RAM GOPAL VARMA PENUMATSA,HYDERABAD V. ITO, WARD- 14(1), HYDERABAD

ITA 1097/HYD/2024

AI Insights

The case involves Ram Gopal Varma Penumatsa, who appealed against the orders of the CIT(A) and the AO regarding the assessment of his income for the Assessment Year 2017-18. The AO had made several additions to the assessee's income, including unexplained cash deposits and disallowed expenses related to rent and sales promotion. The CIT(A) partly upheld these additions. The Tribunal, after reviewing the submissions and evidence, found that the disallowances made were not substantiated by any rejection of the books of account or identification of discrepancies therein, leading to the setting aside of the lower authorities' orders.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 469624 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SM-A
• Next Hearing Date: 25-11-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 22-10-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B. NAVEEN KUMAR
• Assessee Lawyers: P. MURALI MOHAN RAO
• Section: 143(3); 143(2); 69A; 37

Judgement Text

"आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ मɅ IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “SMC-A”, HYDERABAD BEFORE SHRI MANJUNATHA .G, ACCOUNTANT MEMBER & SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER (Through Virtual Hearing) आ.अपी.सं / ITA No. 1097/Hyd/2024 (Ǔनधा[रण वष[ / Assessment Year: 2017-18) Ram Gopal Varma Penumatsa, Hyderabad. [PAN : AGFPP4793C] Vs. Income Tax Officer, Ward-14(1), Hyderabad. अपीलाथȸ / Appellant Ĥ× यथȸ / Respondent Ǔनधा[ǐरती ɮवारा/Assessee by: Shri P. Murali Mohan Rao, AR राजè व ɮवारा/Revenue by: Shri B. Naveen Kumar, Sr. AR सुनवाई कȧ तारȣख/Date of hearing: 25/11/2024 घोषणा कȧ तारȣख/Pronouncement on: 04/12/2024 आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the order dated 09/09/2024 passed by the learned Commissioner of Income Tax (Appeals), NaƟonal Faceless Appeal Centre, Delhi (“leanred CIT(A)”), in the case of Ram Gopal Varma Penumatsa (“the assessee”), assessee preferred this appeal. ITA No. 1097/Hyd/2024 Page 2 of 5 2. Brief facts of the case are that the assessee, an individual, filed his return of income for the AY 2017-18 on 29/10/2017 declaring a total income of Rs. 18,73,510/-. The case was selected for scruƟny through CASS and accordingly, noƟce U/s. 143(2) of the Income Tax Act, 1961 (“the Act”) was issued on 13/08/2018 and the same was served on the assessee. In response, the assessee filed copy of computaƟon of income, copy of financials, copy of Form 3CEB report. ThereaŌer, noƟces U/s. 142(1) of the Act were issued to the assessee on 08/07/2019 and 01/08/2019. In response, since the assessee has submiƩed the informaƟon partly, a show cause noƟce with respect to cash deposits during the demoneƟzaƟon was issued on 28/11/2019. In reply, the assessee furnished the cash book for the FY 2016-17. On perusal of the informaƟon submiƩed by the assessee and on verificaƟon of the assessee’s books of account, the learned AO noƟced that the assessee has made cash deposits of Rs. 22,50,000/- and Rs. 54,00,000/- in his bank accounts with Axis Bank Limited, Andheri (West), Mumbai and ICICI Bank, Andheri (West), Mumbai respecƟvely. Accordingly, the assessee was show caused as to why the said cash deposits aggregaƟng to Rs. 76,50,000/- should not be added to the total income of the assessee U/s. 69A of the Act. In response, the assessee furnished his cash book. On verificaƟon of the cash book submiƩed by the assessee, the learned AO observed that the assessee has cash balance of Rs. 1,26,000/- in old currency notes as on 31/12/2016 and therefore, the learned AO treated the said sum of Rs. 1,26,000/- as unexplained money U/s. 69A of the Act and added the same to the total income of the assessee. Further, on verificaƟon of the Profit & Loss Account of the assessee, the learned AO observed that the assessee has claimed Rs. 28,00,000/- and Rs. 15,68,792/- towards rent and sales promoƟon expenses including publicity. Since the assessee failed to furnish any cogent evidence to substanƟate his claim, the learned AO disallowed Rs. 4,36,879/- ie., 10% of the total expenditure incurred towards rent and sales promoƟon. Further, the learned AO also made ITA No. 1097/Hyd/2024 Page 3 of 5 addiƟon of Rs. 9,49,012/- towards interest paid to others as the assessee failed to substanƟate his claim by producing the evidence. Thus, the learned AO determined the total income of the assessee at Rs. 33,85,401/- and passed the assessment order U/s 143(3) of the Act, dated 30/12/2019. While passing the assessment order, the learned AO also iniƟated the penalty proceedings U/s. 271AAC and U/s. 270A of the Act. Aggrieved by the order of the learned AO, the assessee preferred an appeal before the learned CIT(A). 3. On appeal, before the learned CIT(A), the assessee made various submissions. AŌer considering the submissions made by the assessee, the learned CIT(A) partly allowed the appeal of the assessee and sustained the disallowance of Rs. 4,36,879/- made by the learned AO as 10% of the expenditure incurred towards sales promoƟon and rent. While sustaining the addiƟon made by the learned AO, the learned CIT(A) has observed as under: “5.2.6. In view of the above, I am of the considered view that the disallowance made by the Assessing Officer on esƟmated basis @ 10% of the said expenses U/s. 37 of the Act is fair and accordingly, the addiƟon made by the Assessing Officer to the tune of Rs. 4,36,879/- on the above issue is sustained. Hence, the ground of appeal filed by the appellant on this issue is dismissed.” Aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal. 4. At the outset, the learned Authorized RepresentaƟve (“learned AR) submiƩed that before the learned CIT(A), the assessee has explained the details of rent paid for the office premises during the year to ‘Noori Feroz Lakdawala’, ‘Sanaa Muinuddin Achwa’ and ‘Yusuf M. Lakdawala, Mumbai’. Further, the assessee has also explained the expenditure incurred towards sales promoƟon and submiƩed the bills obtained from Zillion Hotels & Resorts Pvt Ltd, Mumbai. However, the learned CIT(A) did not consider the submissions of the assessee and confirmed the disallowance. The learned AR further submiƩed that the learned AO made the disallowance on ad-hoc basis without rejecƟng the books ITA No. 1097/Hyd/2024 Page 4 of 5 of account submiƩed by the assessee and without poinƟng out any discrepancy in the books of account. Therefore, the learned AR pleaded that the disallowance of Rs. 4,36,879/- made by the learned AO and sustained by the learned CIT(A) on ad-hoc basis is unsustainable in law and the same may be deleted. 5. On the other hand, learned Departmental RepresentaƟve (“learned DR”) vehemently opposed to the submissions of the learned AR and submiƩed that the onus is on the assessee to substanƟate his claim along with corroboraƟve documentary evidence like rental agreement entered into by the assessee and the landlords. Further, the learned DR submiƩed that submission of hotel bills along will not absolve the responsibility of the assessee in order to claim the expenditure as the same was incurred wholly and exclusively for the purpose of business. Therefore, the learned DR submiƩed that the order of the learned CIT(A) needs no interference. 6. We have heard both the sides and perused the orders of the learned Revenue AuthoriƟes as well as the material available on record. It is a fact that during the assessment proceedings, before the learned AO, the assessee has furnished his books of account, computaƟon of total income, copy of financials and copy of Form 3CEB report. Further, with respect to expenditure incurred towards rent and sales promoƟon also, the assessee has furnished the bills and vouchers. However, the learned AO did not consider the same and disallowed the expenditure @ 10% of the total expenditure towards rent and sales promoƟon which worked out to Rs. 4,36,879/- on ad-hoc basis. Even on appeal, the learned CIT(A) also, neither rejected the assessee’s books of account nor find out any discrepancies therein. Under these circumstances, in our considered view, the learned AO / learned CIT(A) ought to have rejected the assessee’s books of account, before resorƟng to made the disallowance on ad- hoc basis, which is not done in the instant case. Therefore, considering the fact that before the learned CIT(A) the assessee has made various submissions and furnished substanƟal documentary evidence in support of his claim and since, neither the learned AO nor the learned CIT(A) did not reject the books of account furnished by the assessee, the disallowance made on ad-hoc basis by ITA No. 1097/Hyd/2024 Page 5 of 5 the learned AO and sustained by the learned CIT(A) in the case of the assessee is unsustainable law. Accordingly, we hereby set-aside the orders passed by the learned AO and the learned CIT(A) and delete the addiƟon of Rs.4,36,879/-. It is ordered accordingly. 7. In result, appeal of the assessee is allowed. Order pronounced in the open court on this the 04th December, 2024. Sd/- Sd/- (MANJUNATHA .G) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated:04/12/2024 OKK Copy forwarded to: 1. Ram Gopal Varma Penumatsa, C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, Somajiguda, Hyderabad, Telangana-500082. 2. Income Tax Officer, Ward-14(1), Hyderabad, Telangana. 3. Pr. CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. GUARD FILE. TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD "