INCOME TAX OFFICER, GUNTUR vs. MADHUSUSHANA VENKATA SUBBA RAO POTTI, GUNTUR

Briefly stated facts of the case are that, the assessee is a Firm engaged in the business of Cotton Trading & Ginning business along with investment in Films. In this case, consequent to deposit of Rs.40 Crores in Specified Bank Notes (SBNs)/old demonetized notes during the demonetization period in December, 2016 in the bank account of M/s Jaya Balajee Real Media Private Limited [in short “JBRMPL”], a search and seizure operation u/sec.132 of the Income Tax Act, 1961 [in short “the Act”] was carried out on that company, it’s Directors and other related parties on 31.12.2016. During the search and seizure proceedings, sworn statements were recorded u/sec.132(4) of the Act on 02.01.2017, 03.01.2017, 17.02.2017 and 24.02.2017 from Sri Thandra Ramesh, Director of JBRMPL, in which, he has mentioned the name of M/s. Vijaya Sai Laxmi Srinivasa

During the course of assessment proceedings, the Assessing Officer noted that, consequent to deposit of Rs.40 Crores in Specified Bank Notes (SBNs)/old demonetized notes during the demonetization period in December, 2016 in the bank account of M/s Jaya Balajee Real Media Private Limited (JBRMPL), a search and seizure action u/sec.132 of the Act was carried-out on that company, it’s Directors and 6 ITA.Nos.359, 367, 368 & 460/Hyd./2024 other related parties on 31.12.2016. During the course of search and seizure proceedings, Shri Tandra Ramesh, Director of JBRMPL has not mentioned the name of M/s. Vijayasai Laxmi Srinivasa Cotton Mills in any of the sworn statements recorded on 02.01.2017, 03.01.2017, 17.02.2017 and 24.02.2017 and neither in the Affidavit filed before ADIT(Inv), Unit II(1), Hyderabad on 03.03.2017. However, he has mentioned the name of the assessee viz., M/s. Vijayasai Laxmi Srinivasa Cotton Mills only in the written submissions filed on 17.03.2017 as source of Rs.2.15,00,000/- claimed to have given as advance for the movie rights during financial year 2015-2016. Further, no seized document contains any hint about the claimed transaction between the assessee M/s. Vijayasai Laxmi Srinivasa Cotton Mills and JBRMPL. The Assessing Officer also observed that, the assessee has filed return of income for assessment year 2016-2017 only in March, 2017, after filing of Affidavit by Shri Tandra Ramesh, Director of JBRMPL.

During the course of assessment proceedings, the assessee company was confronted with the above and once again required to produce evidences, if any, in respect of the above and also the assessee was given adequate opportunity to produce explanation. Since, there were no response from the assessee, the Assessing Officer vide letter dated 21.11.2019 issued show cause notice to the assessee to show cause, as to why the advance of Rs.2,15,00,000/- claimed to be given by the assessee company to JBRMPL in financial year 2015-2016 relevant to assessment year 2016- 2017 towards the rights of movie is proposed to be assessed in the hands of assessee-company for the assessment year 2016-2017 on protective basis as unexplained investment. In response, the assessee submitted that, the impugned advance of Rs.2,15,00,000/- was given to JBRMPL out of Over Draft Account is not acceptable to the Assessing Officer. Therefore, the Assessing Officer in absence of any satisfactory explanation from the assessee, treated the sum of Rs.2,15,00,000/- as unexplained money u/sec.69 of the Income Tax Act, 1961, vide order dated 08.12.2019 passed

Aggrieved by the assessment order, the assessee company preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee filed it’s submissions which has been reproduced by the learned CIT(A) in his order from pages 10 to 23 of the order. The learned CIT(A) after considering the relevant submissions of the assessee and the assessment order observed that, “the appeal of M/s. Jaya Balajee Real Media Private Limited filed before CIT(A)- 12, Hyderabad against the said substantive addition has been dismissed and addition of Rs.2,15,00,000/-has been confirmed in the hands of M/s. Jaya Balajec Real Media Private Limited in the appellate order passed in appeal number CIT(A), Hyderabad-12/10354/2018-19 dated 10.07.2024. Since the addition of Rs.2,15,00,000/-has already been confirmed on substantive basis in the hands of M/s. Jaya Balajee Real Media Private Limited in the AY 2017-18, the protective addition of Rs.2,15,00,000/- in the 9 ITA.Nos.359, 367, 368 & 460/Hyd./2024 hand of the appellant is hereby deleted”. The learned CIT(A), accordingly, deleted the addition of Rs.2,15,00,000/- made by the Assessing Officer.

On identical set of facts, the learned CIT(A), has given identical observations and deleted the addition of Rs.5,20,00,000/- in the case of Madhusushana Venkata Subba Rao Potti; Rs.4,50,00,000/- in the case of Potti Kumara Naga Venkata Sai Chakravarthy and Rs.2,00,00,000/- in the case of M/s. Shivani Cotton Industries Private Limited, for the assessment year 2016- 2017.

Aggrieved by the order of the learned CIT(A), the Revenue is now, in appeal before the Tribunal.

Sri Badicala Yadagiri, learned CIT-DR for the Revenue, supporting the order of the Assessing Officer submitted that, learned CIT(A) ought to have upheld the addition made by the Assessing Officer towards advance claimed to have been given to M/s. Jaya Balajee Real Media Private Limited in the financial year 2015-2016 relevant to 10 ITA.Nos.359, 367, 368 & 460/Hyd./2024 assessment year 2016-2017 in cash during the demonetisation period, since the assessee failed to discharge the onus to prove the transaction is genuine. Learned DR further submitted that, although, the CIT(A) confirmed the addition made in the hands of M/s. Jaya Balajee Real Media Private Limited, but, the fact remains that, the above company went for further appeal before the ITAT, Visakhapatnam and, therefore, in order to keep the issue alive in the hands of the assessee, the learned CIT(A) should have confirm the addition till the disposal of the appeal by the Tribunal. The Learned DR further submitted that, although, the assessee claims to have given huge amount of advance to the above company, but, going by the facts available on record, the said company does not have even sufficient income to explain the source and further, the return of income has been filed belatedly to cover-up the transaction of cash advance given to the above company. The learned CIT(A) without appreciating the relevant facts simply deleted the addition made by the Assessing

CA, MV Prasad, Learned Counsel for the Assessee, on the other hand, referring to the petition filed by the assessee, under Rule 27 of IT Rules, 1963 submitted that, the assessee has taken a legal ground challenging the reassessment proceedings including the issue of notice under section 148 of the Act before the learned CIT(A) and the learned CIT(A) has not decided the legal ground of the assessee on the ground that, the addition made by the Assessing Officer has been deleted on substantive ground on merits. However, the fact remains that, the Revenue has challenged the order of the learned CIT(A) by filling appeal before the Tribunal and the assessee filed cross objection and submitted that, since he has got relief from the learned CIT(A), there is no necessity of filling further appeal before the Tribunal. Further, upon perusal of the relevant grounds filed by the Revenue before the Tribunal, the assessee found that, the Revenue has taken certain legal grounds challenging the Order of the CIT(A), particularly, stating that 12 ITA.Nos.359, 367, 368 & 460/Hyd./2024 the appeal has been filed by the Revenue in view of keeping the issue alive and, therefore, after considering the relevant grounds, the assessee opined that, petition under Rule 27 of IT Rules, 1963 needs to be filed with above grounds. Therefore, he submitted that, the petition filed under Rule 27 of IT Rules, 1963 with the following grounds should be admitted.

“The Ld. CIT(A) ought to have upheld the addition made by the AO, as the assessee firm claimed to have given an amount of Rs.2,15,00,000/- as advance to M/s. Jaya Balajee Real Media Private Limited (JBRMPL) in the F.Y. 2015-16 relevant to A.Y. 2016-17 in the form of cash during the demonetization period, since the assessee has failed to discharge the onus to prove that the transaction is genuine.

Per contra, Sri Badicala Yadagiri, learned CIT-DR, on the other hand, strongly opposed the petition filed by the assessee under Rule 27 of IT Rules, 1963 on the ground that, once the assessee has not challenged the findings of the learned CIT(A) and legal ground, then, the assessee cannot be permitted to file petition under Rule 27 of IT Rules, 1963 because, Rule 27 deals with filing petition by the respondent on the ground which has been decided against in the appeal, but, in the present case, the learned CIT(A) has not decided that legal ground taken by the assessee and, therefore, petition filed by the assessee under Rule 27 of IT Rules, 1963 should be rejected.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered the relevant petition filed by the assessee under Rule 27 of IT Rules, 1963 in light of relevant grounds taken before the Tribunal along with grounds of appeal filed before the learned CIT(A) on validity of reopening of the assessment to make the protective assessment. Therefore, we deem it first

Admittedly. the Assessing Officer has re-opened the assessment under section 147, in the case of the assessee for the reasons recorded, as per which, income chargeable to tax had been escaped assessment on account of advance given to M/s. Jaya Balajee Real Media Private Limited in the financial year 2015-2016 relevant to the assessment year 2016-2017. The Assessing Officer had completed the assessment under section 143(3) r.w.s.147 of the Income Tax Act, 1961 for the assessment year 2016- 2017 and made additions towards advance given to the above company on ‘protective basis’ to protect the interest of the Revenue on the ground that, substantive addition has been made in the case of the M/s. Jaya Balajee Real Media Private Limited towards cash deposit into bank account during demonetization period for the assessment year 2017- 2018. The assessee has challenged the Order passed by the Assessing Officer before the learned CIT(A) and challenged the order on two grounds i.e., (i) on legal grounds as well as 15 ITA.Nos.359, 367, 368 & 460/Hyd./2024 (ii) on merits. The learned CIT(A) disposed of the appeal filed by the assessee and deleted the additions made by the Assessing Officer towards advance given to M/s. Jaya Balajee Real Media Private Limited on the ground that, the ‘substantive addition’ made in the hands of M/s. Jaya Balajee Real Media Private Limited has been confirmed by the learned CIT(A) and, therefore, the legal ground taken by the assessee challenging the validity of reopening of assessment under section 147 of the Act for making protective additions are redundant for adjudication. In otherwords, although, the assessee has raised the legal ground before the learned CIT(A) which are similar to grounds raised by the assessee in the petition filed under Rule 27 of IT Rules, 1963, but, the learned CIT(A) did not adjudicate the above grounds on the ground that, the assessee has got relief on the issue of additions made by the Assessing Officer towards advance given to M/s. Jaya Balajee Real Media Private Limited. Therefore, it is necessary for us to consider the admissibility of the petition

It is a settled legal position from the decision of Hon’ble Gujarat High Court in the case of PCIT vs., Sun Pharmaceuticals Industries Ltd., [2017] 86 taxmann.com 148 (Guj.) wherein it has been clearly held that, although, the respondent-assessee though, he may not have appealed, is free to defend the order before the Appellate Forum on all grounds including ground, which may have been held against him by lower authority or Court, whose order is otherwise in his favour. A similar view has been taken by the Hon’ble Delhi High Court in the case Sanjay Sawhney vs., PCIT [2020] 116 Taxman.com 701 (Del.). Further, the Bombay High Court in the case of Peter Vaz vs., CIT [2021] 128 taxman.com 180 (Bom.) held that, the fundamental principle that a respondent must have been aggrieved by the final order passed by the lower authority or Court and, therefore, has not filed an appeal against the same, is entitled to defend such an Order before Appellate Forum on all grounds including ground which has been 17 ITA.Nos.359, 367, 368 & 460/Hyd./2024 held against him by lower authorities, though, final order is in it’s favour. The Hon’ble Madras High Court in the case CIT vs., India Cements Limited [2020] 118 taxmann.com 99 (Mad.) had considered an identical issue and in paras 28 and 29 very clearly held that, once the learned CIT(A) did not adjudicate the correctness of the assessment proceeding, which was challenged by the assessee, then, it is deemed that, said issue was decided against the assessee and that, the assessee was entitled to canvass the said issue before the Tribunal without independently filing an appeal in light of Rule 27 of Income Tax Appellate Tribunal Rules, 1963. The sum and substance of the ratio laid down by the various Courts are that, although, the assessee did not filed the appeal or Cross-Objection against the Order of the learned CIT(A), but, yet it can file a petition under Rule 27 of Income Tax Appellate Tribunal Rules, 1963 to support or challenge the Order on all grounds including on any other ground that may be decided against him by the lower authority or Court. In the present case, since, the assessee has challenged the reopening of assessment proceedings by 18 ITA.Nos.359, 367, 368 & 460/Hyd./2024 filing legal grounds before the learned CIT(A) and the learned CIT(A) did not considered the above grounds on the ground of redundant because, he has allowed relief to the assessee on merits, therefore, in our considered view, it is deemed that, the learned CIT(A) has considered the above legal grounds and on the said ground, the assessee can file a petition under Rule 27 of IT Rules, 1963. Thus, we admit the petition filed by the assessee under Rule 27 of IT Rules, 1963 for adjudication.

Learned Counsel for the Assessee, referring to the ground taken in the petition filed under Rule 27 of Income Tax Appellate Tribunal Rules, 1963 submitted that, the reopening of assessment is invalid to make the ‘protective assessment’ because, in the present case, although, the Assessing Officer has reopened the assessment on the belief of escapement of income, but, finally he has made addition on protective basis, even though, there is no substantive assessment in the case of M/s. Jaya Balajee Real Media Private Limited for the assessment year 2016-2017. Learned Counsel for the Assessee, further referring to the 19 ITA.Nos.359, 367, 368 & 460/Hyd./2024 assessment order passed by the Assessing Officer in the case of M/s. Jaya Balajee Real Media Private Limited submitted that, the Assessing Officer made addition in the hands of above company for the assessment year 2017- 2018, whereas, in the case of the assessee, the Assessing Officer made addition on protective basis for the assessment year 2016-2017. Further, in order to make protective assessment, there should be a substantive addition for the very same assessment year. Since, there is no substantive addition for the very same assessment year, the protective assessment made by the Assessing Officer cannot be sustained. In this regard, he relied upon the decision of ITAT Delhi Bench, Delhi in the case of ITO vs., Fussy Financial Services Private Limited ITA.No.4227/Del./2014 and the decision of ITAT, Mumbai Bench, Mumbai in the case of E. Suresh K. Jajoo vs., ACIT, Circle-4(2), Mumbai [2010] 39 SOT 514 (Mum.)

Sri Badicala Yadagiri, learned CIT-DR, on the other hand, submitted that, there is no merit in the legal ground taken by the assessee challenging the validity of 20 ITA.Nos.359, 367, 368 & 460/Hyd./2024 reopening of the assessment because, the Assessing Officer has rightly made addition in the case of the assessee towards advance given to the above company for the assessment year 2016-2017 on protective basis because, the assessee claims to have given an advance in the financial year 2015-2016 relevant to the assessment year 2016-2017. The Assessing Officer made addition in the hands of M/s. Jaya Balajee Real Media Private Limited for the assessment year 2017-2018 because, the assessee company could not explain the source for cash deposited into the bank account during the demonetization period which falls into the financial 2016-2017 relevant to assessment year 2017-2018. Since, the facts in the present case necessitated additions for the assessment year 2016- 2017 and because the Assessing Officer made substantive additions in the hands of M/s. Jaya Balajee Real Media Private Limited on the very same advance, the addition made by the Assessing Officer in the case of the assessee on protective basis should be sustained. Therefore, he submitted that, the grounds of appeal filed by the assessee

We have heard both the parties, perused the material on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, the issue of reopening of assessment in the present case was triggered because, there was an explanation by M/s. Jaya Balajee Real Media Private Limited towards cash deposited into bank account during demonetisation period in the financial year 2016-2017 relevant to assessment year 2017-2018, where the above company explained the source for cash deposited out of advance claimed to have been received from the assessee. The Assessing Officer reopened assessment on the ground that, the income chargeable to tax has been escaped assessment on account of advance given to the above company in cash. However, in the assessment order passed under section 143(3) r.w.s.147 of the Income Tax Act, 1961, the Assessing Officer made addition on ‘protective basis’ on the ground that, the 22 ITA.Nos.359, 367, 368 & 460/Hyd./2024 substantive addition has been made in the hands of the company for the assessment year 2017-2018. From the above facts, it is undisputedly clear that, the Assessing Officer made protective assessment in the hands of the assessee without there being any substantive addition towards very same transaction in any other case for the assessment year 2016-2017. It is an admitted legal position and concept that, while making any protective assessment, there should be substantive assessment to be made in any other case. The above concept is for the simple reason that, while making the assessment on a particular income or transaction, the Assessing Officer is not sure about the assessee, on which, the said income is chargeable to tax because of multiple claims made by various parties or both parties or the assessee claim of such transactions for multiple assessment years. In case, a particular transaction has been claimed by both the parties, then, the Assessing Officer on the basis of facts available on record, shall make an assessment on substantive basis in one hand or on assessee and further, make a protective assessment in other

The assessee has relied upon certain judicial precedents in support of it’s contention that, unless there is a substantive assessment in the hands of any other person for the very same assessment year, the protective addition made in the hands of the assessee, cannot be sustained. The assessee has relied upon the decision of ITAT, Delhi Bench, Delhi in the case of ITO vs., Fussy Financial Services Private Limited (supra) where it has been held as under :

The assessee has also relied upon the decision of ITAT, Mumbai Bench, Mumbai in the case of E.Suresh K. Jajoo vs., ACIT, Cirdcle-4(2), Mumbai (supra), wherein the Coordinate Bench of ITAT, Mumbai under identical set of facts held as under :

Coming back to another argument of the Learned Counsel for the Assessee that, re-opening of the assessment under section 147 of the Income Tax Act, 1961 is bad in law, when, no substantive addition has been made in the assessment order. The Assessing Officer has reopened the assessment in the present case after recording reasons to believe that, income chargeable to tax had been escaped assessment towards advance given to above company. However, in the assessment order passed under section 147 of the Income Tax Act, 1961, the Assessing Officer has not made any addition towards advance given to the above company on substantive basis, although, he has made addition on protective basis and if we go by the reasons given by the Assessing Officer in the assessment order to make protective addition, in our considered view, the reasons recorded for reopening of the assessment by the Assessing Officer is not on the basis of formation of reasonable believe of escapement of income, but, it is only on the basis of reasons to suspect that, the income chargeable to tax had been escaped assessment. In our

In this view of the matter and considering the facts and circumstances of the case and also by following the ratio of various High Courts discussed hereinabove in the preceding paragraphs, we are the considered view that, reopening of the assessment under section 147 of the Income Tax Act, 1961, in the present case, is bad in law because, the reasons recorded for reopening of the assessment does not show any nexus between the reasonable belief of escapement of income and tangible material which suggests escapement of income, which is clearly evident from the assessment order passed by the Assessing Officer, where the Assessing Officer has made protective addition in the hands of assessee towards advance given to M/s. Jaya Balajee Real Media Private Limited, even though, there is no substantive additions towards advance in the hands of M/s. Jaya Balajee Real Media Private Limited for the assessment year 2016-2017. Thus, reopening of the assessment under section 147 of the Income Tax Act, 1961 is bad in law and liable to be quashed. Thus, we quash the reassessment order passed by 33 ITA.Nos.359, 367, 368 & 460/Hyd./2024 the Assessing Officer under section 147 of the Income Tax Act, 1961.

Since, we have quashed the reassessment order passed by the Assessing Officer, the appeal filed by the Revenue by challenging the deletion of addition made by the Assessing Officer towards advance given to M/s. Jaya Balajee Real Media Private Limited becomes infructuous and thus, the appeal of the Revenue is dismissed as infructuous.

The facts and issues involved in these three appeals filed by the Revenue are identical to the facts and issues which we have considered in Revenue’s appeal in ITA.No.359/VIZ./2024 for the assessment year 2016-2017 in the case of M/s. Vijayasai Lakshmi Srinivasa Cotton Mills, Guntur. But for figures, the facts and issues are identical. The reasons given by us in preceding paragraph nos.11 to 21 hereinabove shall mutatis mutandis apply to these three Revenue’s appeals i.e., ITA.Nos.367, 368 & 460/Viz./2024 for the assessment year 2016-2017 as well.

In the result, appeals ITA.Nos.367, 368 & 460/ Viz./2024 of the Revenue for the assessment year 2016- 2017 are dismissed.

To sum-up, Revenue’s appeals ITA.Nos.359, 367, 368 & 460/Viz./2024, for the assessment year 2016-2017, are dismissed. A copy of this common order be placed in the respective case files.