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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of CIT(A)/NFAC dated 24.6.2022 for the assessment year 2012-13. The assessee has raised following grounds of appeal:-
1. The learned CIT(A), National Faceless Appeal Centre (NFAC) has erred in Passing the Order in the manner he did.
2. The learned CIT(A), National Faceless Appeal Centre (NFAC) has erred in upholding the disallowance of opening balance as on 1.4.2011 to the extent of Rs. 1,00,50,774, which was disclosed in the Balance Sheet as on 31.3.2012.
3. The learned CIT(A), National Faceless Appeal Centre (NFAC) has failed to appreciate the fact that, it ought to have been taxed in the proceeding assessment years, wherein the investment were made.
Mr. P. Narasimha Rao, Mangaluru Page 2 of 29 4. The learned CIT(A), National Faceless Appeal Centre (NFAC) has erred in law in upholding the disallowance made by the Assessing Officer amounting to Rs. 1,96,39,997 as unexplained investments.
5. The learned CIT(A), National Faceless Appeal Centre (NFAC) is not justified in law in upholding the disallowance of expenses claimed during the year under question to the extent of Rs.55,04,518.
6. The learned CIT(A), National Faceless Appeal Centre (NFAC) has failed to accept the alternative plea by overlooking the case laws relied on by the Appellant, i.e., without prejudice to the above, the Assessing Officer ought have estimated the profit at 2 percent of the alleged additions made, as undisclosed income of the Appellant.
The Appellant craves leave to add, amend or alter any of the foregoing grounds.
For these and any other grounds that may be urged before the Hon’ble ITAT, it is prayed that the Hon’ble ITAT may allow the appeal with cost.”
The assessee has raised following additional grounds:
1. 1. On the facts and in circumstances of case notice under section 148 of the income tax act 1961 issued by the learned AO is bad in law, invalid and without jurisdiction. Hence liable to be quashed.
2. On the facts and circumstances of the case since initial notice under section 148 of the income tax is invalid and without jurisdiction. Hence the entire subsequent order passed by the authorities below is void and ab-initio.
3. On the 'facts and circumstances of the case, income as per original return may kindly be accepted.
4. The entire proceeding of re-assessment is bad in law since mandatory procedure laid down by Hon'ble supreme court in the case of "GKN Driveshaft" is not followed.
3. Facts of the case are that the assessee is an individual and engaged in the business of real estate construction contract. The assessee had filed his return of income for the assessment-year 2012- 2013 declaring income of Rs.7,82,880/- on a turnover of Rs.42,91,756/- u/s 44AD of the Act opting for presumptive taxation. The return was initially processed under Section 143(1) of the Income- tax Act,1961 ['the Act' for short] on 22.4.2013.
3.1 There was a search and seizure operation conducted u/s.132 of the Act on 19.3.2019 in the case of assessee. During the course of search certain documents were found and Assessing Officer (in short Mr. P. Narasimha Rao, Mangaluru
Page 3 of 29 AO) reason to believe that said documents showed that, assessee had substantial interest income as well as transactions in the bank account which was more than the amount disclosed in the return of income filed under the presumptive scheme of taxation u/s 44AD of the Act. Accordingly, case was reopened under section 147 of the Act and notice u/s.148 of the Act was issued for the assessment year under question. In the meanwhile, while the case was transferred from ITO, Ward -I, to the ACIT, Circle - 1(1) & TPS (in short AO). In response to the notice, assessee filed return of income on 6.11.2019, wherein the assessee declared total income of Rs.l5,99,160/-. The Assessee raised objection for reopening the assessment, which was rejected by the AO. Subsequently, the assessment was taken up for scrutiny and was completed under section 143(3) read with Section 147 of the Act on 30.12.2019. In the order of assessment, AO made following additions to the return income and raised tax demand of Rs.2,24,74,149/-: AMOUNT IN Rs. PARTICULARS 1. Opening Land 10,41,500.00 Unexplained investment in property 9,28,000.00 Unexplained investment in property 25,31,500.00 Unexplained investment in property 20,53,000.00 45,84,500.00 Unexplained investment in property 94,97,820.00 29,43,820.00 Opening construction cost of residence 5,85,000.00 Opening Yatish Acharya-Loans and advances 17,45,000.00 Opening Debtors 11.66.774.00 34.96.774.00 1,29,94,594.00 Opening cash 5,09, 105.00 2. Stamp duty and registration 3. Addition to capital during the year 45,16,570.00 Geetha N.Rao- wife 1,00,000.00 Gift from brother 19,94,120.00 Gift from daughter 18.22.382.00 84,33,072.00 Gift from Son 4. Capital receipts Mr. P. Narasimha Rao, Mangaluru
Page 4 of 29 6,00,000.00 Krishna Bandary 9,45,000.00 Nalini 4,95,000.00 Ramesh Shetty 47.14.000.00 67,54,000.00 Sai Prasad 6. Undisclosed investment during the year 10,00,000.00 55,04,518.00 7. Undisclosed expenses 3,51,95,289.00 TOTAL ADDITIONS MADE 3.2 Being aggrieved by the above order, the Assessee had preferred an appeal before the Commissioner of Income tax (Appeals)-2, Panaji. The Commissioner of Income tax (Appeals) vide his order dated 24.6.2022 in Appeal No.CIT(A), Mangalore/11150/2019-20 has given a direction give benefit of opening capital and debtors of earlier years to the extent can be shown to be present in the disclosed records. Against this assessee is in appeal before us. First we will adjudicate the additional grounds.
We have heard both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide.
In the additional ground Nos.1 to 3 the assessee is challenging the reopening of assessment that AO has reopened the assessment without any jurisdiction. Since the material used for reopening of assessment is collected during the course of search action u/s 132 of the Act at the premises of the assessee on Mr. P. Narasimha Rao, Mangaluru
Page 5 of 29 19.3.2019 and the seized material collected during the course of search action only could be used for the purpose of framing assessment u/s 153A of the Act and not for reopening of assessment u/s 148 of the Act. In our opinion, this issue has been settled by the judgement of Hon’ble Madhya Pradesh High Court in the case of Ramballabh Gupta Vs. ACIT and others reported in 288 ITR 347 (MP), wherein held as under:
“Held, dismissing the petition, (i) that while deciding the legality of notice issued under section 148, it was not necessary to look into the provisions of section 153A because both sections operate in different fields and spheres. Admittedly, the assessment year 1997-98 in question did not fall within the six years as per the requirement of section 153A and hence no action could be taken for making reassessment under section 153A in respect of the assessment year 1997-98.
(ii) That the case of the assessee was not that the notice did not satisfy the requirements of section 148. On the other hand, it clearly showed that, firstly, the notice under section 148 could be issued for the assessment year 1997-98 being well within time. Secondly, the Assessing Officer was empowered and had an authority to issue such notice. Thirdly, the notice contained reasons as required under section 148 which were supplied to the assessee and, lastly, on the strength of the material collected in the raid conducted on October, 8, 2003, in the premises of the assessee, the belief of escape of income could validly be formed for reopening the assessment made for the assessment year 1997-98. The assessee did not challenge the notice on any of these grounds which alone could be made the basis to challenge the notice and, hence, the notice was rightly issued in conformity with the requirement of section 148.”
5.1 Similar view has been taken by Hon’ble Gujarat High Court in the case of Sumit Jagdish Chandra Aggarwal Vs. Deputy Commissioner of Income-tax in Special Civil Application No.4860 of 2023 dated 20.3.2023, wherein held as follows:
2.15 As per clause (b) of sub-section (1) of section 149 of the Act, as they stood immediately before the commencement of the Finance Act, 2021, no notice under section 148 of the Act shall be issued for the relevant assessment year if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs.1 lakh or more for that assessment year. Mr. P. Narasimha Rao, Mangaluru
Page 6 of 29 2.16 It is, therefore, urged that the notice under Section 148 of the Act can be issued on or after 01.04.2021 only if the limitation for issuing such notice under old regime of reopening had not expired prior to Finance Act, 2021 coming into force. It is clarified that the new provisions relating to reopening introduced by the Finance Act, 2021 came into force with effect from 01.04.2021."
5.2. In the present case, the search took place in the case of assessee on 19.3.2019 and the following 6 assessment years covered by section 153A of the Act: a) A.Y. 2018-19 b) A.Y. 2017-18 c) A.Y. 2016-17 d) A.Y. 2015-16 e) A.Y. 2014-15 f) A.Y. 2013-14 5.3 The assessment year in which search took place i.e. 2019-20 is covered by section 143(3) of the Act. The assessment reopened is in the assessment year 2012-13 which is beyond the 6 assessment years covering the block period u/s 153A of the Act. However, it is within 6 years from the end of AY 2012-13. As per section 149 stood as in the assessment year 2012-13, wherein inter-alia stated that no notice u/s 148 of the Act shall be issued in the relevant assessment year as per clause (b) if 4 years, but not more than 6 years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax, which has escaped assessment amounts to or is likely to amount to Rs.1 lakh or more for that year. In other words, limitation of 6 assessment years from the end of relevant assessment year operated as time line u/s 149 of the Act as stood in the assessment year 2012-13 for issuance of notice u/s 148 of the Act beyond which period, it was not competent for the AO to issue notice for reassessment. Now the reopening notice for the assessment year under consideration has been given on 30.3.2019 and it has been issued before the end Mr. P. Narasimha Rao, Mangaluru
Page 7 of 29 of 6 years from the end of the relevant assessment year i.e. 2012- 13 and it cannot be said that it is barred by time or without jurisdiction and time is available to issue notice u/s 148 of the Act upto 31.3.2019. Stating differently, as per the provisions of section 149 of the Act, the AO is competent to issue notice u/s 148 of the Act for the assessment year 2012-13 on or before 31.3.2019 and in the case of notice u/s 148 of the Act has been issued on 30.3.2019 and it has been issued in time. In view of our above findings, additional ground Nos.1 to 3 are dismissed.
Now coming to the additional ground No.4, in this ground, the assessee has challenged that assessee has raised the objection for reopening of assessment and without appreciating said objections, he has framed the assessment u/s 143(3) r.w.s. 147 of the Act and he has not followed the procedure laid down in Hon’ble Supreme Court judgement in the case of GKN Driveshafts (India) Ltd. Vs. ITO in 259 ITR 19 (SC), so the assessment has to be annulled. In our opinion, there is no merit in the argument of ld. Counsel. The assessee has filed the return of income on 6.11.2019 in response to the notice u/s 148 of the Act declaring income of Rs.15,99,160/-, copy of the reasons recorded for reopening was provided to the assessee vide letter dated 17.12.2019. The assessee has filed objections vide letter received on 9.12.2019 before AO and the same were rejected by a separate speaking order dated 13.12.2019, which has been also clearly recorded by the AO in his assessment order. The assessee is not able to state anything with regard to passing of separate speaking order dated 13.12.2019 rejecting the objection raised by the assessee with regard to reopening of assessment. Being so, in our opinion, there is no merit in this ground raised by the assessee and the same is rejected. Mr. P. Narasimha Rao, Mangaluru
Page 8 of 29 Main Grounds:- 7. As seen from the assessment order, the AO has made addition totalling of Rs.3,51,95,289/-. Against this assessee raised these grounds challenging the additions as below: (i) Disallowance of opening balances: Capital receipts - Rs.67,54,000/- Opening loan debtors- Rs.34,96,774/- Opening balance balance Rs.1,02,50,774/- (ii) Undisclosed investment: Opening land value Rs.94,97,820/- Stamp duty Rs. 5,09,105/- Addition of capital Rs.84,33,072/- Undisclosed income Rs.10,00,000/- Rs.1,96,39,997/- (iii) Undisclosed investment Rs. 55,04,518/- Total: Rs.3,53,95,289/- However, for the purpose of clarity, we will adjudicate above issue as the additions made by AO in his assessment order. The first issue for our consideration is with regard to following additions: (a) Unexplained investment in property Land at Vamanjoor 898 – 20.40 cents Rs.10,41,500/- (b) Unexplained investment in property Land at Vamanjoor 2202 – 17.90 cents Rs. 9,28,000/- (c1)Land at Vamanjoor 2250 – 48.90 cents Rs.25,31,500/- (c2)Land at Vamanjoor 4842 – 41.05 cents Rs.20,53,000/- Rs.45,84,500/- (d) Construction cost Rs.29,43,820/- (e) Stamp duty Rs. 5,09,105/- (f) Loan to Yatish Acharya Rs. 5,85,000/- (g) Unexplained opening balance of debtorsRs.17,45,000/- (h) Unexplained opening cash balance Rs.11,66,774/- Total: Rs.1,35,03,699/- Mr. P. Narasimha Rao, Mangaluru Page 9 of 29 (i) Geeta Rao unexplained loan/gift Rs.45,16,570/- (a) Gift from brother Rs. 1,00,000/- (b) Gift fromVarnitha RaoRs.19,94,000/- (c) Gift from Varun Rao Rs. 18,22,000/- Rs.39,16,502/- (ii) Amount received from debtors: (a) Krishna Bhandary Rs. 6,00,000/- (b) Nalini Rs. 9,45,000/- (c) Ramesh Shetty Rs. 4,95,000/- (d) Sai Prasad Rs.47,14,000/- Rs.67,54,000/- Rs.1,51,87,072/- (iii) Undisclosed investment Rs. 10,00,000/- (iv) Undisclosed income in ITR Rs. 55,04,518/- Grand total (Addition made by AO) Rs.3,51,95,829/- 8. Ground No.1 is general in nature, which do not require any adjudication.
Ground Nos.2 & 3 are inter-linked which are reproduced as under:
“2. The learned CIT(A), National Faceless Appeal Centre (NFAC) has erred in upholding the disallowance of opening balance as on 1.4.2011 to the extent of Rs. 1,00,50,774/-, which was disclosed in the Balance Sheet as on 31.3.2012.
The learned CIT(A), National Faceless Appeal Centre (NFAC) has failed to appreciate the fact that, it ought to have been taxed in the proceeding assessment years, wherein the investment were made.”
9.1 The ld. A.R. submitted that the assessee has shown following assets which are sourced by opening capital and the same was standing as on 31.3.2011 in the hands of assessee and carried forward the same as on 1.4.2011 as follows: Land at Vamanjoor 898 - 20.40 cents Rs.10,41,500/- Land at Vamanjoor 2202 - 17.90 cents Rs. 9,28,000/- Mr. P. Narasimha Rao, Mangaluru
Page 10 of 29 Land at Vamanjoor 2250 - 48.90 cents Rs.25,31,500/- − Land at Vamanjoor 4842 - 41.05 cents Rs.20,53,000/- − Construction cost Rs.29,43,820/- − Stamp duty Rs. 5,09,105/- − Land to Yathish Acharya Rs. 5,85,000/- − Unexplained opening cash of debtors Rs.17,45,000/- − Unexplained opening cash balance Rs. 11,66,774/- Total Rs.1,35,03,699/- 9.2 According to the ld. A.R., the assessee is not maintaining any books of accounts and he has filed only statement of income for the assessment year 2012-13 disclosing the income u/s 44AD of the Act and the assessee has filed the copy of balance sheet as on 31.3.2011. At the time of assessment when AO asked the balance sheet for earlier financial year, he submitted that this balance sheet is only relating to the business where the assessee has disclosed income u/s 44AD of the Act and does not include all the assets and liabilities of the assessee and these assets are opening assets of the assessee as owned by assessee as on 31.3.2011. Being so, it cannot be brought to tax in the assessment year 2012-13 (previous year 2011-12).
On the contrary, the ld. D.R. submitted that assessee has not filed any evidence to support that these are the assets owned by assessee in earlier assessment year 2011-12 (financial year 2010-11). Had the assessee has placed necessary evidence, the AO would not have brought the same into tax. Further, he submitted that the sale deeds were registered in respect of above properties in the assessment year under consideration and being so, these properties were considered as unexplained investment in the assessment year under consideration and the same has to be confirmed.
We have heard the rival submissions and perused the materials available on record. The main plea of the assessee is that the payment for the above assets have been made in earlier assessment years which Mr. P. Narasimha Rao, Mangaluru
Page 11 of 29 is confirmed by the AO in his order in assessment order at page 8 of 32, which is reproduced herein below:
11.1 However, the ld. AO is not ready to give any credit to above payments though these payments are made by banking channels, evidenced by the bank statements on the reason that the payments made to those assets is more than the value mentioned in respective sale deeds. In our opinion, this cannot be reason to make additions that payment shown in the bank statement is more than the registered value mentioned in the sale deed. As seen from the above statement, the payment has been made not in the assessment year under consideration. These payments have been made prior to 31.3.2011 and even if the payment is more than mentioned in the respective sale deeds, the credits to be given to the extent of value mentioned in registered sale deed. In our opinion, it is not a case of the department that the payment has been made in the A.Y. 2011-12. Accordingly, we are directing the AO not to make addition in respect of following:- Mr. P. Narasimha Rao, Mangaluru
Page 12 of 29 Land at Vamanjoor 898 - 20.40 cents Rs.10,41,500/- Land at Vamanjoor 2202 - 17.90 cents Rs. 9,28,000/- Land at Vamanjoor 2250 - 48.90 cents Rs.25,31,500/- − Land at Vamanjoor 4842 - 41.05 cents Rs.20,53,000/- − Construction cost Rs.29,43,820/- Loan to Yatish Acharya – Rs.5,85,000/-:
Loan to Yatish Acharya of Rs.5,85,000/- said to be given prior to 1.4.2011 as there was sufficient withdrawals by assessee prior to 31.3.2011 and the benefit of withdrawal to be given for advancing money to Yatish Acharya and the said amount has been received by assessee back on 4.7.2011 through banking channel. In our opinion, this plea of the assessee is to be accepted since there was no material brought on record by AO to show that the assessee has not advanced this amount earlier to this A.Y. Even otherwise, the addition is made u/s 68 of the Act which cannot be applied to assessee’ case since the assessee is not maintaining books of accounts. Accordingly, this addition is deleted.
12.1 Regarding unexplained opening balance of Rs.17.45 lakhs, the plea of the assessee that this amount has been advanced to following parties:- Jayaram Kadri Rs.3.50,000/- Rajeshwari Prakash Rs.9,00,000/- Rupesh Kumar Rs.4,95,000/- Total Rs.17,45,000/- 12.2 The contention of the ld. A.R. is that these amounts have been advanced in earlier assessment year and the same has been received back in this Assessment year. This can be seen from the bank statement of the assessee. Without prejudice to this, he submitted that the amount received from them even if it is considered as Mr. P. Narasimha Rao, Mangaluru
Page 13 of 29 unexplained credit and the same falls under the purview of section 68 of the Act. This view was held in the case of the CBI vs. V.C. Shukla (1998) 3 SC 410, 433, 434 by the Hon'ble Supreme Court as- "Collection of sheet fastened or bound together so as to form material whole. Loose sheets or scraps of paper cannot be termed as books."
12.2.1 The Hon'ble Delhi High Court in the case of Girish Chaudhary 296 ITR 619 it was held that- "while containing the loose sheets of paper are not “book and hence entries made therein are not admissible under section 34 of Indian Evidence Act. 1872 12.2.2 Being so, entries in the balance sheet shall not be sufficient evidence charge any person with the liability. Thus, no addition can be made merely on the basis of entries in the balance sheet or rough jottings or scribbling found during the course of search unless these are supported with some cogent evidences since it does not satisfy the below mentioned provisions of section 68 of the Act. Section 68:- "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year"
12.2.3 In order to invoke the provision of the Section 68 by the Assessing Officer following conditions are to be satisfied Mr. P. Narasimha Rao, Mangaluru
Page 14 of 29 i. Any sum is found to be credited in the books of Assessee. ii. The Assessee offers no explanation about the nature and source thereof. iii. The explanation offered by him is not, in the opinion of the Assessing Officer satisfactory.
12.2.4 In our opinion, section 68 of the Act clearly states that in order to make an addition under this section any sum is found to be credited in the books of accounts of the Assessee and the explanation about the nature and source of the credit is either not given or the explanation so provided by the Assessee is not satisfactory in the opinion of the Assessing Officer. The dispute arises when the Assessee deposits any sum into the bank account or any sum is credited in the bank passbook and such transaction were not recorded in the books of accounts. In such instance two issues arises before the Court they are: a) Can the bank passbook or bank balance sheet be considered as the books of the Assessee for making an addition u/s 68? b) Can the Assessing Officer make an addition of such sum u/s 68 of the Act solely relying on the bank passbook/ financial statements of the assessee? Whether bank passbook or bank balance sheet can be considered to be the books of accounts of the Assessee?
12.2.5 It is to be noted that a bank passbook or balance sheet are not considered as books of account due to the following reasons: Mr. P. Narasimha Rao, Mangaluru
Page 15 of 29 i. The relationship between the banker and the customer is one of debtor and creditor and not a trustee and beneficiary. ii. It is only a copy of the constituent's account in the books maintained by the bank. iii. It is not as if the pass book is maintained by the bank as an agent of the constituent. iv. Nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. v. Similarly, balance sheet is not a books of account of the assessee. 12.3 Further, we can place reliance on following: i. In case of Baladin Ram v. CIT [19691 71 ITR 427 (SC) the Hon'ble Supreme Court held that- "section 68 will be applicable only when any amount is found credited in the books of an assessee. On the other hand if the undisclosed income was found to be from some unknown source or the amount represents some concealed income which is not credited in his books then the section will not be applicable." ii. In case of Mehul V. Vyas vs. ITO, [2017] 80 taxmann.com 311 (Mumbai-Trib.) it was held that- "The ITAT held that where assessee was not maintaining any account books, bank statement could not be construed to be a books of account maintained by her; merely on basis of information that assessee made a 'cash deposit' in her saving bank account, no addition could be made as unexplained cash credit. Further, it was held that a credit in the 'bank account' of an assessee cannot be construed as a credit in the 'books of the assessee', for the very reason that the bank account cannot be held to be the 'books' of the assessee. Though it remains as a matter of fact that the 'bank account' of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, Eliot the same in no way can be held to be The 'books' of the assessee." Mr. P. Narasimha Rao, Mangaluru
Page 16 of 29 iii.. In case of Smt. Manasi Mahendra Pitkar v ITO [2016] 73 taxmann.com 68 (Mumbai — Trib.) it was held that- "The ITAT held that when the assessee is not maintaining any books of account and section 68 cannot invoked by the AO only on the basis of the bank Pass Book. The ITAT observed that bank Pass Book or bank statement cannot be construed to be a book maintained by the assessee for any previous year as understood for the purposes of section 68." iv. In case of CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59 (Born.) it was held that- "In this case certain money was credited in the bank account, but same was not accounted in the books of account. On assessment, the ITO made addition u/s 68 of the Act in respect of amount credited in pass book. On appeal, the tribunal deleted the addition.
On further appeal by revenue, the High Court affirmed the decision of tribunal and held that held that pass book is provided by the bank to its account holders is only a copy of the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. So pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee and hence section 68 is not applicable." v. The Hon'ble jurisdictional High Court of Delhi in the case of CIT Vs. Ms. Mayawati reported in 338 ITR 563 [DEL] has held as under: "As the ITAT has come to the conclusion that Section 68 has no applicability to the facts of the present case as the assessee is not maintaining any books of accounts. If that be so Section 68 does not apply in this case for the simple reason cheque received from Mr.Pankaj Jain has been deposited in her bank account in this regard. The ITAT was of the opinion that balance sheet/statement of the affairs cannot be equated to books of account because a pass book of the bank cannot be treated as a book of account of the assessee because this is proved by the banker, which is given to its customer and is only a copy of the customer’s account in the books maintained by the bank. The bank does not act as an agent of the customer 1`)or can it be said that the banker maintains the pass book under instructions of the customer (assessee) the relationship between the banker and customer is one of the debtor and creditor only. Therefore, a cash credit appearing in assessee’s pass book relevant to a particular previous year, in a case where the assessee does not maintain books of account, does not attract the provisions of Section 68." Mr. P. Narasimha Rao, Mangaluru
Page 17 of 29 12.3.1 Thus, the provision u/s 68 of the Income Tax Act, 1961 is well settled that in order to make an addition under this section the very sine qua non is that there should be any sum credited in the books of the Assessee. The very fact that there was a credit entry in the bank passbook of the Assessee or entries in the balance sheet produced by the assessee during the course of assessment without maintaining books of accounts cannot be construed as a credit in the books of the Assessee. It is fact that the onus to prove the nature and the sources of the sum credited is on the Assessee but onus does not get transferred on to the Assessee since the very sine qua non u/s 68 is that there should be any sum credited in the books of the Assessee. Since the bank passbook or entry in the balance sheet without books of accounts cannot be constructed as the books of the Assessee, as explained detailed above along with judgements, the order passed by the Assessing Officer making an addition u/s 68 of the Act is unsustainable.
12.4 Thus, in our opinion, the provisions of section 68 of the Act cannot be applied in this case as the assessee is not maintaining the books of accounts. Further, the P&L account and balance sheet filed by the assessee before the assessing authority cannot be considered as a books of accounts, as contemplated u/s 68 of the Act. Thus, the view of ours fortified by the judgement of Hon’ble Madras High Court in the case of CIT Vs. Taj Borewells reported in 291 ITR 232 wherein held as follows: “The P&L a/c of a trade is the statement wherein the various items of profit and revenue on the one hand and the losses and expenditure on the other hand, are collected and offset, the one class against the other, that is, in compiling such an account being debit all the losses, credit all the gains. The resulting balance of this account represents the net profits or the net losses for the period under review. The object of a P&L a/c is to ascertain the income of a business Mr. P. Narasimha Rao, Mangaluru
Page 18 of 29 and by offsetting the expenses of earning that income, to ascertain the net increase (profit) or decrease (loss) in the traders' "net worth" for the period. Balance sheet lists the assets and liabilities and equity accounts of the company. It is prepared "as on' a particular day and the accounts reflect the balances that existed at the close of business on that day. The P&L a/c and the balance sheet are not the books of account as contemplated under the provisions of the Act. -s. Rajaqopala Vandayar vs. CIT (1990) 81 CTR (Mad) 195: (1990) 184 ITR 450 (Mad) applied. (Para 6)
The assessee firm had explained the source of capital. So, there was an explanation offered by the assessee firm. The said explanation has not been rejected by the AO. Later, the AO examined the partners and the partners had also made explanation in respect of the source for the contribution of the capital to the assessee firm. The AO had also partially accepted the explanation offered by the partners. The AO had not rejected the explanation offered by the firm. Unless and until the explanation offered by the firm is rejected and the same is not genuine, the AO cannot invoke the provision of s.
The AO cannot ask the assessee firm to prove source of a source. Once the firm had offered an explanation and established that the capital was contributed by the partners, the same could not be assessable in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under s. 68 in the hands of the assessee firm. Also, it is clear from the language employed under s. 68 that only the assessee alone has to offer explanation. If the assessee makes explanation, it is for the AO to accept or reject the same. Finding given by the Tribunal is that the assessee firm had explained the source of the capital and hence the same cannot be assessed as undisclosed income in the hands of the assessee firm. If the AO doubted the genuineness of the source of the partners, he should have considered the same in the hands of the partners only and not in the hands of the firm. The reasons given by the Tribunal are based on valid materials and evidence and hence the view taken by the Tribunal is in accordance with law. It is not a fit case for making addition under s. 68. -India Rice Mills vs. CIT (1996) 218 ITR 508 (All) and Surendra Mahan Seth vs. CIT (1996) 221 ITR 239 (All) concurred with; Jaqmohan Ram Ram Chandra vs. CIT (2005) 193 CTR (All) 153: (2005) 274 ITR 405 (All) distinguished.”
12.5 In view of the above, we direct the AO to delete all these additions made by him and sustained by CIT(A) as discussed above.
Next addition is with regard to unexplained loan/gift received from Smt. Geeta Rao at Rs.45,16,570/- Mr. P. Narasimha Rao, Mangaluru
Page 19 of 29 Mrs. Geeta Rao, W/o Present Assessee – Rs.45,16,570/-:-
13.1 The ld. A.R. submitted that Mrs. Geeta Rao is wife of assessee and she has been assessed to income tax from year to year. This property has been shown in her balance sheet and the same has been shown in the balance sheet of assessee also. Thus, it means that this land has been sourced by Mrs. Geeta Rao herself and it cannot be brought to tax in the hands of present assessee.
The ld. D.R. submitted that there was no sufficient evidence to show that Mrs. Geeta Rao has a capacity to invest in that land to the extent of Rs.45,16,570/-.
We have heard the rival submissions and perused the materials available on record. The assessee has filed a copy of income tax return of Mrs. Geeta Rao for the assessment year 2012-13. The first return for assessment year 2012-13 was filed on 30.3.2013 bearing acknowledgement No.605946570300313 showing gross total income at Rs.7,32,175/- as against this statement of income shown income of Rs.11,46,379/-. At the same time, there was one more return for the assessment year 2012-13 filed on 6.11.2019 bearing acknowledgement No.251376130061119 showing gross total income at Rs.1,37,77,863/-. These returns were filed before AO Circle-(1)(2). Thus, it means that Mrs. Geeta Rao was assessed to tax and she has been filing returns of income. The assessee also submitted that this property ha been purchased in joint name with the assessee’s wife Smt. Geeta Narasimha Rao and her assessment has been completed by ACIT Circle-1(1) and TPS Mangalore for the assessment year 2012-13 vide order dated 27.12.2019 and there was an addition of Rs.45,92,500/- on this count. The AO noted these facts in assessee’s assessment order in para 17.3 in page 18. Similarly, these facts are recorded by AO of Mr. P. Narasimha Rao, Mangaluru
Page 20 of 29 Smt. Geeta N. Rao in para 9.1 pages 9 & 10. The ld. A.R. submitted that assessee along with his wife purchased 2.34 acres of land. Out of above, 0.52.20 acres were left for road and actual saleable area was 2.34.0 acres (0.52.20 + 1.81.80 acres = 2.34.0 acres) for which the assessee paid an amount of Rs.1.05 crores before 31.3.2011 which includes from assessee’s side at Rs.45,84,500/- and the share of Smt. Geeta Rao’s was Rs.45,92,500/- which has been shown in her balance sheet and balance amount of Rs.13,23,000/- out of opening balance which cannot be taxed in the assessment year under consideration. He also submitted that the AO has recorded these facts in page 8 of the assessment order admitting that payment has been made before 31.3.2012 and this cannot be taxed in the assessment year under consideration. First of all, these properties were disclosed in the name of Smt. Geeta Rao and even otherwise if the payment has been made prior to 31.3.2012, the addition cannot be made in the hands of assessee. As seen from the facts recorded by AO in page 8, there are sufficient withdrawals from bank account. Accordingly, this addition is deleted.
Gift from various persons – Rs.39,16,502/-, which is as follows: Gift from Brother – Rs.1,00,000/-
The AO has not recorded much details on this count. He just mentioned that there was a gift of Rs.1 lakh and AO has not examined any parties concerned and there is no sufficient material to sustain this addition. Being so, we delete this addition of Rs.1 lakh as discussed earlier u/s 68 of the Act cannot be applied on the basis of P&L account of balance sheet, filed during the course of assessment by the assessee as discussed in earlier paras 12 to 12.5 of this order. Mr. P. Narasimha Rao, Mangaluru
Page 21 of 29 Gift from Varnitha Rao (Daughter) – Rs.19.94 lakhs:
She is the daughter of assessee. Before us, the ld. A.R. has brought on record that Varnitha Rao is an income tax assessee. She has filed income tax return for 2012-13 on 31.3.2013 with acknowledgement no.609723990310313 with Central Circle-2, Mangalore. She has declared an income of Rs.1,95,000/-. However, the same was at Rs.4,00,178/- as per statement of income. The AO has not verified any of these facts. There was no examination or cross examination of any parties. In our opinion, there is no sufficient evidence brought on record by AO to sustain this addition. Accordingly, we delete this addition as there was no sufficient material or examination or cross examination of the parties concerned. Further, as discussed earlier u/s 68 of the Act cannot be applied on the basis of P&L account of balance sheet, filed during the course of assessment by the assessee as discussed in earlier para 12 to 12.5 of this order.
Varun Rao (Son) – Rs.18.22 lakhs:
He is the son of assessee. He has filed his return of income for the assessment year 2012-13 on 31.3.2013 with acknowledgement no.6083677830310313, wherein he has declared an income of Rs.1,98,908/- and as per statement of income he has declared an income of Rs.3,21,336/-. The assessee has filed return with Central Circle-2, Mangalore and that was also before the completion of impugned assessment of assessee on 30.12.2019. The AO has not verified any of these facts though he could have verified it by exercising power u/s 133(6)/131 of the Act. There was no examination or cross examination of any of the parties concerned. The evidence brought on record by AO is not sufficient to hold that Mr. P. Narasimha Rao, Mangaluru
Page 22 of 29 assessee has failed to furnish the necessary details and evidence brought on record, which is not sufficient to sustain the addition. Accordingly, we delete the addition. Further, as discussed earlier u/s 68 of the Act cannot be applied on the basis of P&L account of balance sheet, filed during the course of assessment by the assessee as discussed in earlier para 12 to 12.5 of this order.
Amount received from debtors:
The assessee shown amount received from debtors as below:-
Krishna Bhandary 6,00,000/- Nalini 9,45,000/- Ramesh Shetty 4,95,000/- Sai Prasad 47,14,000/- Total 67,54,000/- 19.1 The assessee has stated before AO that the assessee has paid an advance for purchase of property, site development, supply of materials and other labour prior to 1.4.2011. The said amount has been received back by the assessee in the assessment year under consideration. However, the assessee failed to file necessary details with regard to when this amount was advanced to these parties. Being so, the AO has considered this amount as income from other sources and added to the income of the assessee.
19.2. The ld. A.R. submitted that these amounts have been received back from those parties, which has been advanced in earlier assessment year and cannot be brought to tax in the assessment year under consideration. Mr. P. Narasimha Rao, Mangaluru
Page 23 of 29 19.3 He further submitted that these credits are not appearing in the books of accounts of the assessee. The assessee has not maintained any books of accounts. Being so, the said amount even if it is received in the assessment year under consideration cannot be brought to tax.
The ld. D.R. submitted that these amounts have been received in the assessment year under consideration and hence, this has been treated as income of the assessee under the head “income from other sources” and the AO has not mentioned any section under which these additions are made.
We have heard the rival submissions and perused the materials available on record. Admittedly, in this case, assessee has not maintained books of accounts. The assessee has shown in his statement filed before the AO that he has received back an amount of Rs.67.54 lakhs from various parties listed as above. This explanation of the assessee has not been accepted by the AO on the reason that the assessee has not given the details on which date this amount has been advanced to those parties. It is admitted fact that the assessee did not maintain any books of accounts for the reason that assessee has opted to disclose the income under presumptive tax basis u/s 44AD of the Act. Due to search and seizure in the case of Shri P. Narasimha Rao on 19.3.2019, the assessee’s case was reopened by issuing notice u/s 148 of the Act on 30.3.2019. The reopening of assessment is also not based on the books of accounts. It is based on the materials found during the course of search action in the case of shri P. Narasimha Rao and also on the basis of various statements, balance sheets and the P&L accounts filed before the AO. During the course of framing assessment u/s 148 of the Act, this impugned amount of Rs.67.54 lakhs has been Mr. P. Narasimha Rao, Mangaluru
Page 24 of 29 treated as “income from other sources”. Actually, this falls u/s 68 of the Act. Since there was no books of accounts, there could be no credit in such books. The balance sheet, P&L account prepared by assessee cannot be books of accounts. For this purpose, we can go through the provisions of section 2(12A) of the Act, which defines the books of accounts as below:
“Section 2(12A) defining “books or books of account” was introduced in the Act by the Finance Act, 2001, with effect from June 1, 2001. Books of account is defined as any book which forms an integral part of a system of book keeping employed in any particular business and consequently includes both the ledger and the books of original entry. The profit and loss account of a trade is the statement wherein the various items of profit and revenue on the one hand and the losses and expenditure on the other hand, are collected and offset, the one class against the other, that is, in compiling such an account- debit all the losses, credit all the gains. The resulting balance of this account represents the net profits or the net losses for the period under review. The object of a profit and loss account is to ascertain the income of a business and by offsetting the expenses of earning that income, to ascertain the net increase (profit) or decrease (loss) in the trader’s “net worth” for the period. The balance-sheet lists the assets and liabilities and equity accounts of the company. It is prepared “as on” a particular day and the accounts reflect the balances that existed at the close of business on that day. The profit and loss account and the balance-sheet are not books of accounts as contemplated under the provisions of the Act.”
21.1 Being so, the entries made by assessee in the P&L account, balance sheet or any statements filed by the assessee cannot be considered as a books of accounts and on that basis, the AO cannot make any additions without carrying out necessary enquiry in this regard. Being so, placing reliance on the judgements of Madras High Court in the case of CIT Vs. Taj Borewells reported in 291 ITR 232 (Mad) (2007), wherein held as follows:
Held, that the following striking features were present: (a) since there were no books of account, there could be no credits in such books; (b) it was the first year of assessment of the assessee; (c) the explanation offered by the assessee-firm was not rejected and only the explanation offered by the partners was rejected. Unless and until the explanation offered by the firm was rejected and was found not genuine, the Assessing Officer could not invoke the provision of section 68. The addition could not be made.
Mr. P. Narasimha Rao, Mangaluru
Page 25 of 29 21.2 In view of this, we delete the above addition made by the AO.
Next ground of the assessee’s appeal is reproduced below:
“5. The learned CIT(A), National Faceless Appeal Centre (NFAC) is not justified in law in upholding the disallowance of expenses claimed during the year under question to the extent of Rs.55,04,518/-.”
22.1 The assessee has filed the profit & loss account before the AO showing the net profit at Rs.23,00,681/- including income declared u/s 44AD of the Act at Rs.7,82,875/-. The assessee has claimed various expenditure in respect of sale of land, which was not allowed by AO. He allowed only cost of land, he has not allowed other expenditure like commission paid, construction expenses, construction material cost, labour cost and arrived at the income from sale of land at Rs.48,99,318/- and computed the total income of the assessee from these transactions as below:
Income in P Amount Expenses Expenses Total income & L account allowed not allowed Commission 425200 0 218000 425200 Contract 4271956 0 0 782875 Receipts As claimed As claimed in under 44AD in ITR ITR Sale of land 8442500 3543182 0 4899318 Rental 180000 0 0 180000 income Interest 816282 0 0 816282 income Total 71,03,675/- 22.2 Against this assessee came in appeal before us. The contention of the ld. A.R. is that the AO out of sale value of land at Rs.84,42,500/- has granted expenditure only to the extent of Rs.35,43,182/- without giving deduction towards commission paid, construction expenses, cost of construction and labour cost as recorded by the assessee in the P&L account. According to the ld. A.R., he has accepted the receipt in its entirety. However, he is Mr. P. Narasimha Rao, Mangaluru
Page 26 of 29 disbelieving expenditure incurred by the assessee in the same breath, which is incorrect.
On the other hand, the ld. D.R. submitted that whenever assessee claims any expenditure, it is the duty of the assessee to produce necessary details in support of these expenditure. Since the assessee failed to establish the incurring of expenditure, the same has been disallowed.
We have heard the rival submissions and perused the materials available on record. In this case, assessee claimed net profit in the profit & loss account at Rs.23,00,681/- which includes income declared under presumptive taxation basis i.e. u/s 44 AD of the Act at Rs.7,82,875/-. Thus, the assessee declared income from real estate business at Rs.23,00,681/- (-) Rs.7,82,875/- i.e. Rs.15,17,806/-. Thus, the computation of income from the sale of land according the assessee is as follows: Sale of land Rs.84,42,500/- Expenditure (-) Rs.69,24,694/- Net profit Rs.15,17,806/- 24.1 The AO against the claim of expenditure of Rs.69,24,694/- allowed the expenditure at Rs.35,43,182/-, which is the cost of land and he has not allowed the expenditure in respect of commission paid, construction expenses, Cost of construction material and labour cost worked out at Rs.33,81,512/-.
24.2. On the other hand, he accepted the entire sales receipt at Rs.84,42,500/-. He is partially accepting the P&L account of the assessee in respect of sales receipts. He on the same breath is not accepting the expenditure claimed by assessee at Rs.69,24,694/-. In our opinion, this is not appropriate. Since the assessee has not produced the supporting documents towards incurring of Mr. P. Narasimha Rao, Mangaluru
Page 27 of 29 expenditure at Rs.69,24,694/-, he cannot disallow the expenditure to the tune of Rs.33,81,512/- and in our opinion, since the assessee has failed to produce the necessary details, we direct the AO to disallow only 10% of Rs.33,81,512/- i.e. at Rs.3,38,151/- only. Directed accordingly.
Undisclosed investment of Rs.10 lakhs:
Next ground of the assessee’s appeal is reproduced below:
“6. The learned CIT(A), National Faceless Appeal Centre (NFAC) has failed to accept the alternative plea by overlooking the case laws relied on by the Appellant, i.e., without prejudice to the above, the Assessing Officer ought have estimated the profit at 2 percent of the alleged additions made, as undisclosed income of the Appellant.”
25.1. As per seized document A1/PNR/12 at page 12, the assessee has made cash payment of Rs.10 lakhs. In the seized material, there was a cheque payment which was duly accounted by the assessee.
25.2 On the other hand, cash payment of Rs.10 lakhs is not recorded. Hence, the addition was made by AO u/s 69 of the Act as unexplained investment.
25.3 The contention of the ld. A.R. is that assessee has been in the real estate business and offered income for taxation u/s 44AD of the Act i.e. under the provisions of presumptive taxation. This entire amount cannot be brought to tax. At the best, income is to be estimated at 8% of this impugned amount.
26. The ld. D.R. relied on the order of lower authorities.
We have heard the rival submissions and perused the materials available on record. In this case, there is an unexplained Mr. P. Narasimha Rao, Mangaluru
Page 28 of 29 investment of Rs.10 lakhs. As per seized material bearing No.A/PNR/2012 at page 18, the AO has not verified to whom this payment has been made and not examined concerned parties to the agreement. The AO produced a copy of agreement for sale, said to be dated 29.11.2011, wherein the vendor is N. Subrahmanya Bhatt, S/o Late Krishna Bhatt, purchaser was Smt. P. Geeta Rao, assessee’s wife and Shri P. Narasimha Rao, the present assessee. According to the AO, this amount has not been explained by the assessee. The AO ought to have examined the concerned parties to the agreement and he has not recorded the statement of all the parties concerned, the vendor or other buyer. Without carrying out necessary exercise he made addition of entire Rs.10 lakhs in the hands of assessee, which is inappropriate. Further, the assessee has disclosed the income in his returns of income for earlier assessment year and also in this assessment year at Rs.15,99,160/- and also we have sustained additions of Rs.3,38,151/- in immediate earlier ground in para 24.2. To that extent, assessee is entitled for benefit of telescoping out of income assessed in earlier years. Accordingly, we delete this addition.
In the result, the assessee’s appeal is partly allowed. Order pronounced in the open court on 26th May, 2023