DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(3), BENGALURU vs. SMT. GALI VANAJA, BELLARY

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

& 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 4 of 20 3.2. The facts of the case relevant necessary for adjudication of the present appeal are that Search u/s 132 of the Income-tax Act,1961 ['the Act' for short] was conducted in the case of G Karunakar Reddy, husband of the Assessee, on 26-10-2007 at Bellary. The Learned AO issued the Notices u/s 153C dated, 14-08-2008 for the AYs, 2002-03 to 2007-08 on the purported ground that certain documents belonging to the Assessee (unsearched person) were seized during the said search.

3.3. In consequence of the said Notices issued u/s 153C of the Act, the assessment orders for the AYs, 2002-03, 2003-04, 2004- 05, 2005-06, 2006-07 and 2007-08 came to be passed u/s 153C r.w.s 143(3) of the Act dated, 31-12-2009. For the AY 2008-09, being the year of search, the Learned AO issued the Notice u/s 143(2) and passed the order u/s 143(3) of the Act dated 31.12.2009 of the Act. The details of assessments passed u/s 153C / 143(3) of the Act as above-mentioned are tabulated below for the sake of ready reference: Sl. Section Details of additions Total AY No under made & Appeal Status Addition on which account of the Unproved order Trade was Liability u/s made 41(1) (in Rs.) 2002-03 153C No additions - returned income (i) accepted. No additions - returned income (ii) 2003-04 153C - accepted. (iii) 2004-05 153C No additions - returned income accepted. (iv) No additions - returned income 2005-06 153C accepted. (v) 2006-07 153C Addition of Rs.1,35,10,378/- 80,23,673 (vi) 44,31,030 2007-08 153C Addition of Rs.1,12,29,360/- & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 5 of 20 (viii) 2008-09 143(3) Addition of 1,88,48,325 Rs. 1,88,48,325/- Total 3,13,04,028 3.4. The assessment orders for the AYs 2006-07, 2007-08 & 2008-09 were contested before the ld. Commissioner of Income Tax (Appeals) in 494 & 504/ CIT(A)-VI/B’lore/ 09- 10. The appeals came to be dismissed vide order dated 31-01-2013.

3.5 On further appeal by the assessee, the Tribunal vide its order in to 1008/Bang/2013, dated, 22-02-2019 dismissed the appeals for non-prosecution. The assessee filed the Miscellaneous Petitions for recall of the above-mentioned ex- parte orders and the same came to be allowed vide orders in MP Nos. 49 to 51/Bang/2019 (In ITA Nos.1006 to 1008/Bang/2013).

3.6. Subsequently, the Tribunal set aside the orders of the Learned CIT(A) vide its order dated, 27-11-2019 in to 1008/Bang/2013 and restored the entire disputed issues for fresh adjudication to the file of the Learned CIT(A) directing as under: (1) To decide the validity of the assessments u/s 153C r.w.s 143(3), and;

(ii) If the assessee fails on the technical Ground, then decide the case on merits.

3.7 In consequence of the above said order of this Tribunal, the Learned CIT(A) passed the order dated, 13-03-2023 partly allowing the appeal on merits sustaining the addition to the extent of Rs.10,00,000/- out of Rs.44,31,030/- added in the assessment order as unproved trade liability. The learned CIT(A) has sustained the addition

ITA No.370 & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary Page 6 of 20 of Rs.10,00,000/ after noticing that no addition for the subject assessment year could be sustained applying the guidelines of this Tribunal in the connected case of Smt. G. Vijaya in & 948/Bang/2013 order dated, 28-04-2022 on identical set of facts. CASE BEFORE THIS TRIBUNAL: 3.8 The addition of Rs.44,31,030/- in the case of the assessee was made on IDENTICAL GROUNDS vis-a-vis the addition of Rs.6,26,74,760/- made in the connected case of Smt. Vijaya, which came to be contested before this Tribunal in ITA Nos.947 & 948/BANG/2013 vide order dated 28.4.2022. In an identical set of facts, this Tribunal in the said connected case of Smt. Vijaya sustained addition of Rs.50,00,000/- after taking into account the additional income of Rs.1,00,00,000/-declared in the return of income of the said assessee over & above the regular income in view of the certain deficiencies in maintenance of books of account. In other words, this Tribunal came to the reasoned conclusion in the said case that overall addition of Rs.1,50,00,000/- (Rs.1,00,00,000/-declared in the return of income + Rs.50,00,000/- sustained) would meet the ends of justice considering the total addition of Rs.6,26,74,760/- made in the assessment order. Para 18 of pages 16 & 17 of the order of this Tribunal in the said case of Smt. Vijaya is as under: "18. The fact remains that the liability of Rs.11.04 crores is shown in the books of accounts. It has arisen out of trading activities carried on by the assessee. Hence it cannot be treated as unproved liability. The apprehension entertained by the AO is that the liabilities could not have existed as shown by the assessee. However, it is a fact that the AO has not brought any material on record in support of his apprehension. It is well settled proposition of law that the apprehension, howsoever strong, cannot substitute material evidences. In so far as the, trading liabilities are concerned, it could be assessed only u/ s & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 7 of 20 41(1) of the Act, when it ceases to exist. In our considered view, the inference drawn by the AO was that the suppliers of services are not having enough means to provide credit to the assessee. However, the AO himself was not aware of the details about the suppliers of the services. Without those details, we are unable to understand as to how the AO could have entertained such kind of views. We also notice that the A.O. has not established that the liability has ceased to exist, which would warrant invoking of provisions of section 41(1) of the Act. Accordingly, in our view, the A.O. was not justified in treating part of liabilities, i.e., Rs.6,26,74,760/ -, as unproved on presumptions, surmises and conjectures."

3.9 The ld. A.R. submitted that it is not disputed that the facts of the case are identical to the said connected case of Smt. Vijaya. As mentioned in para 16 of pages 22 & 23 of the learned CIT(A)'s order itself, a total addition of Rs.75,00,000/- in the hands of the assessee would be justified without considering Rs. 1,00,00,000/ declared as additional income in return of income applying the guidelines laid down by this Tribunal in the connected case of Smt. Vijaya. The ld. A.R. submitted that since the assessee had already declared Rs.1,00,00,000/- in the return of income, no further addition was justified applying the guidelines of this Tribunal in the connected case of Smt. Vijaya. For the sake of ready reference, the quantum of addition that may be justified in the case of the assessee applying the guidelines of this Tribunal in the said connected case is as under:

Sl. In the Particulars In the case of the No. connected Assessee case of the (in Rs.) Smt. Vijaya (in Rs.) (i) Addition made on 6,26,74,760 3,13,04,028 the Ground of unproved (For 3 years from trade liability - section 2006-07 to 2008-09 as 41(1). mentioned in para 15 of page 2: of CIT(A) order.)

& 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 8 of 20 (ii) Additional Income declared 1,00,00,000 1,00,00,000 in the return of income. (Declared in the return of income filed for the AY 2008-09) (iii) Addition sustained by the 50,00,000 Hon'ble Tribunal. (iv) Total addition sustained 1,50,00,000 by the Hon'ble Tribunal [(ii) + (iii)] 24% of the (v) Total Addition that may 2.5,00,000 addition be sustained applying the made ratio/guidelines in the connected case of Smt. Vijaya.

3.10. He thus submitted that the assessee had declared Rs.1,00,00,000/- as additional income in the return of income filed for the AY 2008-09, which is more than the addition of Rs.75,00,000/- that could have been made applying the ratio/guidelines of the Hon'ble Tribunal in the said-connected case of Smt. Vijaya.

3.11. The overall addition made in the case of the assessee on the issue of unproved trade liability for the AYs 2066-07 to 2008-09' is about Rs.3.13 crores, which is roughly about 50% of the addition made (Rs.6.63 crores) in the connected case of Smt. G. Vijaya as mentioned in para 15 of pages 22 of the Learned CIT(A) order. Even considering the entire addition for all the concerned AYs from 2006-07 to 2008-09, overall addition that may be sustained would be Rs.75,00,000/- applying the guidelines of this Tribunal in the connected case of Smt. Vijaya.

3.12. In the light of the above, the ld. A.R. submitted that the Learned CIT(A) is not justified in sustaining the addition of & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 9 of 20 Rs.10,00,000/- in the case of the assessee after noticing that the facts of the case are identical to the connected case of Smt. G. Vijaya and Rs.1,00,00,000/- was already declared in the return of income filed.

Gross contract receipts Rs.6,96,23,365/- Interest income Rs. 18,07,048/- Rs.7,14,30,413/- Total expenditure claimed by assessee Rs.6,61,68,831/- Net profit Rs. 52,61,582/- & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 10 of 20 5.1 Consequent to search action in case of her husband Shri G. Karunakar Reddy, notice has been issued to the assessee u/s 153A of the Act and assessee filed the return of income on 6.10.2009 declaring income of Rs.52,61,582/-. While framing the assessment, the AO made following additions: Suppression of bank balance Rs.67,98,330/- Unproved trade liabilities Rs.44,31,030/- Rs.1,12,29,360/- 5.2 The addition made towards suppression of bank account at Rs.67,98,330/- was deleted by the ld. CIT(A) for which revenue is not in appeal before us. Out of unproved trade liabilities of Rs.44,31,030/-, the ld. CIT(A) has deleted Rs.34,31,030/- and sustained only Rs.10 lakhs, by placing reliance on the earlier order of the Tribunal in the case of Smt. G. Vijaya cited (supra), wherein held as under: “17. We heard the parties on this issue and perused the record. The admitted fact is that the outstanding liability of Rs.11.04 crores disclosed by the assessee in the balance sheet as on 31.3.2008 pertains to trading liabilities and they arise out of trading results. The AO has considered the amount of Rs.1,72,75,247/- only, as not arising out of trading results. There is no dispute with regard to the fact that the assessee has maintained books of accounts and the Balance sheet has been prepared out of the book results only. The Ld. A.R. also submitted that the assessee was also handicapped in providing relevant information and explanations, since the books of accounts have been seized by the various statutory authorities. Accordingly, it could be understood that the assessing officer could not examine relevant books of accounts. Accordingly, it can be seen that the AO has considered the amount of Rs.1,72,75,247/- as not arising out of trading transactions on surmises only. In our view, without examining the books of account and the break-up details of trading liabilities, one could not come to the conclusion that the above said amount of Rs.1,72,75,247/- does not represent trading liability.

Page 11 of 20 liabilities could not have existed as shown by the assessee. However, it is a fact that the AO has not brought any material on record in support of his apprehension. It is well settled proposition of law that the apprehension, howsoever strong, cannot substitute material evidences. In so far as the trading liabilities are concerned, it could be assessed only u/s 41(1) of the Act, when it ceases to exist. In our considered view, the inference drawn by the AO was that the suppliers of services are not having enough means to provide credit to the assessee. However, the AO himself was not aware of the details about the suppliers of the services. Without those details, we are unable to understand as to how the AO could have entertained such kind of views. We also notice that the A.O. has not established that the liability has ceased to exist, which would warrant invoking of provisions of section 41(1) of the Act. Accordingly, in our view, the A.O. was not justified in treating part of liabilities, i.e. Rs.6,26,74,760/-, as unproved on presumptions, surmises and conjectures.

& 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 12 of 20 5.3 In our opinion, facts and circumstances of the present case are similar to that considered by Tribunal in case of Smt. G. Vijaya cited (supra), which are as follows: Sl. Events related to the Assessee – Mrs. Events occurring in No. G. Vanaja the connected case – Mrs. G. Vijaya i. Search conducted u/s 132 in the Search conducted group cases on 26.10.2007 – Search u/s 132 in the group in the case of G. Karunakara Reddy, cases on 26.10.2007 husband of the assessee where the of G. Somashekar alleged documents are seized. Reddy, husband of G. Vijaya where the alleged documents are seized. ii. Notice u/s 143(2) was issued on Notice u/s 143(2) 18.9.2009 to the assessee was also issued on the same date i.e. 18.9.2009 iii. The assessing officer issuing the notice in both the cases is one & the same i.e., the Deputy Commissioner of Income Tax, Central Circle-1(3), Bengaluru. iv. Both the assessees have carried out transportation work to M/s. Sree Raghavendra Constructions as mentioned in the respective assessment orders. The accounts are maintained & audited u/s 44AB of the Act in both the cases. Both the assessees declared additional income of Rs.1 crore each for the AY 2008-09 during the search u/s 132(4) and filed their respective returns of income admitting the said additional income tax. v. In both the cases, additions are made in identical grounds considering the transportation charges received from the said M/s. Sree Raghavendra Constructions and the expenditure incurred.

5.4 Being so, in our opinion, placing reliance by ld. CIT(A) on the above order of the Tribunal in case of Smt. G. Vijaya cited (supra) cannot be found faulted and there is a basis for his decision and we do not find any infirmity in the same and the same is confirmed and the appeal of the assessee in is dismissed. & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 13 of CO No.3/Bang/2023: 6. The revenue is in appeal before us for sustaining only Rs.25 lakhs out of addition made by AO at Rs.1,88,48,325/- towards unproved trade liabilities, thereby deleting an amount of Rs.1,63,48,325/- and the assessee filed cross objection for sustaining addition of Rs.25 lakhs.

6.1 The present Cross Objection (CO) is filed against the order of the Learned CIT(A) dated, 13-03-2023 passed consequential to the order of this Tribunal in remanding the appeals back to the file of the Learned CIT(A) for fresh adjudication.

6.2. The ld. A.R. submitted that the facts of the case relevant and necessary for adjudication of the present CO are that Search u/s 132 of the Act was conducted in the case of G Karunakar Reddy, husband of the Assessee, on 26-10-2007 at Bellary. The Learned AO issued the Notices u/s 153C of the Act dated 14-08-2008 for the AYs 2002-03 to 2007-08 on the purported ground that certain documents belonging to the assessee (unsearched person) were seized during the said search.

6.3. He submitted that in consequence of the said Notices issued u/s 153C of the Act, the assessment orders for the AYs, 2002-03, 2003-04, 2004-05, 2005-6, 2006-07 and 2007-08 came to be passed u/s 153C r.w.s 143(3) dated, 31-12-2009. For the AY, 2008-09, being the year of search, the Learned AO issued the Notice u/s 143(2) and passed the order u/s 143(3) dated 31-12-2009 of the Act. The details of assessments passed u/s 153C / 143(3) of the Act as above-mentioned are tabulated below for the sake of ready 'reference: & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 14 of 20 Si. Section Details of additions Total AY No under made & Appeal Status Addition on which account of the Unproved order Trade was Liability u/s made 41(1) (in Rs.)

2002-03 153C No additions - returned (i) income accepted. No additions - returned (ii) 2003-04 153C income accepted. (iii) No additions - 2004-05 153C returned income accepted. No additions - returned (iv) 2005-06 153C income accepted. (v) 2006-07 153C Addition of 80,23,673 Rs.1,35,10,378/- (vi) 2007-08 153C Addition of 44,31,030 Rs.1,12,29,360/- (viii) 2008-09 143(3) Addition of 1,88,48,325 Rs. 1,88,48,325 / - Total 3,13,04,028

6.4. The ld. A.R. submitted that the assessment orders for the AYs 2006-07 to 2008-09 where the additions were made, were contested before the Learned' Commissioner of Income Tax (Appeals) in 494 & 504/CIT(A)- VI/B'lore/09-10. The appeals came to be dismissed vide order dated, 31-01-2013.

6.5. On further appeal by the assessee, the Tribunal, vide its order in to 1008/Bang/2013, dated 22-02- 2019, dismissed the appeals for non-prosecution. The assessee filed the Miscellaneous Petitions for recall of the above-mentioned ex-parte orders and the same came to be ITA No.370 & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary Page 15 of 20 allowed vide orders in MP Nos. 49 to 51/Bang/2019 (In to 1008/Bang/2013).

6.6. Subsequently, the Tribunal set aside the orders of the Learned CIT(A) vide its order dated, 27-11-2019 in to 1008/Bang/2013 and restored the entire disputed issues for fresh adjudication to the file of the Learned ld. CIT(A) directing as under:

(i) To decide the validity of the assessments u/ s 153C r.w.s 143(3), and;

(ii) If the assessee fails on the technical Ground, then decide the case on merits.

6.7. The ld. A.R. submitted that in consequence of the above said order of the Tribunal, the Learned CIT(A) passed the order dated, 13-03-2023 partly allowing the appeal of the assessee, which is impugned by the Revenue (numbered as CO is filed with respect to the appeal of the Revenue.

6.8. The Learned CIT(A) has partly allowed the appeal of the assessee but sustained Rs.25,00,000/- addition out of the total addition of Rs.1,88,48,325/- made in the assessment order on the ground that the same represented unproved trade liability. In the CO, the assessee contested the addition of Rs.25,00,000/- sustained by the Learned CIT(A).

6.9. The ld. A.R. briefly made submissions in support of the CO as under: • & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 16 of 20 6.10. He submitted that as could be seen from the submissions of the assessee made before the Learned CIT(A) and found reproduced in para 6.4 to 6.9 of pages 7 to 11 of the order, the addition of Rs.1,88,48,325/- in the case of the assessee was made on IDENTICAL GROUNDS vis-a-vis the addition of Rs.6,26,74,760/- made in the connected case of Smt. Vijaya, which came to be contested before the Tribunal in & 948/BANG/2013. He submitted that in identical set of facts, the Tribunal in the said connected case of Smt. Vijaya sustained addition of Rs.50,00,000/- after taking into account the additional income of Rs.1,00,00,000/- declared in the return of income of the said assessee over & above the regular income in view of the certain deficiencies in maintenance of books of account. In other words, the Tribunal came to the reasoned conclusion in the said case that overall addition of Rs.1,50,00,000/- (Rs.1,00,00,000/- declared in the return of income + Rs.50,00,000/- sustained) would meet the ends of justice considering the total addition of Rs.6,26,74,760/ - made in the assessment order. He reproduced para 18 of pages 16 & 17 of the order of the Tribunal in the said case of Smt. Vijaya which is as under:

"18. The fact remains that the liability of Rs.11.04 crones is shown in the books of accounts. It has arisen out of trading activities carried on by the assessee. Hence it cannot be treated as unproved liability. The apprehension entertained by the AO is that the liabilities could not have existed as shown by the assessee. However, it is a fact that the AO has not brought any material on record in support of his apprehension. It is well settled proposition of law that the apprehension, howsoever strong, cannot substitute material evidences. In so far as the trading liabilities are concerned, it could be assessed only u/ s 41(1) of the Act, when it ceases to exist. In our considered view, the inference drawn by the AO was that the suppliers of services are not having enough means to provide credit to the assessee.

& 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 17 of 20 However, the AO himself was not aware of the details about the suppliers of the services. Without those details, we are unable to understand as to how the AO could have entertained such kind of views. We also notice that the A.O. has not established that the liability has ceased to exist, which would warrant invoking of provisions of section 41(1) of the Act. Accordingly, in our view, the A.O. was not justified in treating part of liabilities, i.e., Rs.6,26,74,760/ -, as unproved on presumptions, surmises and conjectures."

6.11 The ld. A.R. submitted that it is not disputed that the facts of the case are identical to the said connected case of Smt. Vijaya. As mentioned in para 13.0 of pages 14 & 15 of the Learned CIT(A)'s order itself, a total addition of Rs.75,00,000/- in the hands of the assessee would be justified without considering Rs. 1,00,00,000/- declared as additional income in return of income applying the guidelines laid down by the Tribunal in the connected case of Smt. Vijaya. Since the assessee had already declared Rs.1,00,00,000/- in the return of income, no further addition was justified applying the guidelines of the Tribunal in the connected case of Smt. Vijaya. For the sake of ready reference, the ld. A.R. reproduced the quantum of addition that may be justified in the case of the assessee applying the guidelines of the Tribunal in the said connected case is as under: Sl. In the In the case Particulars No. connected of the Assessee case of the Smt. Vijaya (in Rs.) (in Rs.) (i) Addition made on the Ground 6,26,74,760 1,88,48,325 of unproved trade liability - section 41(1). (ii) Additional Income declared in 1,00,00,000 1,00,00,000 the return of income. Addition sustained by 50,00,000 (iii) the Tribunal. Total addition sustained by the 1,50,00,000 (iv) Hon'ble Tribunal [(ii) + (iii)] & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary

Page 18 of 20 (v) Total Addition that may be 24% of the 45,23,000 Sustained applying the addition ratio/guidelines in the made connected case of Smt. Vijaya.

6.12 The ld. A.R. submitted that from the above it could be seen that the assessee had declared Rs.1,00,00,000/- as additional income in the return of income, which is more than the addition of Rs.45,23,000/- that could have been made applying the ratio/guidelines of the Tribunal in the said connected case of Smt. Vijaya.

6.13. He submitted that the overall addition made in the case of assessee on the issue of unproved trade liability for the AYs 2006-07 to 2008-09 is about Rs.3.13 crores, which is roughly about 50% of the addition made (Rs.6.63 crores) in the connected case of Smt. G. Vijaya as mentioned in para 13.01 of pages 14 & 15 of the ld. CIT(A) order. Even considering the entire addition for all the concerned AYs from 2006-07 to 2008- 09, overall addition that may be sustained would be Rs.75,00,000/-applying the guidelines of the Tribunal in the connected case of Smt. Vijaya.

6.14. In the light of the above, he submitted that the Learned CIT(A) is not justified in sustaining the addition of Rs.25,00,000/- in the case of the assessee after noticing that the facts of the case are identical to the connected case of Smt. G. Vijaya and Rs.1 00,00,000/- was already declared in the return of income filed.

Revenue's Appeal. 7. The ld. A.R. submitted that as could be seen from the Grounds of appeal of the Revenue, it is not in dispute that the & 454/Bang/2023 & CO 3/Bang/2023 Smt. G. Vanaja, Bellary Page 19 of 20 Tribunal had decided an identical issue in the connected case of Smt. G. Vijaya for the AY 2008-09 as above-submitted. The Revenue has not made out how the present case differs from the connected case of Smt. G. Vijaya as far as facts are identical. In this regard he invited our attention to the para nos.6.6, 6.7 and 6.8 of pages 8, 9 & 10 of the order of the Learned CIT(A) impugned by the Revenue, wherein the similarity of facts has been set out referring to the submissions of the assessee. 7.1 The ld. A.R. also made same submission as in assessment year 2008-09.