DCIT, Anantapur V. Sri Ranga Srinivasulu, Dharmavarm

ITSSA 1/HYD/2010

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9607 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-12-2010
• Assessment Year: misc
• Appeal Filed On: 21-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained expenditure; Income from undisclosed sources; Search and seizure; Period of limitation; Bad and doubtful debts; Time period of passing order
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN , JUDICIAL MEMBER IT(SS)A NO. 01/HYD/2010 BLOCK PERIOD : 01-04-1995 TO 07-11-2005 DY. COMMISSIONER OF INCOME- TAX, CIRCLE-1, ANANTAPUR. VS. SRI RANGA SRINIVASULU L/R OF SRI RANGA CHENNAPPA, PAN: ADZPR9152L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI P. SOMA SEKHAR REDDY ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING : 08-10-2013 DATE OF PRONOUNCEMENT : 25-10-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS IS AN APPEAL BY REVENUE DIRECTED AGAINST TH E ORDER OF THE CIT(A), TIRUPATI, DATED 13-11-2009 FOR THE BLOCK PE RIOD 01-04-1995 TO 07-11-2005. 2. REVENUE HAS RAISED 7 GROUNDS, OUT OF WHICH GROUN D NOS. 6 & 7 ARE GENERAL IN NATURE. THE LEARNED DR PLACED ON REC ORD COPIES OF ASSESSMENT ORDER, ORDER OF CIT(A), TIRUPATI DATED 1 5-07-2005 AND ORDER OF ITAT DATED 21-08-2006 RUNNING INTO 45 PAGE S ON RECORD. 2 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU 3. ASSESSEE FILED PAPER BOOK CONTAINING VARIOUS DOC UMENTS FROM PAGES 1 TO 270 AND CERTAIN CLARIFICATIONS ASKED WER E ALSO FILED BY WAY OF WRITTEN SUBMISSIONS ALONG WITH STATEMENTS ON THE BASIS OF WHICH UNACCOUNTED INCOME WAS ARRIVED AT IN THE COURSE OF ASSESSMENT PROCEEDINGS, RUNNING INTO PAGES 1 TO 40. 4. WE HAVE HEARD THE LEARNED CIT-DR AND LEARNED COU NSEL IN DETAIL AND PERUSED THE MATERIAL ON RECORD. 5. BRIEFLY STATED, SEARCH AND SEIZURE OPERATIONS HA VE BEEN CONDUCTED U/S 132 OF THE ACT IN THE RESIDENTIAL PRE MISES OF SRI RANGA CHENNAPPA AT DOOR NO. 7-119, MADHAV NAGAR, DHARMAVA RAM ON 07- 11-2001. ACCORDINGLY, NOTICES U/S 158BC OF THE IT A CT, 1961 WERE ISSUED TO ASSESSEE ON 18-04-2002, IN RESPONSE TO WH ICH, ASSESSEE FILED RETURN OF INCOME ON 10-06-2002 DECLARING UNDI SCLOSED INCOME OF RS. 11,47,100/-. IN THE SAID RETURN, ASSESSEE HAD S HOWN GROSS TOTAL INCOME AT RS.2,47,21,185/- AND CLAIMED DEDUCTION AMOUNTING TO RS.2,35,74,090/- THEREBY RESULTING IN A NET INCOME OF RS.11 ,47,100/-. THIS NET INCOME HAD BEEN BROKEN UP INTO ASSESSMENT YEARS 1996-97 TO 2001-02 AND ALSO THE BROKEN PERIOD ENDING ON 7.1 1.2001. THE AO HAD TAKEN UP ENQUIRIES WITH THE CREDITORS, VERIFICA TION OF SEIZED MATERIAL AND CALLED FOR EXPLANATIONS FROM THE ASSES SEE DURING THE COURSE OF ASSESSMENT. AFTER FINALIZING ALL HIS ENQU IRIES, THE AO HAS MADE ADDITIONS TO AN EXTENT OF RS.1,76,32,050/- UND ER VARIOUS HEADS AS GIVEN BELOW: S.NO. HEAD ADDITION (RS.) 1 AMOUNTS CLAIMED AS DUE TO THE SO CALLED BUSINESS ASSOCIATES 1,31,21,950/- 2 PRONOTES AVAILABLE BUT CLAIMED AS NOT ADVANCED 11,93,000/- 3 TIME BARRED PRONOTES 6,70,000/- 4 TIME BARRED CHEQUES 13,21,500/- 5 AMOUNTS STATED TO BE NOT RELATED TO THE ASSESSEE 1,94,000/- 6 DEFICIT CASH ON THE DAY OF SEARCH 5,69,600/- 7 BAD DEBTS 5,62,000/- 3 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU 6. ASSESSEE PREFERRED AN APPEAL TO THE CIT(A), WHO VIDE ORDER DATED 15-07-2005 MORE OR LESS CONFIRMED THE DISALLO WANCES MADE BY THE AO EXCEPT DEFICIT CASH FOUND WAS GIVEN AS RELIE F. AGAINST THE SAID ORDER OF THE CIT(A), ASSESSEE AND REVENUE PREFERRED CROSS APPEALS BEFORE THE ITAT. SINCE SRI RANGA CHENNAPPA, ASSESSE E DIED ON 07- 08-2004 I.E. BEFORE THE DATE OF ORDER OF CIT(A), TH E ITAT FELT THAT LEGAL HEIRS HAVE TO BE BROUGHT ON RECORD AND ACCORDINGLY VIDE ITS ORDER DATED 21-08-2006, THE ORDER OF CIT(A) DATED 15-07- 2005 WAS SET ASIDE WITH A DIRECTION THAT THE APPEALS WOULD BE RE -HEARD AS PER LAW AFTER BRINGING LRS ON RECORD. ACCORDINGLY, THE LEAR NED CIT(A) HAS TAKEN SHRI RANGA SRINIVASULU AS LEGAL REPRESENTATIV E OF LATE SRI RANGA CHENNAPPA AND CONSIDERED THE APPEAL ON ITS ME RITS AGAIN. THE LEARNED CIT(A) DELETED ALL THE ADDITIONS EXCEPT CONFIRMING A PART OF BAD DEBT CLAIM ON WHICH ASSESSEE IS NOT IN APPEA L. HOWEVER, REVENUE HAS PREFERRED THE PRESENT APPEAL. 7. BEFORE CONSIDERING THE GROUNDS, THE LEARNED DR I N HIS ARGUMENTS STATED THAT WHEN THE ITAT SET ASIDE THE O RDER THERE IS NO MANDATE TO THE CIT(A) TO REHEAR THE APPEAL AND DECI DE THE ISSUES WHEN HIS PREDECESSOR HAS CONFIRMED THE ADDITIONS MA DE BY THE AO. IT WAS HIS CONTENTION THAT THE CIT(A) WAS DIRECTED ONL Y TO BRING THE LEGAL HEIRS ON RECORD WHEREAS THE PRESENT CIT(A) HEARD TH E APPEAL ON MERITS AND DECIDED CONTRARY WHAT HIS PREDECESSOR HA S DECIDED. HE, THEREFORE, RAISED A PRELIMINARY OBJECTION ON THIS I SSUE. 8. THE LEARNED COUNSEL HOWEVER SUBMITTED THAT ITAT HAS SET ASIDE THE ORDER, WHICH WAS AB INITIO VOID AS THEY ARE PAS SED ON DEAD PERSON AND, THEREFORE, PRESENT CIT(A) IS CORRECT IN DECIDING THE APPEALS AFTER PROPER EXAMINATION OF MATERIAL. HE SU PPORTED THE ORDER OF LEARNED CIT(A). 9. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE PO SITION. IT IS TRUE THAT EARLIER ORDER OF THE CIT(A) WAS SET ASIDE AND SINCE THE ORDER WAS PASSED ON A DECEASED PERSON, IN THE EYE OF LAW THE ORDER OF THE CIT(A) DOES NOT HAVE LEGS TO STAND. ACCORDINGLY, T HE ITAT SET ASIDE 4 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU SUCH ORDER OF THE CIT(A) AND RESTORED TO HIS FILE WITH A DIRECTION TO REHEAR THE APPEALS. THEREFORE, WE DO NOT SEE ANY ME RIT IN THE CONTENTION RAISED BY THE LEARNED CIT-DR, SINCE THE ISSUES WERE EXAMINED AFTER GIVING DUE OPPORTUNITY TO THE AO IN THE FORM OF REMAND REPORT AND THE ENTIRE MATERIAL WAS CONSIDERE D BY THE LEARNED CIT(A). HENCE, WE DO NOT FIND ANY REASON TO ACCEPT THE CONTENTION OF THE CIT-DR. ACCORDINGLY, PRELIMINARY OBJECTION RAIS ED BY THE LEARNED CIT-DR IS, THEREFORE, REJECTED. 10. THE GROUNDS ARE CONSIDERED ISSUE-WISE AND DECI DED AS UNDER: 11. GROUND NO. 1 PERTAINS TO CLAIM OF AMOUNTS DUE T O BUSINESS ASSOCIATES. AS BRIEFLY STATED ABOVE, ASSESSEE HAS A RRIVED AT HIS GROSS ASSETS ON THE DATE OF SEARCH BY INCLUDING VAR IOUS ASSETS IN THE FORM OF FDRS, POSTAL RD, BANK DEPOSITS, PRONOTES, C HEQUES, MOVABLE AND IMMOVABLE PROPERTIES OF NOT ONLY IN HIS NAME BU T ALSO IN THE NAME OF HIS FAMILY MEMBERS TOTALING TO RS. 2,47,21, 185/-. OUT OF THIS, BASED ON THE SEIZED MATERIAL ALONE, HE HAS CLAIMED DEDUCTION TOWARDS BUSINESS ASSOCIATES AT RS. 1,31,21,950/- ON THE REASON THAT THE PRINCIPLE AMOUNT OF RS. 99,58,900/- WAS PAYABLE TO 93 PERSONS FROM WHOM ASSESSEE HAS TAKEN FUNDS FOR CIRCULATION IN THE MONEY LENDING ACTIVITY. AS PER THE UNDERSTANDING 50% OF T HE INTEREST EARNED WAS TO BE GIVEN TO THEM AND ACCORDINGLY HE ARRIVED AT INTEREST PORTION AT RS. 31,63,050/- AND CLAIMED THE ENTIRE AMOUNT OF THE PRINCIPLE PLUS INTEREST AT RS. 1,31,21,950/- AS DEDUCTION FROM THE GROSS ASSETS ARRIVED AT BY HIM. THE LEARNED AO HOWEVER DID NOT A GREE AS IN HIS ENQUIRIES HE FOUND THAT MANY OF THEM HAVE NOT CONFI RMED AND THERE ARE VARIATION IN SIGNATURES AND OTHER REASONS TO ST ATE THAT THESE AMOUNTS CANNOT BE ALLOWED AS DEDUCTION. THE LEARNED CIT(A) ON THE BASIS OF THE SUBMISSIONS MADE BY ASSESSEE REMANDED THE MATTER TO THE AO AND MADE VARIOUS ENQUIRIES BEING CONDUCTED A ND EXAMINED THE SO CALLED DISCREPANCIES IN THE SIGNATURES AND D ISCUSSED THE ISSUE ELABORATELY IN HIS ORDER AT PARAS 5, 5.01 TO 5.20. AFTER DULY 5 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU CONSIDERING THE SUBMISSIONS, THE CIT(A) DELETED THE AMOUNT BY STATING AS UNDER AT PARAS 5.20 AND 5.21 AS UNDER: 5.20 THE RIVAL SUBMISSIONS HAVE BEEN GONE THROUGH. THE ONE IMPRESSION THAT COMES TO SURFACE IS THAT THE AO HAS DISALLOWED THESE AMOUNTS IN THE ASSESSMENT BASED ON SURMISES, SUSPICION AND GENERALIZING NON-SERVICE OF LETTERS IN FEW CASES TO ALL OTHER BUSINESS ASSOCIATES. THE NON- SERVICE OF LETTERS HAVE BEEN THOROUGHLY EXPLAINED B Y THE APPELLANT AS TO WHY SUCH LETTERS WOULD NOT BE SERVI CED AND ALSO HAS_ TAKEN EFFORTS TO ENSURE TTMT SUCH INDIVID UALS HAD SENT THEIR CONFIRMATIONS. IT MIGHT BE A FACT THAT S OME OF SUCH LETTERS WERE UNIFORMLY WRITTEN AND SENT THROUG H A COMMON COURIER BUT THIS CANNOT VITIATE THE CONFIRMA TION PER SE, UNLESS ANY OTHER COGENT CONTRADICTORY MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO. THE DISCREPANCIES IN SIGNATURES AS FURNISHED IN PAGE-23 TO 25 OF FURTHER SUBMISSIONS FILED BY THE AR HAVE BEEN PERUSED. EXCE PT THAT THE INDIVIDUALS HAVE SIGNED SOME TIMES IN TELU GU, SOME TIMES WITH ABBREVIATIONS FOR SURNAMES, SOME TI MES IN ENGLISH, THERE WERE NO MAJOR DIFFERENCES BETWEEN TH E SIGNATURES ON CONFIRMATION LETTERS AND SIGNATURES O BTAINED DURING THE ENQUIRIES BY THE AO. THIS CANNOT BE A BA SIS FOR DISALLOWANCE BUT AT THE BEST IT IS A FACTOR FOR ARI SING SUSPICION AND SUSPICION CANNOT LEAD TO DISALLOWANCE UNLESS IT IS CORROBORATED WITH MATERIAL EVIDENCE. 5.21 THE AR HAS ALSO STRONGLY RELIED UPON THE FACTO R THAT MANY OF THE BUSINESS ASSOCIATES WERE NOT WILLING TO EXPOSE THEIR FINANCIAL TRANSACTIONS TO PUBLIC EYE A S THIS IS TRUE OF ANY INDIVIDUAL MORE SO IN A VILLAGE, THIS F ACTOR NEEDS TO BE CONSIDERED SPECIALLY IN THE LIGHT OF TH E FACT THAT SUCH STATEMENTS HAVE BEEN RECORDED BY THE AO A ND HIS INSPECTORS IN THE VILLAGE WITHOUT THE PRESENCE OF THE ASSESSEE OR HIS AUTHORIZED REPRESENTATIVE TO CROSS EXAMINE THE STATEMENTS. SUCH INDIVIDUALS WHO HAVE D ENIED THE INVESTMENT WITH THE ASSESSEE BEFORE THE AO HAVE BEEN SUBJECTED TO CROSS EXAMINATION ON REQUEST BY THE APPELLANT'S AR AND IN ALL 27 OUT OF 31 OF THEM HAD CONFIRMED DURING THE CROSS EXAMINATION AND NOTHING HAS BEEN DONE BY THE AO IN THIS REGARD. CONSEQUENTLY, T HE FINDING DURING THE CROSS EXAMINATION WITHSTANDS TO THE BENEFIT OF THE ASSESSEE AS PER THE PRINCIPLES OF RU LE OF EVIDENCE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO ON THIS COUNT IS BASED ON SUSPICION AND SURMISES WH ICH HAVE NOT BEEN PUT TO PROPER PROCESS OF ENQUIRY FOR GATHERING MATERIAL EVIDENCE IN SUPPORT THEREOF. THE REMAND REPORT ALSO COULD NOT CURE THIS DEFECT AS TH E ENQUIRIES CONDUCTED WITH THE BUSINESS ASSOCIATES HA VE NOT BROUGHT OUT ANY MATERIAL EVIDENCE AGAINST THE ASSES SEE. 6 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU HENCE, IT CANNOT BE STATED THAT THE SUSPICIOUS FEAT URES CANNOT BECOME THE WEIGHTY EVIDENCE IN FAVOUR OF THE REVENUE. THUS, THE ADDITION MADE ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 12. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 13. AFTER CONSIDERING RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE DETAILED ORDER OF THE LEARNED CIT(A). FIRST OF ALL, ASSESSEE HAS COMPUTED HIS GROSS ASSETS AND CLAIMED DEDUCTION OF VARIOUS AMOUNTS BORROWED FROM OTHERS SO AS TO ARRIV E AT THE UNACCOUNTED AMOUNT AND THE DETAILS OF WHICH WERE PL ACED BEFORE THE AO. WORKING OF AMOUNTS DUE TO BUSINESS ASSOCIATES W AS ALSO BASED ON THE SEIZED NOTE BOOK MARKED AS AC-79. IN FACT, ASSESSEE HAS MAINTAINED FOUR TYPES OF NOTE BOOKS/DIARIES SEIZED BY THE DEPARTMENT AS AC-2, AC-3, AC-18 AND AC-79. THE NATURE OF TRANS ACTIONS RECORDED IN EACH OF THE BOOK/DIARY WAS AS UNDER: BOOK REFERENCE NATURE OF TRANSACTIONS RECORDED AC-2 ALL TRANSACTIONS RELATING TO MONTHLY LOANS. TBD LOANS AND MONTHLY SAVING SCHEME (MSS) ACCOUNTS. AC-3 ALL TRANSACTIONS RELATING TO LOANS ADVANCED ON CHEQUES AC-18 ALL TRANSACTIONS RELATING TO LOANS GRANTED ON MONTHLY, QUARTERLY INTEREST BASIS AC-79 ALL TRANSACTIONS RELATING TO BUSINESS ASSOCIATES & THEIR TRANSACTIONS 14. IT IS SUBMITTED THAT ENTIRE BUSINESS TRANSACTIO NS ARE COVERED IN THE ABOVE FOUR BOOKS AND THE INCOMES & LOANS ARE EN TERED IN THE FIRST THREE BOOKS AND THE AMOUNTS RELATING TO BUSINESS AS SOCIATES ARE ENTERED IN THE 4 TH BOOK. IT IS ALSO SUBMITTED THAT ALL THE 4 BOOKS AR E DIFFERENT AND IF A TRANSACTION IS ENTERED IN ONE BO OK IT WILL NOT BE REPEATED IN ANY OTHER BOOK. THEREFORE, ASSESSEES C LAIM IS BASED ON THE SAID BOOKS SEIZED IN THE COURSE OF SEARCH AND A LSO SINCE THE INCOMES ARE ARRIVED AT ON THE BASIS OF THE GROSS AS SETS MINUS LIABILITIES THEREON FOUND DURING THE COURSE OF SEAR CH, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE AMOUNTS ARRIVED AT BY ASSESSEE, 7 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU WHICH IS BASED ON THE SEIZED MATERIAL ITSELF. ACCOR DINGLY, THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE IS CONFIRMED AND T HE GROUND RAISED BY THE REVENUE IS REJECTED. 15. GROUND NO. 2 IS PERTAINING TO THE PRONOTES FOUN D BUT AMOUNTS NOT ADVANCED OF RS. 11,93,000/-. 16. DURING THE COURSE OF SEARCH, ASSESSEE WAS FOUND WITH LOT OF PRONOTES IN VARIOUS STAGES. WHILE FILING THE RETURN OF INCOME, ASSESSEE HAD CLAIMED THAT RS. 11,93,000/- WORTH PRO NOTES EXECUTED BY VARIOUS LOANEES BUT NO AMOUNTS WERE ADVANCED AGA INST THEM. THESE PRONOTES WERE RUNNING INTO 11 IN NUMBER AS GI VEN BELOW: PRONOTE NO. NAME OF THE PARTY AMOUNT (RS.) 151 G.HARICHANDRA PRASAD 75000 152 G. HARICHANDRA PRASAD 50000 176 AJAY ANKAM 150000 177 J RANGANAYAKULU 8000 178 AS RAYUDU 10000 179 G. HARICHANDRA PRASAD 75000 225 A SAIKRISHNA 400000 226 C SRINIVASULU 100000 227 C SRINIVASULU 100000 228 K NAGARAJU 100000 229 K NAGARAJU 125000 TOTAL 1193000 17. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED THA T ASSESSEE FILED CONFIRMATION LETTERS FROM ALL 7 PERSONS STATING THA T THEY WERE ACTUALLY STANDING GUARANTORS TO SOME OTHERS AND HENCE AS A P RACTICE HAVE ALSO EXECUTED THE PRONOTES AS A PRECAUTION INSISTED UPON BY THE ASSESSEE AND THEY HAD ALSO CONFIRMED THAT THEY DID NOT ACTUALLY BORROW THE AMOUNTS. IT WAS CONTENDED THAT THE AO HA D DISMISSED ALL SUCH LETTERS AS SELF SERVING AND THE AMOUNT HAD BEE N ADDED BACK. IT WAS POINTED OUT THAT AS ASSESSEE HAD AGITATED BEFOR E THE THEN CIT(A) THAT THE AO HAD WITHOUT APPLYING HIS MIND TO THE FA CTS OR CONDUCTING ANY ENQUIRIES WITH REFERENCE TO THE STATEMENTS MADE BY THE CONCERNED PERSONS MERELY DISMISSED THE EVIDENCE AS SELF SERVING AND HENCE THE MATTER HAD BEEN REMANDED TO THE AO FO R CONDUCTING 8 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU NECESSARY ENQUIRIES AND THE AO HAD SUBMITTED HIS RE MAND REPORT DT. 22-02-2005 AND ASSESSEE FILED HIS REJOINDER. THE AR IN WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) STATED THAT NO AMOUNTS HAD BEEN DEBITED IN THE BOOKS TOWARDS SUCH PRONOTES. HE HAD STATED THAT WHEN ASSESSEE HAD BEEN DEBITING ALL OTHER AMOUNTS OF LOA NS, THESE AMOUNTS WERE NOT DEBITED FOR NO CASH WAS GIVEN TO T HEM. HE HAD ALSO ARGUED THAT THE AO HAD SUMMARILY REJECTED THE CONFI RMATION LETTERS FILED BY SAID PARTIES. 18. THE LEARNED CIT(A) HAD DELETED THE SAID ADDITIO N BY STATING AS UNDER: 6.3 THE RIVAL SUBMISSIONS ARE CONSIDERED. AS THE ASSESSEE WAS FOUND TO BE RECORDING UNACCOUNTED ALL HIS TRANSACTIONS IN HIS BOOK/REGISTERS, THE ARGUMENT OF THE AR HOLDS LOT OF WATER AND HENCE, DESERVES TO BE CONSID ERED. THE AO ALSO DID NOT CONSIDER THE CONFIRMATIONS ISSU ED BY SUCH PERSONS FOR FURTHER PROBE BUT MERELY DISMISSED THEM AS SELF SERVING. HENCE, THE SUBMISSIONS PLACED BY THE ASSESSEE DESERVED TO BE CONSIDERED AND THE ADDITION DO NOT DESERVE TO EXIST. THE AO IS DIRECTED TO DELETE THE ADDITION. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE CON FIRM THE ORDER OF THE LEARNED CIT(A) SINCE ASSESSEE IS MAINTAINING PR ONOTES IN SL. NO. AND INVESTIGATION UNIT FOUND THAT MOST OF THE PRONO TES DULY ACCOUNTED FOR IN THE NOTE BOOKS SEIZED. SINCE NO AMOUNTS WERE ADVANCED AGAINST 11 PRONOTES MENTIONED AS ABOVE, BUT, THE SA ME ARE TAKEN IN THE TOTAL GROSS ASSETS, THE CLAIM OF ASSESSEE FOR E XCLUSION IS PROPER. ACCORDINGLY, REVENUE GROUND IS DISMISSED. 20. GROUND NO. 3 IS PERTAINING TO DISALLOWANCE OF R S. 6,70,000/- TOWARDS TIME BARRED PRONOTES. 21. OUT OF THE PRONOTES SEIZED DURING THE ACTION U/ S 132, WHILE FILING THE RETURN OF INCOME, ASSESSEE HAD CLAIMED T HAT SOME OF THE PRONOTES HAD BECOME BARRED BY TIME AND HENCE THE AM OUNTS REPRESENTED IN THEM COULD NOT BE RECOVERED AND THUS CLAIMED DEDUCTION AMOUNTING TO RS. 6,70,000/-. THE AO HAD D ISMISSED THE CLAIM STATING THAT ASSESSEE HAD NOT FURNISHED ANY E VIDENCE IN RESPECT 9 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU OF SOURCE OF THE PRONOTES AND THE DETAILS OF SUCH P RONOTES ARE GIVEN BELOW: PRONOTE NO. NAME OF THE PARTY AMOUNT (RS.) 164 P SOMASEKHAR RAO 20000 166 S VENKATARAMAIAH 50000 167 S VENKATARAMAIAH 50000 212 P SOMASEKHAR RAO 100000 212 P SOMASEKHAR RAO 100000 231 K SESHAPPA 100000 234 P SOMASEKHAR RAO 150000 ---------- -- 278 AN.SILKS 100000 -- TOTAL 670000 22. BEFORE THE CIT(A), IT WAS SUBMITTED THAT AMOU NTS IN THE ABOVE 8 PRONOTES WERE TAKEN FOR ARRIVING AT THE GRO SS RECEIPTS IN RESPECT OF ASSESSEE AND HIS FAMILY MEMBERS AND FURT HER SUBMITTED THAT EACH PRONOTE HAD BEEN PROPERLY NUMBERED BY ASS ESSEE TO KEEP TRACK OF THEM. IT WAS FURTHER STATED THAT ALL THIS INFORMATION WAS FILED AS ENCLOSURE TO THE RETURN OF INCOME FILED U/S 158B C OF THE I.T. ACT, 1961. IT WAS ALSO DEMONSTRATED WITH REFERENCE TO N UMBER OF SAID PRONOTES AS TO THE INDIVIDUAL IN WHOSE GROSS RECEIP TS SUCH PRONOTES HAD BEEN ACCOUNTED FOR. IT WAS SUBMITTED THAT THE P RONOTES HAD BECOME LEGALLY UNENFORCEABLE DURING THE BLOCK PERIO D AS THE LIMITATION PERIOD COULD NOT BE GOT EXTENDED BY THE REQUIRED ENDORSEMENT AND HENCE THE AMOUNT DESERVES TO BE ALL OWED AS DEDUCTION. 23. AFTER CONSIDERING THE SUBMISSIONS, THE LEARNED CIT(A) DELETED THE ADDITION MADE BY THE AO OBSERVING AS UNDER: 7.4 THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY ANAL YSED. IT IS NOT CORRECT FOR THE AO TO DISMISS THE DEDUCTI ON ON THE GROUND THAT SUCH INCOMES WERE NOT INCLUDED IN THE G ROSS RECEIPTS WHEN THE SAME WERE VERY MUCH AVAILABLE IN THE ENCLOSURES ATTACHED TO THE RETURN OF INCOME FROM WH ICH THE APPELLANT'S AR HAS DEMONSTRATED THAT THE SAID P RO NOTES WERE INCLUDED IN THE GROSS RECEIPTS. THE ASSE SSEE IS ENGAGED IN MONEY LENDING BUSINESS AND LOSS OF MONEY INVESTED IS AN ALLOWABLE EXPENDITURE, IN THIS CASE LOSS 10 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU ARISING DUE TO TIME LIMITATION OF PRONOTES. THE NON -SERVICE OF LETTERS FOR CONFIRMING SUCH PRONOTES WOULD NOT B E AN EVIDENCE IN FAVOUR OF THE REVENUE BUT IT GOES IN FA VOUR OF THE ASSESSEE HIMSELF AND THE NON-TRACEABILITY OF LE NDEES WOULD FUR1HER STRENGTHEN THE FACT THAT TTLE TIME LI MITATION COULD NOT BE EXTENDED BY THE ASSESSEE. SINCE THE MO NIES INVOLVED IN THE PRONOTES WERE REFLECTED IN THE GROS S RECEIPTS AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO THAT MONIES WERE OTHERWISE RECEIVED BY THE ASSES SEE, THE ASSESSEE WOULD BE ENTITLED FOR THE CLAIMED DEDU CTION FOR AN EXTENT OF RS.6,70,000/-. 24. HEREIN ALSO, AFTER CONSIDERING RIVAL CONTENTION S, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARN ED CIT(A) AS THE NON-RECOVERY OF THE AMOUNTS AGAINST THE TIME BARRED PRONOTES IS A VALID CLAIM AS BAD DEBT WHEN THE ENTIRE AMOUNT ADVA NCED IS CONSIDERED IN GROSS ASSETS IN THE COMPUTATION OF IN COME MADE BY ASSESSEE ON THE BASIS OF NOTE BOOKS AND THERE IS NO SUCH ALLEGATION THAT ASSESSEE HAS COLLECTED THE AMOUNTS OUTSIDE THE BOOKS OF ACCOUNT, SINCE ALL THE TRANSACTIONS ARE FOUND ENTER ED IN THE BOOKS OF ACCOUNT. NON-RECOVERY OF THE AMOUNTS ON THESE PRONO TES HAS RESULTED IN LOSS TO ASSESSEE, THEREFORE, THE CLAIM MADE BY A SSESSEE AS DEDUCTION IS TO BE UPHELD. ACCORDINGLY, THE ORDER O F THE LEARNED CIT(A) IS CONFIRMED AND THE GROUND RAISED BY REVENU E ON THIS ISSUE IS DISMISSED. 25. GROUND NO. 4 IS PERTAINING TO DISALLOWANCE ON T IME BARRED CHEQUES OF RS. 13,21,500/-. 26. ASSESSEE IN HIS RETURN OF INCOME HAD CLAIMED TH AT RS. 13,21,500/- WORTH CHEQUES HAD BEEN BARRED BY TIME F OR PRESENTATION TO THE BANKS AND HENCE CLAIMED THE SAME AS DEDUCTIO N FROM HIS GROSS RECEIPTS. IN SUPPORT OF THIS, HE HAD FILED LIST OF SUCH CHEQUES AS AN ENCLOSURE TO THE RETURN, RUNNING INTO 105 CHEQUES. THE AO HAD DISMISSED THE CLAIM BY SIMPLY STATING THAT THE AMOU NT INVOLVED IN THE CHEQUES HAD NOT BEEN INCLUDED IN THE GROSS RECEIPTS . ASSESSEE CONTENDED THAT SUCH A DISMISSAL IS NOT CORRECT FROM THE FACTS AVAILABLE IN THE RETURN, THE THEN CIT(A) HAD REFERRED THE MAT TER TO THE AO FOR HIS 11 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU REMAND REPORT. THE AO HAD MENTIONED THAT THERE WERE TOTAL 297 CHEQUES DISCOUNTED BY THE ASSESSEE DURING THE BLOCK PERIOD OUT OF WHICH 105 WERE CLAIMED TO BE NOT ENCASHED DUE TO LI MITATION. HE HAD ALSO STATED THAT BASED ON THE INFORMATION COLLECTED , ASSESSEE MUST BE DISCOUNTING CHEQUES BUT HE HAD NOT DISCLOSED ANY UNDISCLOSED INCOME BY WAY OF DISCOUNTING CHEQUES. IT WAS ALSO N OT CLEAR AT WHAT RATE THE CHEQUE HAD BEEN DISCOUNTED FOR. HE HAD ALS O MENTIONED THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF ADVAN CES MADE TO EACH BORROWAL IN EACH CASE. IT WAS NOTICED BY HIM THAT M OST OF THE 105 CHEQUES LIMITED BY TIME WERE ISSUED BY 4 CONCERNS A S LISTED BELOW (I) M/S JAYARAM TRADERS, DHA RMAVARAM (II) M/S JAYARAM TEXTILES, D HARMAVARAM (III) M/S NEMI SILKS, DHARMA VARAM (IV) M/S LAKSHMI SARASWATI S AREES, DHARMAVARAM 27. BEFORE THE LEARNED CIT(A), IT WAS CONTENDED THA T THE AMOUNTS INVOLVED IN THE CHEQUES HAD BEEN TAKEN UNDER CONSID ERATION BY ARRIVING AT THE GROSS RECEIPTS AND THEREAFTER THE C HEQUES, WHICH WERE BARRED BY LIMITATION HAD BEEN DEDUCTED. IT WAS ALSO CONTENDED BEFORE THE LEARNED CIT(A) ABOUT VARIOUS FINDINGS OF THE AO , WHICH WERE EXTRACTED IN PARA 8.3 & 8.4 OF THE CIT(A)S ORDER. AFTER CONSIDERING THE FACTUAL POSITION, THE LEARNED CIT(A) DELETED TH E SAME BY HOLDING AS UNDER: 8.5 THE RIVAL SUBMISSIONS HAVE BEEN CONSIDERED IN DETAIL. THE FACT THAT THE SAID FOUR CONCERNS HAVE GONE OUT OF BUSINESS IS UNDISPUTED. THE MISTAKE COMMITTED BY TH E AO IN THE ABOVE SAID FOUR CHEQUE NUMBERS IS ALSO CORRE CT. THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FOR TA KING THE TOTAL AMOUNT IN THE CHEQUE AS INVESTMENT INTO G ROSS RECEIPTS AND THEREAFTER CLAIMING THE DEDUCTION FOR ALLEGED TIME LIMITED CHEQUES IS ALSO HELD TO BE CORRECT AS THIS WOULD NEUTRALIZE THE SAID DISCOUNTING COMMISSION ON BOTH THE SIDES. THE REASONS ENLISTED BY THE AO FOR 1 TO 5 ABOVE DO NOT HOLD ANY WATER AS THESE FEATURES NEED NOT BE PRESENT IN A CHEQUE DISCOUNTING TRANSACTION. THE PE RSON WHO HAS RECEIVED A CHEQUE WILL APPROACH A FINANCIER WITH THE KNOWLEDGE OF THE PERSON ISSUING THE CHEQUE FOR DISCOUNTING THE SAID CHEQUE. THE CHEQUE OR INSTRUME NT IS 12 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU MERELY AN INSTRUMENT OF SECURITY BASED UPON THE MAR KET REPUTATION OF THE ISSUER AND BY KEEPING THAT AS SEC URITY THE FINANCIER PAYS MONEY TO THE PERSON IN WHOSE FAVOUR THE CHEQUE WAS ISSUED. GENERALLY,'THESE CHEQUES ARE POS T DATED, HENCE THEY COME FOR IMMEDIATE DISCOUNTING AT A IESSER VALUE TO MEET THEIR NEEDS. HENCE, ONLY THE N AME OF THE FIRM OR PERSON ISSUING THE CHEQUE WOULD BE PRES ENT AND NO ENDORSEMENT ALSO WOULD BE DONE. IT IS INCORRECT FOR THE AO TO STATE THAT THE MONIES MUST HAVE BEEN RECEIVED OTHERWISE BUT THE CHEQUES WERE NOT COLLECTED BY THE FIRMS, WITHOUT HAVING ANY CORROBORATIVE EVIDENCE NOR COLLE CTED DURING THE COURSE OF SEARCH OPERATIONS. A MERE THEO RETICAL SURMISE WOULD NOT BE ENOUGH AND ADEQUATE FOR CATEGO RIZING AMOUNTS AS INCOMES. THE APPRECIATION OF MARKET PRAC TICES IS ALSO RELEVANT FOR UNDERSTANDING WHAT CONSTITUTES A NORMAL COMMERCIAL TRANSACTION AS THE SAME CANNOT BE DICTATED BY WHIMS AND FANCIES OF THE AO. THE FACT T HAT THE FOUR CONCERNS HAVE GONE INTO LIQUIDATION SHOULD HAV E BEEN THE DECIDING FACTOR BEFORE THE REMAND OFFICER BUT T HE SAME HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE AO. FO R ALL THE REASONS MENTIONED BY THE AR, THE AO IS DIRECTED TO ALLOW THE DEDUCTION CLAIMED ON THIS COUNT. 28. HEREIN ALSO, AFTER CONSIDERING THE RIVAL SUBMIS SIONS, WE DO NOT FIND ANY REASON TO DEFER FROM THE FINDING OF THE LE ARNED CIT(A). THE ISSUE IS SIMILAR TO THE EARLIER TWO CLAIMS OF PRONO TES FOUND BUT NOT ADVANCED AND TIME BARRED PRONOTES. IN THE CASE OF T IME BARRED CHEQUES ALSO THE CLAIM IS ALLOWABLE AS THE AMOUNTS INVOLVED IN THE CHEQUES HAVE BEEN TAKEN INTO CONSIDERATION AND ARRI VED AT THE GROSS ASSETS. NON-RECOVERY OF THE AMOUNTS WILL CERTAINLY MAKE A REDUCTION IN THE ASSETS AVAILABILITY AND THERE IS NO ALLEGATI ON THAT THE AMOUNTS BORROWED TO THESE CHEQUES HAVE BEEN ENCASHED, SINCE THE BOOKS OF ACCOUNT ALSO CORROBORATE THE WORKING OF THE ASSESSE E HENCE, THE CLAIM OF ASSESSEE IS TO BE ALLOWED. ACCORDINGLY, TH E ORDER OF THE LEARNED CIT(A) IS CONFIRMED AND THE GROUND RAISED B Y REVENUE IS DISMISSED. 29. GROUND NO. 5 IS PERTAINING TO DISALLOWANCE OF D EFICIT CASH BALANCE OF RS. 5,69,600/-. 30. ALONG WITH THE RETURN, ASSESSEE HAD CLAIMED THA T ON THE DATE OF SEARCH THERE WAS ACTUAL CASH ON HAND WAS LESS BY RS .5,39,240 AS AGAINST THE CASH BALANCE AS PER THE BOOKS AT RS.5,6 9,600/-. THE 13 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU SEARCH TEAM HAD ALSO NOTICED THAT THE PHYSICALLY CA SH AVAILABLE WAS ACTUALLY RS.30,360/- AS MENTIONED IN THE PANCHANAMA . ASSESSEES CLAIM BEFORE THE AO THAT THE CASH THAT WAS NOT AVAI LABLE OF RS.5,39,240/- SHOULD BE TAKEN AS CASH THAT COULD HA VE BEEN USED IN HIS UNACCOUNTED MONEY LENDING BUSINESS HAD BEEN REJ ECTED STATING THAT CASH COULD HAVE BEEN UTILIZED IN ANY NUMBER OF WAYS AND THAT ASSESSEE HAD NOT PRODUCED ANY EVIDENCE TO THIS EFFE CT AND ADDED THE AMOUNT OF RS.5,69,600/- AS DEFICIT CASH. 31. ON APPEAL, BEFORE THE CIT(A) THE AR OF ASSESSEE HAD SUBMITTED THAT THE SEARCH TEAM HAD FOUND THE FOLLOW ING ACCOUNT BOOKS AND THE CASH BALANCE THEREIN AS ON THE DATE O F SEARCH: S.NO. NAME OF THE CONCERN SEIZED MATERIAL REFERENCE CASH BALANCE AS PER BOOKS FOUND (RS.) 1 SRI PARVATHI FINANCIERS AC-23 PAQE-81 29,345 2 SRI SRINIVASA AC - 26 1,36,100 3 SRI USHASREE AC - 21 PAGE - 28 1,10,375 4 SRI LALITHA AC - 22 PAGE - 22 2,93,780 5,69,600 32. IT WAS THE CONTENTION THAT AS PER THE BOOKS THE RE SHOULD BE CASH BALANCE OF RS. 5,69,600/-, AGAINST WHICH, ONLY AN AMOUNT OF RS. 30,360/- WAS FOUND AND, THEREFORE, THE DEFICIT OF C ASH COULD HAVE GONE INTO THE ASSETS FOUND IN THE COURSE OF SEARCH. IT WAS, THEREFORE, CONTENDED THAT SINCE THE UNACCOUNTED INCOME WAS ARR IVED AT ON THE BASIS OF GROSS ASSETS MINUS LIABILITIES, DEFICIT CA SH IS TO BE EXCLUDED ON THIS REASONING. 33. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS, DELETED THE ADDITION BY STATING AS UNDER: 10.4 THE APPELLANT'S AR HAS SUBMITTED AND CLAIMED THAT THE CASH THAT WAS NOT AVAILABLE PHYSICALLY VIS-A-VI S THE BOOK BALANCE SHOULD BE TREATED AS AMOUNTS UTILIZED FOR HIS MONEY LENDING BUSINESS WHICH HAS BEEN THE SUBJE CT MATTER OF THE ASSESSMENT. I DO NOT FIND ANY INCONSI STENCY 14 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU EITHER BY ACCOUNTING PRACTICE OR BY THE STATUTORY PROVISIONS TO REJECT THE CLAIM OF APPELLANT'S AR. W HEN THE ASSESSEE IS INTO THE MONEY LENDING BUSINESS AND HE HAS BEEN FOUND BY THE SEARCH TEAM ,THAT SO MANY PRONOTE S AND INVESTMENTS, IT WOULD NOT BE CORRECT TO STATE T HAT THE MONIES NOT AVAILABLE AS PER THE BOOKS HAVE GONE INT O SOME OTHER UTILIZATION. HENCE, THE CLAIM OF THE APP ELLANT DESERVES TO BE UPHELD. THE AO IS DIRECTED TO EXTEND DEDUCTION ON THIS AMOUNT. 34. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). NOT ONLY THE PRESENT CIT(A) EVEN HIS PREDECESSOR CIT(A) HAS DELETED THE AMOUNT (WHILE CONFIRMING OTHER AMOUNTS) BY STATING REASON IN HIS ORDER DATED 15-07- 2005 (WHICH ORDER WAS SET ASIDE): I FIND MUCH FORCE IN THE ARGUMENTS OF THE APPELLANT . WHILE THE REGULAR BOOKS OF ACCOUNT SHOWS THE CASH BALANCE OF RS. 5,69,600/-, THE EXCESS CASH FOUND IS ONLY RS. 30,36 0/-, A DEFICIT OF RS. 5,39,240/-. THE APPELLANT HAS COMPUT ED TOTAL INCOME BY TAKING GROSS TOTAL INCOME WHICH INCLUDES ALL THE INVESTMENTS FROM WHERE VARIOUS DEDUCTIONS HAVE BEEN CLAIMED. SINCE CASH IS AN ASSET AND IS NOT FOUND PH YSICALLY, BUT AVAILABLE IN THE BOOKS, THE PRESUMPTION WILL BE THAT EITHER IT IS SPENT OR INVESTED IN ASSETS. NO FINDIN GS HAS BEEN MADE REGARDING UNEXPLAINED EXPENDITURE, WHEREA S UNACCOUNTED ASSETS HAVE BEEN FOUND. SINCE UNACCOUNT ED ASSETS HAVE BEEN CONSIDERED AS INCOME, IT IS REASON ABLE AND JUST TO ACCEPT THE ASSESSEES PLEA THAT THE CAS H DIVERTED HAS BEEN PUT INTO ASSETS WHICH ARE PART OF THE TOTAL INCOME. ACCORDINGLY, THE CASH BALANCE BEING AMOUNT DISCLOSED AS PER REGULAR BOOKS OF ACCOUNT HAS TO BE DEDUCTED FROM THE GROSS TOTAL INCOME TO AVOID DOUBL E TAXATION. ACCORDINGLY, CLAIM OF THE ASSESSEE IS COR RECT. THE DISALLOWANCE OF RS. 5,69,600/- CANNOT BE SUSTAINED AND AO IS DIRECTED TO ALLOW DEDUCTION OF RS. 5,39,240/- AS CLAIMED BY THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE REASONING GIVEN BY THE CIT(A) IS VALID SINCE TH E UNACCOUNTED INCOME WAS ARRIVED AT ON THE BASIS OF GROSS ASSETS MINUS LIABILITIES METHOD, THE DEFICIT CASH WOULD CERTAINLY RESULT IN A REDUCTION TO THE GROSS ASSETS AS THE SAME WOULD HAVE BEEN ACCOUNTED FOR IN ANY OF THE OTHER ASSETS FOUND IN THE COURSE OF SEARCH. THE RE IS NO ALLEGATION 15 ITA NO. IT(SS)A NO. 01/HYD/2010 SRI RANGA SRINIVASULU THAT THE AMOUNTS COULD HAVE BEEN SPENT OUTSIDE THE BOOKS AS THE ASSESSMENT WAS BASED ON SEIZED MATERIAL AND THE ASS ETS FOUND DURING THE COURSE OF SEARCH. IN VIEW OF THIS, WE DO NOT FIND ANY REASON TO CONSIDER THE ISSUE RAISED BY REVENUE AND ACCORDI NGLY THE SAME IS REJECTED. 35. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF OCTOBER, 2013. SD/- SD/- (ASHA VIJAYA RAGHAVAN) (B. RAMAKO TAIAH) JUDICIAL MEMBER ACCOUNT ANT MEMBER HYDERABAD, DATED: 25 TH OCTOBER, 2013. KV COPY TO:- 1) DCIT, CIRCLE 1, AYAKAR BHAVAN, ANANTAPUR 2) SRI RANGA SRINIVASULU, L/R OF SRI RANGA CHENNAP PA, D.NO. 7/119, MADHAVNAGAR, DHARMAVARAM 3) CIT(A), TIRUPATI 4) CIT (CENTRAL CIRCLE), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.