Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & LAXMI PRASAD SAHU
O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A) - 11, Hyderabad’s order dated 29/03/2019 involving proceedings u/s 143(3) of the Income- Tax Act, 1961 ; in short “the Act wherein the assessee has raised 13 grounds and its sub-grounds, the sum and substance of which are against the action of the CIT(A) in confirming the order of the AO.
Briefly the facts of the case are that the assessee, is an individual deriving income from house property and civil contract. A search and seizure operations u/s 132 of the Act were carried out in the residential premises of the assessee on 25/11/2010. The AO issued a notice u/s 142(1), in response to which, the assessee filed his return of income on 07/03/2012 declaring the income of Rs. 25,58,554/- and agricultural income of Rs. 3,00,000/-. The AO completed the assessment u/s 143(3) of the Act determining the assessed income of the assessee at Rs. 1,22,45,722/- by making the following additions:
1. 1. Income from civil contracts - Rs. 48,87,040/- 2. Long term capital gains - Rs. 6,86,651/- 3. Unexplained cash credits - Rs. 5,71,000/- 4. Unexplained investment in the form of Promissory notes – Rs. 33,76,000/- 5. Interest income from amounts Lent - Rs. 2,76,422/- 6. Unexplained cash - Rs. 50,680/- 7. Unexplained investment in Jewellery - Rs.12,19,714/- 3. When the assessee preferred an appeal before the CIT(A), the CIT(A) partly allowed the appeal of the assessee.
4. Aggrieved by the order of the CIT(A), the assessee is in appeal before the ITAT.
Before us, the assessee has raised 13 grounds of appeal, out of which ground Nos. 1 to 4 & 6 are not pressed, therefore, the same are dismissed as not pressed.
6. As regards ground No. 5 and its sub-grounds (a) to (c) regarding estimation of profit, before the AO the assessee submitted that he had maintained regular books of account and got audited them u/s 44AB of the Act and since assessment was completed and refund was also issued, he submitted that the bills and vouchers were destroyed since he felt that the same were of not useful. However, the AO observed that without bills and vouchers the expenditure cannot be verified and therefore rejected the books of account u/s 145 of the Act and estimated the profit @ 12.5% on direct contract receipts at Rs. 37,77,879/- and @ 8% on sub-contracts of Rs. 10,09,161/- and made an addition of Rs. 48,87,040/-.
6.1 The CIT(A) directed the AO to estimate the gross profit at 10% on direct contracts and 5% on sub-contracts.
6.2 Before us, the ld. AR submitted that the estimation of 10 % on direct contracts and 5% on sub-contracts is on higher side and in this regard he relied on the following cases:
1. 1. Pr. CIT Vs. Garden Silk Mills Ltd., 81 Taxmann.com 128.
2. Shri Ram Arora Vs. CIT, [1971] 80 ITR 78 (All.)
3. ITO Vs. Sri Peddireddy Venkataramana Reddy,
DCIT Vs. PCL Intertech Lenhydro Consortium, ITA No. 461/Hyd/2019. The ld. AR requested before us that 8% net profit rate may be applied on direct contract works and 3% on sub-contract works, respectively. 6.3 The ld. DR on the other hand relied on the orders of revenue authorities. 6.4 After considering the submissions of both the parties and perusing the material on record as well as the orders of the authorities below, we are of the view that since the books of account of the assessee are subject to audit u/s 44AB of the Act and bills & vouchers were not available and before the AO the assessee confessed that he destroyed the bills/vouchers after incurring the expenditure. Considering the prayer of the ld. AR of the assessee & in the interest of justice as well as looking into the facts of the case, we direct the AO to estimate the profit @ 8% on direct contract receipts and @ 3% on sub-contract works. Accordingly, ground raised
by the assessee on this issue is partly allowed. This view should not be taken as precedent.
7. As regards ground No. 7 and its sub-grounds (a) to (c) regarding addition of long term capital gains of Rs. 6,86,651/-, the AO had made the addition of Rs. 6,86,651/- on protective basis towards long term capital gains on the sale of landed property bearing at D. No. 5/19-2 and 5/19-3 at Gandhi Road, Proddatur.
7.1 Before the CIT(A), the assessee submitted that the AO had arrived the share of the Long Term Capital Gains at Rs.54,93,210/- and the share of the assessee was at Rs.6,86,651/-. The same was added in the hands of the assessee in the status of Individual on protective basis. The A. O. has not accepted the purchase value as per document in the assessment for the assessment year 2008-09, he has adopted the purchase value of the property at Rs.3.5 crores, whereas, while arriving the capital gains on the sale of the part of the above property, the AO has adopted the purchase price as that of the sale deed at Rs. 1,49,00,000/- which is against the principles of natural justice.
7.2 After considering the submissions of the assessee, the CIT(A) observed as under: 6.2) I have considered the assessment order and submissions of the assessee. The claim of development expenses is denied by the AO as the sale document does not mention anything about any development carried on by the assessee as claimed. The action of the AO is justified as the assessee has no answer to the finding of AO even during the appellate proceedings. Further, it is seen that the issue whether the land belongs to HUF or individual, is to be adjudicated in favour of 'Individual' as there is no mention about HUF status during the statements recorded from all the brothers u/ 132(4) of the I.T.Act, 1961. The accompanying documents (balance sheet etc.) to the Return of Income for AY 2011-12 claimed to have been filed along with return are not authenticated. There do not appear to be any mention about acquisition of asset in the return for AY
2011-12 filed in individual capacity. In view of the above, the acquisition and sale of property have to be dealt in individual capacity only. However, the computation of capital gains is to the made with regard to the cost of acquisition as adopted in AY 2008-09. The issue raised by the assessee as to 'protective nature' of assessing capital gains, it is seen that capital gains are shown by assessee in HUF status for AY 2011-12 which was on substantial basis. Now the assessment of investment and capital gains on sale has to be taken on substantive basis in individual hands only. The grounds raised are disposed with the above directions and treated as partly allowed.”
7.3 After considering the submissions of the both the parties and perusing the material on record as well as the orders of the revenue authorities, the contention of the assessee is that the purchase consideration of the property is at Rs. 1,49,00,000/- and the AO while making the assessment for AY 2008-09 has determined the total purchase of the property at Rs. 3.5 crores. Therefore, to meet the ends of justice, we remit the issue back to the file of the AO with a direction to ascertain the correct purchase value of the property and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee in the matter. The assessee is directed to substantiate his claim by way of documentary evidence. This ground is allowed for statistical purposes.
As regards ground No. 8 and its sub-grounds (a) to (e) regarding addition of Rs. 5,71,000/- as unexplained cash credit, the AO noticed that the assessee had claimed to have taken unsecured loan of Rs. 5,71,000/- from one Sri P. Gangadhar. Accordingly, the AO issued a show cause notice on 06/12/2012 asking the assessee to furnish/produce the said creditor for examination. As the assessee failed to prove the creditworthiness of the alleged creditor, the said amount was treated as unexplained cash credit.
8.1 Before the CIT(A), the assessee submitted additional evidences and the CIT(A) called for a remand report from the AO, and the AO submitted remand report, which was confronted to the assessee, against which the assessee explained his version, which was extracted by the CIT(A) in his order at page 9 & 10 of his order.
8.2 After considering the submission of the Assessee, the CIT(A) confirmed the addition by observing that when AO specifically asked the assessee to produce the alleged creditor for examination which could help in proving the genuineness of the transaction, the assessee failed to do so and the documents produced by the assessee may have proved the identity but not the genuineness of the transaction. He further observed that the assessee took loan from an agricultural labour itself is shrouded in mystery and do not readily appeal to common sense.
8.3 Considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. On perusal of record and submissions of the assessee, the assessee could not satisfy the basic ingredients laid down in section 68 of the IT Act even though the revenue authorities provided sufficient opportunities to the assessee to substantiate his claim by way of documentary evidence as per the requirement of section 68 of the Act. Therefore, we are of the considered view that the CIT(A) has rightly decide the issue against the assessee and accordingly, we uphold the order of the CIT(A) and dismiss the ground raised by the assessee on this issue.
As regards ground No. 9 and its sub-grounds (a) to (m) regarding addition of Rs. 33,76,000/- towards unexplained investment of the assessee, the AO observed that vide Annexure A/CMG/RES/01, the assessee has lent money to the following persons:
Name Amount Rs. B. Purushottam 6000 Pathan Jaffer Ali Khan 1,20,000 Pathan Jaffer Ali Khan 1,00,000 V. Jaya Chanra Naidu 3,00,000 E. Vamsi Krishan 5,00,000 Reddy R. Gopal 2,00,000 A. Seshaiah 2,00,000 T. Janardhan Naidu 50,000 T. Gangaram 10,00,000
V. Jayachandra naidu 3,00,000 G. Manohar Reddy 5,00,000 C. Chandra Sekhar 5,00,000 Grand Total 33,76,000 When the AO asked the assessee about the source of such lendings, the assessee stated that the same were lent out of the HUF funds and returns were filed in the status of HUF for AY 2011-12. However, as the return of income in the status of HUF for AT 2011-12, was filed on 30/03/2012 i.e. after the date of search and assessee has also failed to explain the sources for the above lendings, the AO treated the said amount of Rs. 33,76,000/- as unexplained investment in the hands of the assessee.
9.1 Before the CIT(A), the assessee made elaborate submissions, which were extracted by the CIT(A) at pages 11 to 15 in his order. After considering the same, the CIT(A) observed that general averments are made, and the assessee has not produced any satisfactory evidence suggesting that the amount of Rs. 33,76,000/- was in fact lent out of the HUF Funds and accordingly, he confirmed the action of the AO.
9.2 Considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. As regards the addition of Rs. 1,26,000/-, the assessee has lent the above amount to Pathan Jaffer Ali Khan – Rs. 1,20,000/- and Rs. 6000/- to B. Purushotham out of his HUF funds, on perusal of the paper book filed by the assessee at pages 98 to 117 which contain copy of return of income, computation of income and financial statements filed by the HUF for the AY 2006-07 to 2010-11. HUF is filing returns and declaring income, which is as under:
S.No. AYs Return of Status income 1. 2006-07 1,08,400 HUF 2 2007-08 2,09,100 HUF 3 2008-09 4,26,685 HUF 4 2009-10 3,88,300 HUF 5 2010-11 2,62,665 HUF Total 13,95,150 9.3 The allegation of the AO that the advances of Rs. 1,26,000/- given by the assessee that HUF had no sufficient funds to give advance, is factually incorrect, as per the above table, the HUF is filing returns regularly. Therefore, the advance of Rs. 1,26,000/-, which is a meagre amount, cannot be doubted and accordingly, we direct the AO to delete the addition of Rs. 1,26,000/- made in the hands of the assessee.
9.4 As regards the addition of Rs. 23,50,000/-, the AO has treated the sum of Rs. 23,50,000/- as unexplained investment. In this regard, the assessee filed books of account in which the assessee has shown payments to the parties out of his own funds generated and the books of account filed by the assessee has not been rejected by the AO. Therefore, the assessee has explained the source of payments and the books of account have also been audited qualified CA u/s 44AB of the Act. We also perused the cash book and financial statements filed by the assessee and find that there is no negative balance is shown at any time. Therefore, we are of the view that it cannot be said that the source is not explained by the assessee and accordingly, we direct the AO to delete the addition of Rs. 23,50,000/- made in the hands of the assessee. 9.5 As regards the addition of Rs. 9,00,000/- towards unexplained investments in form of pro-notes in the hands of the assessee in respect of the following pro-notes found and seized by the department at the time of search:
Page Date Lender Lendee Amount No. (Rs.) 75 10/07/2010 Not V. Jayachandra 3,00,000 mentioned Naidu 77 30/08/2010 -do- G. Manohar Reddy 1,00,000 83 22/11/2010 -do- C. Chandra Sekhar 5,00,000 Total 9,00,000 The submission of the assessee is that these three pro- notes were not in the name of the assessee and it was in the name of others as per the above table. We are of the view that if the AO was not satisfied with the submission of the assessee, he could have summoned the persons, whose names are appeared on the pro-notes, but, without doing the same, he had made addition in the hands of the assessee is not proper and not in accordance with law. We find force and substance in the arguments advanced by the ld. AR of the assessee and therefore, we direct the AO to delete the addition made in the hands of the assessee.
As regards Ground No. 10 and its sub-grounds (a) to (d) regarding the addition of Rs. 2,76,422/- towards interest accrued in respect of the pro-notes for the total amount of Rs. 33,76,000/-, the AO observed that out of the amount lent of Rs. 33,76,000/- to the persons, the assessee accrued interest should be Rs. 4,93,523/- calculated @ 24% p.a. and the assessee admitted an amount of Rs. 2,17,101/- only and the balance amount of Rs. 2,76,422/- was not offered. Accordingly, the AO made addition of Rs. 2,76,422/- as interest income accrued.
10.1 The CIT(A) held that the credits in respect of the above amount of Rs. 33,76,000/- were not considered genuine and the addition made was confirmed, the interest thereon was disallowed, is also confirmed.
10.2 Considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. On perusal of the interest calculation done by the AO @ 20% on the entire pro-notes, we are of the view that the calculation done by the AO is not correct.
The assessee has admitted the interest of Rs. 2,17,101/-. The AO has calculated the interest on the entire amount of Rs. 33,76,000/- whereas we have directed the AO to delete the additions of Rs. 9,00,000 + 1,26,000/- + 23,50,000/- on the ground that the source of the same were explained by the assessee. We have observed that the assessee has explained the source of Rs. 23,50,000/- and directed the AO to delete this addition; however, he is liable for interest income thereon only @ 24% as offered on the pro-notes as observed by the AO. Therefore, we direct the AO to recalculate the interest on Rs. 23,50,000/- . This ground is partly allowed.
As regards ground No. 11 and its sub-grounds (a) to (c) regarding addition of Rs. 50,680/- in respect of cash found during the search, the ld. AR of the assessee has not pressed this ground at the time of hearing, therefore, the same is dismissed as not pressed.
As regards ground No. 12 and its sub-grounds (a) & (b) regarding the addition of Rs. 12,19,714/- towards unexplained investment in jewellery, during the course of search, the AO noticed that the assessee had gross weight of jewellery at 751.5 grams and net weight at 593.5 gms valued at Rs. 12,19,714/-. The assessee stated that the said jewellery belonged to his family members and was received on various occasions as gifts by his wife and other family members. Rejecting the submission of the assessee, the AO made the addition of Rs. 12,19,714/-.
12.1 The CIT(A) confirmed the said addition by holding that the assessee has not furnished any evidence to explain the source of jewellery found.
12.2 Considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. During the course of search, gross weight of jewellery at 751.5 grams were found. On perusal of the submissions made by the assessee before the CIT(A) that there are four members in his family consisting of his wife, unmarried daughter, son and himself. The AR of the assessee quoted Instruction No. 1916 of 11/05/1004 of CBDT and according to which, he is entitled to have 950 grams of jewellery and the assessee is having the less than the entitled quantity. However, the AO denied to give benefit as per the said Instruction of CBDT on the ground that as per the above Instruction certain jewellery not to be seized. We are of the view that various courts have decided the issue in favour of the assessee in the light of the above Instruction issued by the CBDT, which are as under:
CIT vs. satya narain patni (2014) taxmann.com 440 (Rajasthan).
2. Sonia Magu vs. CIT [2009] 185 TAXMAN 402 (DELHI).
R. Umamaheshwar Vis DCIT, 60 taxmann.com 400 (Hyd. ) 4. Smt. Ritu Bajaj V/s DCIT, Central Circle- 5,Delhi, (A Y 2014-15). 5. Smt. Saran Kaur, Hyderabad vs. DCIT Circle 4 (1), Hyderabad, ITA Nos. 1402/Hyd12012 for the asst year 2008-09.
Respectfully following the ratios laid down in the said cases, we direct the AO to delete the addition of Rs. 12,19,714/- made in the hands of the assessee on account of jewelley.
The ld. AR has relied on various case law which are placed in the paper book containing page 1 to 158 in respect of the grounds raised by him, which have been perused and considered while adjudicating the grounds (supra).
Before us, the ld. AR of the assessee has taken an argument/ground that the CIT(A) has enhanced the income of the assessee by way of bringing new source of income and in support of his arguments, he relied on the following case law: 1. Shapoorji Pallonji Mistry, 144 ITR 891(SC) 2. Shapoorji Pallonji Mistry, 34 ITR 342 (Bom.) 3. Sardari Lal & Co, 251 ITR 864 (Del.) 4. CIT Vs. B.P. Sherfuddin, 881 & 1291 of 2009 (Ker.) 5. Mylan Laboratories Ltgd., 113 Taxmann.com 6 (ITAT-Hyd.)
13.1 On perusal of the order of the CIT(A) as well as the order of AO, we find that the CIT(A) has only dealt the issues which have been borne out of the order of AO and, therefore, the arguments advanced by the ld. AR before us are hereby rejected. 14. In the result, appeal of the assessee is partly allowed.
Pronounced in the open court on 26th April, 2021.