITH FOLLOWING GROUNDS : ITA.85/BANG/2015 PAGE - 5 05. AFTER THE SEARCH AND SEIZURE ACTION, THE ASSESS EE ADMITTED AN ADDITIONAL INCOME OF RS.1,55,00,000. .OUT OF WHICH, IT CLAIMED DEDUCTION OF RS RS.97,00,000/-, COST OF LAND INVESTED IN F Y 20 03- 04 ALREADY DECLARED , NOW CONVERTED INTO STOCK IN TRADE AND RS.22,00,008/- ,COST OF IMPROVEMENT NAGAWARA ALREADY DECLARED ABOVE , NOW CONVERTED INTO STOCK IN TRADE, AGGREGATING AT RS.1,19,00,000 /-. THE ASSESSEE PLEADED THAT THESE TRANSACTIONS, RELATING TO THE PROPERTIES , WERE OUTSIDE THE BOOKS OF ACCOUNT AND THUS THE UNDISCLOSED INCOME HAD BEEN OFFERED FOR TAXATION U/ S 153A OF THE ACT. ACCORDING TO THE AO, THE ABOVE TRANSACTION S REPRESENTED COST OF LAND INVESTED IN THE FINANCIAL YEAR 2003-04 (A.Y.2004-05) AND AN EXPENDITURE WHICH IS ALSO RELATED TO EARLIER YEARS BUT THEY HAD BEEN CLAIMED IN THE RELEVANT ASSESSMENT YEARS. AS THE EX PENSES ARE RELATED TO EARLIER YEARS AND ALSO RELATED TO UNDISCLOSED IN COME, THE ASSESSEE IS NOT ELIGIBLE IN TERMS OF THE PROVISO TO SECTION 69C OF THE ACT. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT RS.97,00,000/- WAS THE COST OF IMPROVEMENT ON THE L AND (INVESTED IN THE PREVIOUS YEAR) THAT WAS CONVERTED INTO STOCK-IN- TRADE AND RS.22,00,000/REPRESENTED COST OF IMPROVEM ENT OF LAND IN NAGAWARA THAT WAS ALREADY DECLARED WHICH WAS CONVER TED INTO STOCK-IN-TRADE, DURING THE YEAR AND UTILISED FOR F ORMATION OF A RESIDENTIAL LAYOUT CLAIMING AN EXPENDITURE OF RS.1,19,00,000/- AND THEREFORE THE SAME CONSTITUTED AN ALLOWABLE EXPENDITURE OF THE YEAR. FURTHER, IT SUBM ITTED THAT THE PROVISIONS OF SECTION 69C HAVE NO APPLICATION TO TH E INCOME DECLARED BY THE ASSESSEE. THE ASSESSEE IS IN THE BU SINESS OF REAL ESTATE AND THE TRANSACTIONS WERE ALL IN RELATION TO HIS BUSINESS. CONSEQUENTLY, THE INCOME IS DETERMINED UNDER THE HE AD INCOME FROM BUSINESS AND THERE IS NO INCOME ASSESSABLE UND ER THE HEAD ITA.85/BANG/2015 PAGE - 6 INCOME FROM OTHER SOURCES AND THAT TOO UNDER SECTIO N 69C OF THE ACT. THERE BEING NO INCOME UNDER SECTION 69C OF TH E ACT, THE QUESTION OF APPLICATION OF THE PROVISO TO SECTION 69C HAS NO RELEVANCE AND THE ASSESSEE HAS PURCHASED THE LAND AND MADE IMPROV EMENTS IN THE LAND AT NAGAVARA AND LATER THEY WERE SOLD AND T HE PROFIT THERE FROM HAS BEEN DETERMINED FOR THE PURPOSE OF TAXATIO N. OBVIOUSLY, THE COST OF LAND AND THE COST OF IMPROVE MENT ARE REQUIRED TO BE DEDUCTED OUT OF SALE PROCEEDS OF THE LAND IN ORDER TO ARRIVE AT THE CORRECT PROFIT FOR THE PURPOSE OF TAXATION. THE ENTIRE COMPUTATION WAS UNDER SECTIONS 28 TO 43 OF T HE ACT AND THUS THERE IS NO APPLICATION OF SECTION 69C OR THE PROVISO THEREIN TO THE CASE OF THE APPELLANT. PER CONTRA, T HE DR RELIED ON THE CIT (A) ORDER. 06. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT P ORTION OF THE CIT (A) ORDER IS EXTRACTED BELOW. 3.2 IN THIS REGARD, THE APPELLANT'S SUBMISSIONS AR E AS FOLLOWS: 'IT WAS EXPLAINED THAT RS.97,00,000/- WAS THE COST OF IMPROVEMENT ON THE LAND (INVESTED IN THE PREVIOUS Y EAR) THAT WAS CONVERTED INTO STOCK-IN-TRADE AND RS.22,00,000/ REPRESENTED COST OF IMPROVEMENT OF LAND IN NAGAWARA THAT WAS AL READY DECLARED WHICH WAS CONVERTED INTO STOCK-INTRADE, DU RING THE YEAR AND UTILISED FOR FORMATION OF A RESIDENTIAL LA YOUT CLAIMING AN EXPENDITURE OF RS.1,19,00,000/- AND THE REFORE THE SAME CONSTITUTED AN ALLOWABLE EXPENDITURE OF TH E YEAR. IT WAS ALSO EXPLAINED THAT SECTION 69C OF THE ACT WA S NOT APPLICABLE IN THE CASE ON HAND. 'FURTHER, WE WISH TO SUBMIT THAT THE PROVISIONS OF SECTION 69C HAVE NO APPLICATION TO THE INCOME DECLARED BY THE ASSESS EE. THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND THE TRANSACTIONS WERE ALL IN RELATION TO HIS BUSINESS. CONSEQUENTLY, THE INCOME IS DETERMINED UNDER THE HEAD INCOME FROM BUSINESS AND THERE IS NO INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTH ER SOURCES AND THAT TOO UNDER SECTION 69C OF THE ACT. THERE BEING NO INCOME UNDER SECTION 69C OF THE ACT, THE QUESTION O F APPLICATION OF THE PROVISO TO SECTION 69C HAS NO RELEVANCE AND THE ASSESSEE HAS PURCHASED THE LAND AND MADE IMPROVEMENTS IN THE LAN D AT ITA.85/BANG/2015 PAGE - 7 NAGAVARA AND LATER THEY WERE SOLD AND THE PROFIT TH ERE FROM HAS BEEN DETERMINED FOR THE PURPOSE OF TAXATION. OBVIOU SLY, THE COST OF LAND AND THE COST OF IMPROVEMENT ARE REQUIR ED TO BE DEDUCTED OUT OF SALE PROCEEDS OF THE LAND IN ORDER TO ARRIVE AT THE CORRECT PROFIT FOR THE PURPOSE OF TAXATION. THE ENTIRE COMPUTATION WAS UNDER SECTIONS 28 TO 43 OF THE ACT AND THUS THERE IS NO APPLICATION OF SECTION 69C OR THE PROVISO THEREIN TO THE CASE OF THE APPELLANT. FURTHER, EVEN WITH REGARD TO THE INVESTMENT IN LAND, THE SEIZED DOCUMENTS WOULD SHOW THAT THE ASSESSEE HAD ADEQUATE RESOURCES FOR INVESTMENT, THE DETAILS OF WHICH HAVE ALREADY BEEN FURNISHED AND THE SAME HAS BEEN DISCUSSED IN THE ASSESSMENT ORDER IN PARA 8. A COPY OF THE ASSESSMENT ORDER IS ENCLOSED TO THIS SUBMISSION. TH US, THE ASSESSING AUTHORITY HAD FULLY SATISFIED WITH TH E SOURCES AVAILABLE WITH THE ASSESSEE AND THUS THERE WAS NO S COPE TO MAKE ANY ADDITION UNDER SECTION 69C OF THE ACT. IT MAY K INDLY BE APPRECIATED THAT THE CASH TRANSACTIONS BOTH OF PURCHASES AND SA LES WERE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THUS, THE TRANSA CTIONS WERE OUTSIDE THE BOOKS OF ACCOUNTS AND THAT IS HOW THE UNDISCLOSED INCOME WAS OFFERED BY THE ASSESSEE UNDE R SECTION 153A OF THE ACT, WHEN THE ENTIRE TRANSACTIONS WERE OUTSIDE THE BOOKS OF ACCOUNTS AND THE SOURCES FOR THE TRANSACTIONS WE RE FULLY EXPLAINED, THE PROVISIONS OF SECTION 69C WERE NOT A PPLICABLE. IN FACT, THE ASSESSEE HAS EXPLAINED THE SOURCES FULLY TO THE SATISFACTION OF THE ASSESSING AUTHORITY. THE FACT T HAT THE SOURCES OF INVESTMENTS WERE NOT RECORDED IN THE BOO KS OF ACCOUNTS WERE OF NO CONSEQUENCE AND ONCE THE SOURCE S HAVE BEEN FULLY EXPLAINED FOR THE EXPENSES INCURRED, THE PROVISIONS OF SECTION 69C OF THE ACT WERE NOT APPLICABLE AND NO I MPUGNED DISALLOWANCE OF DEDUCTION CAN BE MADE UNDER SECTION 69C OF THE ACT. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICER ERRED IN MAKING ADDITION OF RS.23,89,000/- UNDER SECTION 40A(3) OF THE ACT WITHOUT APPRECIATING THAT SECTION 40A(3) HAS NO APPLICATION TO THE APPELLANT'S CASE SINCE THE CASH TRANSACTIONS OF BOT H PURCHASES AND SALES WERE OUTSIDE THE BOOKS OF ACCOUNT. IT MAY PLEASE BE FURTHER APPRECIATED THAT THE EXPENSES ARE RELATED TO THE FI NANCIAL YEAR 2003=04 AND IF ANY DISALLOWANCE HAS TO BE MADE, THE SAME IS REQUIRED TO BE MADE ONLY IN THE ASSESSMENT YEAR 2004-05 AND NOT THE REL EVANT ASSESSMENT YEAR SINCE IT FORMS PART OF THE OPENING STOCK AND N O DISALLOWANCE HAS BEEN MADE IN THE PREVIOUS ASSESSMENT YEAR.' 3.3 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS AND PERUSED THE ORIGINAL ASSESSMENT ORD ER AS WELL AS THE REASSESSMENT ORDER UNDER APPEAL. I FIND THAT TH E APPELLANT HAS NOT BEEN ABLE TO DEMONSTRATE WITH EVIDENCE THAT THE AMO UNT OF RS.1,19,00,000/- CONSISTING OF RS.97,00,000/- AND RS.22,00,000/- CLAIMED AS EXPENDITURE INCURRED IN C ONNECTION WITH THE IMPROVEMENTS MADE TO TWO IMMOVABLE PROPERT IES MENTIONED ABOVE HAD ACTUALLY BEEN INCURRED. THIS IS BECAUSE ITA.85/BANG/2015 PAGE - 8 THE DISCLOSURE MADE IS ON A DIFFERENT NOTE AND THE NATURE OF EXPENDITURE SHOWN IN THAT RESPECT IS DIFFERENT. THE AO'S ACTION IN FOLLOWING THE DIRECTIONS OF THE CIT (CENTRAL) IN THIS REGARD IS IN ORDER AND THE DISALLOWANCE OF THE AMOUNT OF RS.1,19 ,00,000/- IS CONFIRMED. 3.4 THE APPELLANT HAS RAISED AN ADDITIONAL GROUND D URING APPEAL PROCEEDINGS, CONTENDING THAT THE ADDITION OF RS.37, 50,000/- IS UNWARRANTED AS THE AMOUNT FORMS PART OF THE DISC LOSURES MADE FOR THE ASSESSMENT YEAR 2004-05. THE APPELLANT HAD MADE A DECLARATION OF ADDITIONAL INCOME OF RS.1,53,00,000/ - FOR THE ASSESSMENT YEAR 2004-05 AND A SUM OF RS.1,92,55,000 /- FOR THE ASSESSMENT YEAR 2005-06. THE AO DEDUCTED THE FIRST AMOUNT FROM THE SECOND AMOUNT I.E. RS.1,53,00,080/- FROM RS.1,92,55,000/- AND BROUGHT THE DIFFERENCE OF RS.3 7,55,000/- TO TAX. HOWEVER, THE APPELLANT HAS PRODUCED EVIDENCE D URING THE APPEAL PROCEEDINGS IN S U P P O R T O F H I S C O N T E N T I O N T H A T T H E A M O U N T O F RS.1,53,00,000/- DECLARED FOR THE ASS ESSMENT YEAR 2004-05 INCLUDED THE SUM OF RS.37,55,000/-. IN OTHER WORDS, THE AMOUNT OF RS.37,55,000/- IS TELESCOPED I NTO THE UNEXPLAINED AMOUNT OF RS.1,53,00,000/- AS FORMING P ART OF THE AMOUNT DISCLOSED IN THE PREVIOUS YEAR. IN VIEW OF T HIS, I HOLD THAT THE ADDITION OF RS.37,55,000/- IS UNWARRANTED AND DELET E THE SAME. 4. DISALLOWANCE U/S 40A(3): RS.28,80,800/- 4.1 THE AO HAS, WITHOUT GIVING ANY REASONS IN THE REASSESSMENT ORDER, MADE A DISALLOWANCE OF RS.28,80 ,000/BEING 20% OF THE AGGREGATE OF RS.97,00,000/-, RS.22,00,00 0/AND RS. 25,00,000/- [AGGREGATING RS.1,44,00,000/-]. THEREFO RE, THE APPELLANT CONTENDS THAT THE DISALLOWANCE HAS BEEN M ADE WITHOUT ANY OPPORTUNITY BEING GIVEN TO THE APPELLANT AND HA S SOUGHT DELETION OF AN AMOUNT OF RS.23,89,000/-. 4.2 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUB MISSIONS. THE APPELLANT'S CONTENTION THAT THE DISALLOWANCE HA S BEEN MADE WITHOUT ANY OPPORTUNITY BEING GIVEN TO HIM APP EARS TO HAVE MERIT AS NOWHERE IN THE ASSESSMENT ORDER THERE IS ANY DISCUSSION AS TO HOW THE AMOUNT OF RS.28,80,000/- H AS BEEN ARRIVED. HOWEVER, ACCORDING TO THE APPELLANT, DISAL LOWANCE TO THE EXTENT OF RS. 23,89,000/- IS UNJUSTIFIED. THE DISALLOWANCE OF RS.2880,000/- AT 20% U/S 43A IS DIRECTED AGAINST TH E AGGREGATE OF THE THREE AMOUNTS MENTIONED AT PARA 4. 1, WHICH WORKS TO RS.1,44,00,000/-. IT IS, HOWEVER, SEEN THAT THE VER Y AMOUNTS OF RS.97,00,000/- AND RS.22,00,000/[AGGREGATING RS.1,19,08000/-] HAD BEEN BROUGHT TO TAX. THEREFORE , FURTHER DISALLOWANCE AT 20% OF RS.1,19,00,000/ IS UNWARRANT ED. THE DISALLOWANCE AT 20% OF RS.1,19,00,080/WORKS OUT TO ONLY TO RS.23,80,000/- AND NOT RS.23,89,000/AS MADE OUT BY THE APPELLANT. THEREFORE, DISALLOWANCE TO THE EXTENT OF RS.23,80,0 00/- IS DELETED ITA.85/BANG/2015 PAGE - 9 AND THE REMAINING DISALLOWANCE OF RS.50,000/- BEING DISALLOWANCE U/S 40A (3) AT 20% OF RS.25,00,000/- (FIGURING AMONG TH E DISALLOWANCES IN THE COMPUTATION) IS SUSTAINED. 07. THE RELEVANT PORTION OF THE ORIGINAL ASSESSME NT ORDER IS EXTRACTED AS UNDER : 35. AS DISCUSSED ABOVE, THE TOTAL OF THE EXPENDITU RE WITHOUT RECIPIENTS SIGNATURE SEIZED IS RS.82,35,279 /-. THIS IS DEFINITELY AN INDICATOR OF INFLATION OF EXP ENDITURE IN THE PROJECTS EXECUTED BY SHRI. G PRASAD REDDY AN D HIS CONCERNS. SINCE THE CASH PAYMENTS (WHICH ARE NOT A CCOUNTED IN THE REGULAR BOOKS OF ACCOUNT OF THE BUSINESS CON CERNS OF SHRI. G PRASAD REDDY) TO LANDLORDS IS ABOUT RS.7.17 CRORES, IT APPEARS THAT APART FROM UNACCOUNTED CASH COLLECT IONS OF RS.4.71 CRORES SHRI G PRASAD REDDY AND HIS CONCERNS GENERATED THE BALANCE OF RS.2.46 CRORES BY INFLATIN G THE EXPENDITURES IN THE PROJECTS EXECUTED BY THEM AS DI SCUSSED ABOVE. 36. SINCE THE UNDISCLOSED INCOME GENERATED OUT OF T HE INFLATION OF EXPENDITURES IN THE PROJECTS EXECUTED AND UNDISCLOSED INCOME FROM UNACCOUNTED CASH COLLECTION S RECEIVED FROM THE CUSTOMERS, APPEAR TO HAVE FLOWN I NTO THE UNACCOUNTED CASH PAYMENTS MADE TO THE LANDLORDS FOR THE PURCHASE OF THE LANDS BY THE BUSINESS CONCERNS OF SHRI G PRASAD REDDY. THE UNACCOUNTED CASH PAYMENTS MADE TOWARDS LAND PURCHASES IS TREATED AS UNDISCLOSED IN COME GENERATED BY SHRI G PRASAD REDDY THROUGH HIS BUSINE SS CONCERNS IN THE RESPECTIVE ASSESSMENT YEARS. THIS UNDISCLOSED INCOME IS REQUIRED TO BE ASSESSED IN TH E HANDS OF THE RESPECTIVE BUSINESS CONCERNS OF THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEARS IN WHICH UNACCOUNTED CA SH PAYMENTS WERE MADE. THEREFORE THE UNDISCLOSED INCOM E OF SHRI G PRASAD REDDY AND HIS GROUP OF CONCERNS = RS.71,768, 525. 37.THE ABOVE WAS EXAMINED VIS--VIS THE SEARCH MATE RIAL. THE ABOVE INVESTIGATION MADE DURING THE COURSE OF S EARCH BEFORE THE DDIT UNIT-1(2), BANGALORE WAS EXAMINED. THE DDI T, UNIT-II ASCERTAINED UNDISCLOSED INCOME OF RS. 7,17,68,525 BECAUSE OF CASH PAYMENT FOR PURCHASE OF LAND. 38. THE ABOVE ISSUE WAS DISCUSSED IN LENGTH WITH TH E ASSESSEE AND A TABLE WAS PREPARED BY THE ASSESSEE BASED ON THE OBSERVATION MADE DURING THE ASSESSMENT PROCEEDINGS. ITA.85/BANG/2015 PAGE - 10 39.A RECONCILIATION OF UNDISCLOSED INCOME WAS DRAWN VIS--VIS THE SEARCH MATERIAL WHICH IS AS UNDER: A. IN THE SEIZED MATERIAL INVENTORISED AS A/GPR/5 DTD 8/11/05 AT PAGE NO.191 TO 197 PAYMENT MADE TO SATYAVATI AND SOMSHEK AR AT RS. 40,00,000 WAS NOW INCLUDED. B. IN THE SEIZED MATERIAL INVENTORISED AS A/RRR-5/1 DT D 17/4/04 & 04/5/04 AT PAGE NO.1 PAYMENT MADE FOR LAND CONVERSI ON AT RS. 13,75,000 WAS NOW INCLUDED. C. IN THE SEIZED MATERIAL INVENTORISED AS A/GPR/5 DTD 8/11/05 AT PAGE NO. 87-PAYMENT MADE TO HONNAPPA K WAS ACTUALLY AT R S. 41,00,000 AND NOT 51.56 WHICH IS NOW ACTUALS. D. IN THE SEIZED MATERIAL INVENTORISED AS A/RRR-4/5 AT PAGE NO.87 DIFFERENCE IN CASH PAYMENT MADE TO SEVERAL PERSONS AT RS. 25,48,125, DID NOT EXIST WHICH WAS NOW TAKEN AT ACTUALS. ITA.85/BANG/2015 PAGE - 11 E. IN THE SEIZED MATERIAL INVENTORISED AS A/RP-2/8 DTD 17112105 DIFFERENCE IN CASH PAYMENT MADE TO KRISHNA SINGH FOR NAGAWARA PROJECT AT RS.10,00,000/- WAS ACTUALLY THE TRANSACTION DONE BY H RAVICHANDRA AND HAS BEEN TAXED IN THE HAN DS OF H RAVICHANDRA GROUP. HENCE, THE SAME HAS BEEN REDUCED. F. AN AMOUNT OF RS. 50,00,000/- WAS RECEIVED FROM H RA VICHANDRA WHICH GETS REDUCED FROM THE UNDISCLOSED INCOME AS I TS TAXED IN THE HANDS OF H RAVICHANDRA. 40. THEREFORE AFTER RECONCILIATION THE ENTIRE UNDIS CLOSED INCOME HAS BEEN WORKED IN RESPECT OF G PRASAD REDDY AND GROUP AS UN DER: 08. FROM THE ABOVE, IT IS CLEAR THAT THE CASH PAYME NTS (WHICH ARE NOT ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNT O F THE BUSINESS CONCERNS OF SHRI. G PRASAD REDDY) TO LANDLORDS IS ABOUT RS.7.17 CRORES WHILE THE UNACCOUNTED CASH COLLECTIONS WAS AT RS.4.71 CRORES ONLY. IN VIEW OF THAT, THE AO INFERRED THAT SHRI G PRASAD REDDY AND HIS CONCERNS GENERATED THE BALANCE OF RS. 2.46 CRORES BY INFLATING THE EXPENDITURES IN THE PROJECTS EXECUTED BY THEM. THUS, THE AO ARRIVED THE UNACCOUNTED CASH PAYMENTS MADE T OWARDS LAND PURCHASES AT RS.71,768,525 AND TREATED IT AS UNDISCLOSED INCOME GENERATED BY SHRI G PRASAD REDDY AND HIS GRO UP CONCERNS. THEREAFTER, AFTER DUE DISCUSSION WITH THE ASSESSEE, THE ITA.85/BANG/2015 PAGE - 12 AO RECONCILED SUCH UNDISCLOSED INCOME A Y WISE, PER SON WISE, IN THE ABOVE TABLE. IN THE ASSESSEES CASE, FOR AY 200 5-06, HE ARRIVED THE TOTAL UNDISCLOSED INCOME AS UNDER: ADDITIONAL INCOME DECLARED RS.1,55,00,000 ADD: DISALLOWANCE U/S 40 A (3) 20% ON RS.97,00,000 + RS.22,00,000 ON THE INVESTMENTS IN ROYAL COUNTY IN AY 2005-06 RS. 23,8 0,000 PAYMENT MADE FOR LAND CONVERSION VIZ SEIZED MATERIAL INVENTORISED AS A/RRR-5/1 DTD 17/4/04 & 04/5/04 AT PAGE NO.1 INCLUDED , SUPRA , VIZ ITEM (B) RS. 13 ,75,000 TOTAL UNACCOUNTED INVESTMENTS IN AY 2005-05 RS. 1, 92,55,000 09. SINCE THE ASSESSEE HAS ADMITTED UNDISCLOSED INC OME AT RS.1,55,00,000 ONLY , THE AO HAS ADDED THE DIFFEREN CE BETWEEN IT AND THE RECONCILED UNDISCLOSED INCOME (RS.1,92,00,0 00) AND ADDED THE DIFFERENCE AT RS.37,55,000 AS UNDISCLOSED INCOM E. PRIMA FACIE, IT APPEARS THAT THE INVESTMENTS ARE MORE THAN AVAIL ABLE SOURCES. THIS BEING SO, IT IS NOT CLEAR FROM THE CIT (A) ORD ER, SUPRA, WHETHER THE IMPUGNED INVESTMENTS / EXPENSES WERE ADMITTED A ND ASSESSED IN THE EARLIER YEAR AS CLAIMED BY THE ASSESSEE, HO W AND WHAT BASIS THE ASSESSEE SEEKS DEDUCTION IN AY 2005-06 ETC. FUR THER, WHEN WE EXAMINE THE ADDITION MADE BY THE AO AS INDICATED IN PARA 8,SUPRA, WITH THE OBSERVATIONS OF THE CIT(A) IN PARA 3.4 & 4 OF HIS ORDER, SUPRA, IT APPEARS THERE ARE FACTUAL ERRORS. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO SET ASIDE THE CIT( A) ORDER, AND ITA.85/BANG/2015 PAGE - 13 REMIT THESE ISSUES TO THE CIT (A) FOR A FRESH ADJUD ICATION. WHILE DOING SO, THE CIT (A) SHALL HAVE TO GIVE DUE OPPORT UNITY TO THE ASSESSEE TO PRESENT ITS CASE. 10. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DAY OF MARCH, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER BY ORDER ASSISTANT REGISTRAR
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