MEDAPATI BASKARA RAO,TANUKU vs. THE ITO, WARD - 2, AMALAPURAM

In this case, the assessee has raised six grounds in total. Ground No.1 and 6 are general in nature which does not require specific adjudication.

Ground No.3 to 5 are not pressed by the Ld.AR during the appeal hearing, therefore Ground No. 3 to 5 are dismissed as not pressed.

Ground No.2 is related to the addition of Rs.50 lakhs relating to the amount received by Shri Koppella Mallikharjuna Rao stated to be benami operator of the assesse. In this case, the assessee has not filed the return of income, hence, the Assessing Officer(AO) has issued the notice u/s 142(1). But the assessee neither responded to the notice issued u/s 142(1) nor the subsequent summons issued u/s 131, hence the AO completed the assessment u/s 144 of I.T.Act as per the information available on record. A survey u/s 133A of the act was conducted in this case and during the survey, AO came to know that the assessee had participated in sand reach auctions year after year for various sand reaches in different names of benamidars. The assessee participated in one of the sand reaches in the name of Koppela Mallikarjuna Rao who is supposed to be benami operator of the assessee. According to the AO, statement was recorded from Shri Mallikarjuna Rao wherein he stated that he was working as a clerk with the assessee for monthly salary of Rs.2000/- to 2500/- and later on shifted his profession as mediator or broker for lorries and deriving income from commission. He further stated that he had participated in sand reach auction on behalf of the assessee, but do not know the details of financial transactions. The sand reach auction related to Ubalanka, Ravulapalem, Komarajulanka, Meriapalem for package No.3 was participated by Mallikarjuna Rao on behalf of the assessee. He did not have the source for payment of bid amount and submitted that he had signed the papers as per the instructions of Shri M.Bhaskara Rao. To the best of his knowledge the assessee was having 40% share and Shri Munireddy was having 60% share in the sand reach auction. He also submitted that machines belonging to Shri M.Bhaskara Rao as well as Shri Goluguri Muni Reddy were working in the sand reach and he was not aware of the investments made by them and the income earned etc. of the assessee or the sand reach business. Shri Mallikharjuna Rao also stated that the assessee promised to take care of the financial problems and all other issues related to the auction of the sand reach, hence, he had signed the agreement relating to the sand reach. With regard to the receipt of Rs.50,00,000/- he stated that he had received a sum of Rs.50,00,000/- from DPO as per the court order and the assessee has obtained the signatures of Shri Mallikharjuna Rao and transferred the amounts to the account of Shri Goluguri Abbi Reddy and Medapati Satyanarayana, brother of the assessee. On the basis of the statement deposed by Shri Mallikarjuna Rao, the AO was of the view that Shri Mallikarjuna Rao is a benami operator of the assessee and the entire sand reach transactions were belonging to the assessee, Shri Bhaskara Rao. Shri Mallikarjuna Rao had received Rs.50 lakhs from Government by filing a case in High Court as a compensation for loss incurred in the sand reach operations and received the payment. After getting signature of Shri Mallikarjuna Rao, the amount was deposited in the accounts of Shri Goluguri Abbi Reddy and Medapati Satyanarayana, brother of the assessee on the same day. From the account of Shri Goluguri Abbi Reddy a sum of Rs.27.00 lacs was transferred to Medapati Satyanarayana as per the details given under:

From the above, it is evident that the entire sum of Rs.50,00,000/- was transferred to the account of Shri Medapati Satyanarayana, brother of the assessee. The AO recorded the statement from Shri Medapati Satyanarayana on 29.08.2007, wherein he also stated that he is working as a clerk on a monthly salary of Rs.4,000/- per month with assessee and the firm is engaged in the business of transporting sand and gravel and the lease rights were in the name of Shri Bhaskara Rao. The AO recorded the statement from Shri Bhaskara Rao, wherein, he admitted that he has joined with Shri Gogula Muni Reddy in sand reach auction of Ravulapalem and his share was17.5%. Shri Mallikarjuna Rao stated that he has transferred the amount received from the court to Shri M.Satyanarayana, brother of the assessee and Shri G.Abbi Reddy as per the instructions of the assessee. The statement recorded from Shri Satyanarayana, reveals that he was working as a clerk for monthly salary of Rs.4,000/- with the assessee and he does not know anything about the sand business, hence, the AO held that Mr.Mallikarjuna Rao and Shri Satyanarayana are the benami operators of the assessee and the entire sum of Rs.50,00,000/- was belonging to the assessee and accordingly brought to tax in the hands of the assessee as unexplained money.

Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO holding that the amount of Rs.50,00,000/- falls within the purview of section 69A which was not recorded in the books of the assessee and accordingly confirmed the addition made by the AO. For the sake of convenience and clarity, we extract relevant part of the CIT(A) order from para 13 to 13.4 which reads as under :

I have considered the various submissions, and details filed; at the outset, it is necessary to examine the veracity of the additional evidence filed by way of affidavits from Koppela Mallikharjuna Rao, M.Satyanarayana and Goluguri Abbi Reddy.

As to the affidavit filed by Sri Koppela Mallikharjuna Rao, he has stated that he told the ITO, Amalapuram, the details of partners and persons who have invested in the package No.3 (Ravulapalem, Ubalanka, Kornarajulanka and Merlapalem) but the ITO did not record the names; and that out of fear, threat he told that the assessee, M.Bhaskara Rao made the investments, as suggested by the ITO. It is relevant to note that the statement was recorded by the ITO on 22.122008, and the present affidavit dated 31" July, 2012, is filed after a long gap of 3 ½ years. Even in the present affidavit, he has not mentioned the details of the so called parties who have made investment in the Package No.

He has also not disclosed the details of specific investment made by him or by his partners in the auction and the specific details and reasons for transferring the amount (i.e, Rs.50 lakh) to others. Thus the claim that he had disclosed particulars of partners and their investment before the ITO which the ITO did not record and that the name of Sri M.Bhaskara Rao was mentioned as per suggestion of the ITO is not believable. The affidavit is totally vague as to the actual particulars relating to the investment and as to the parties who have invested and also as to entitlement of others to the sum of Rs.50,00,000/-. He has not even, sworn specifically the amount of investment made by him, the percentage of his share in the transaction and cannot be said to have affirmed any specific fact. As a result the affidavit is devoid of any evidentiary value.

The affidavits filed by M.Satyanarayana and Goluguri Abbi Reddy are also vague without affirmation to specific facts relating to the investment or to transfer of the amounts from Mr.Koppela Mallikhaduna Rao. Further, M.Satyanarayana in the affidavit states that he made certain investments in Package No.3 along with K.Mallikharjuna Rao and G.Abbi Reddy, but has not specified What was the investment made by him and others: He has also stated that he repaid towards loans and interest; but he has not stated the amounts or names, of the parties. No documents were filed in support of any of the averments in the affidavit. Further, it is noted that the assessing officer had issued summons to M.Satyanarayana, to which he had not responded. The averments in the affidavit and the written submission of the assessee are contradictory. In view of these, the averments of K.Mallikharjuna Rao and M.Satyanarayana and G.Abbi Reddy in their affidavits can be considered to be only self-serving claims without any evidentiary content. in the circumstances the affidavits filed are considered to be devoid of any evidentiary value and are not reliable.

On the other hand the sworn statements recorded from M.Bhaskara Rao (the assessee) on 21.09.2007, Mr.M.Satyanarayana on 29.08.2007 and Mr.K.Mallikharjuna Rao on 22.12.2008 do not have suffer from any contradictions. No documents or worthwhile evidence has been filed to show that the contents of these sworn statements are wrong. It was contended that the statement recorded during survey has no evidentiary value. However, it is noted that survey operation was conducted on 29.08.2007 and the statement from the assessee was recorded much later on 21.09.2007, and the statement from K.Mallikharjuna Rao was recorded during the assessment proceedings on 22.12.2008. Hence this plea of the assessee is untenable and rejected. Further, the assessee had admitted that he has specific interest in the Ravulapalem sand Reach in the sworn deposition dated 21.09.2007. He has categorically stated that he has 17.5% share in the said Reach and that he has made investments in various other sand ramps for his transport business. Even in his written submission dtd.09.07.2013 filed during appellate proceedings, he has stated that he maintained interests in the sand Reach for his transport business and that he had understanding with K.Mallikharjuna Rao for the purpose. The claim that there was no business activity from the said Reach is contrary to his statement given on 21.09.2007, and by others. That there was sand mining in Ravulapalem Ramp is borne by the details available on record. It is only in respect of Kornarajulanka and Meriapalern mines there was no activity. Mr.K. Mallikliarjuna Rao in his deposition dt.22.12.2008 has stated he acted as per the instruction of M.Bhaskarä Rao in applying for the sand auction and in transferring the compensation amount. The entire amount of Rs.50,00,000/-has been transferred, which shows that he had no interest over the amount, The assessee in the written submission dt.0907.2013 has made a claim that he only mobilized capital for investment in the sand auction taken in the name of Sri K.Mallikharjuna Rao, and that he forced K.Mallikharjuna Rao to repay the loans which the assessee had claimed to have taken from his friends and relatives out of the compensation received by K.Mallikarjuna Rao. However, this claim is not supported with facts, figures and documents. Moreover, it is common in this line of business to take auction through benamidars, and retain interests in various Ramps. Mr.M.Satyanarayana in his deposition dt.29.08.2007 has stated that he was only a clerk under the assessee, and was earning a salary of Rs.4,000/- p.m. He has claimed in the affidavit that he made certain investment but for which no supporting evidence was filed. This the materials on record dearly indicate that the assessee has made investment in the sand business at Ravulapalem sand reach and that the amount received in the account of M.Sátyanarayana, (his brother) represent his money, and the claim that it would represent repayment of money mobilized from others is not proved.

It was also considered that the amount of Rs.50 lakh represented capital receipt and hence is not taxable. Even for this proposition the assessee has not adduced any evidence with supporting documents. The receipt of money amounting to Rs.50,00,000/- through the account of his brother M.Satyanarayana squarely falls within the purview of section 69A, as it is not recorded in the books of account and as the source for the same has not been explained. In the circumstances, I am of the view that the assessing officer is justified in making the impugned addition. Accordingly this ground is dismissed.”

Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. During the appeal hearing, Ld.AR argued that the sum of Rs.50,00,000/-was received from the DPO as compensation for not operating the sand reach in the peculiar circumstances. The amount in question was refund amount which is not taxable and the source is explained. The Ld.AR further argued that the said sum was received from the DPO as per the Hon’ble High Court order and the source is explained hence, there is no case for making the addition of the said sum u/s 69A of the I.T.Act. The Ld.AR further argued that the amount was received by Shri Mallikarjuna Rao and passed on to the Shri Gogula Abbi Reddy and Medapati Satyanarayana, brother of the assessee and ultimately the entire amount was received by Shri Medapati Satyanarayana, brother of the assessee. Since no amount was received by the assessee the same cannot be taxed in the hands of the assessee. According to the Ld.AR, there is no case for making addition u/s 69A as unexplained money in the hands of the assessee and requested to set aside orders of the lower authorities and allow the appeal of the assessee.

On the other hand, the Ld.DR submitted that the assessee has not responded during the assessment proceedings, hence there was no representation or submission or clarification from the assessee. In the statement recorded u/s 131 from Shri K.Mallikarjuna Rao, he categorically stated that he was acting on behalf of the assessee and benami operator of the assessee. He was working as a clerk with the assessee and deriving income from lorry business. With meager income he had no source to invest in the business of sand reach. Mr.Mallikarjuna Rao also categorically stated that he was not aware of anything about sand reach business and he has signed the papers as instructed by the assessee. Further the amount received by Shri K.Mallikarjuna Rao was transferred on the same day to the account of Shri Gogula Abbi Reddy and Medapati Satyanarayana, brother of the assessee and subsequently, the credit in the account of Shri Gogula Abbi Reddy reached to the hands of the assessee’s brother Shri M.Satyanarayana. Mr.Satyanarayana, brother of the assessee also stated that the entire transactions were relating to the assessee and he was working as clerk for a monthly salary of Rs.4,000/-. Though the source is a refund amount from DPO, ultimately money was reached in the hands of Shri Bhaskara Rao and the same remained unexplained. Therefore, argued that the Ld.CIT(A) rightly confirmed the addition and no interference is called for.

We have heard both the parties and perused the material available on record. In this case, survey u/s 133A was conducted and during the survey it was found by the AO that the assessee is an operator of sand business along with ShriK.Mallikarjuna Rao. Shri Mallikarjuna Rao paid a sum of Rs.99,99,999/-towards the bid amount for which the source was not explained. Shri Mallikarjuna Rao stated in the statement that he was working as a clerk for a monthly salary of Rs.2000/- to 2500/- with the assessee and has signed the papers relating to sand business on the assurance of the assessee that he would look after all the problems related to the sand reach business and his personal problems. From the statement recorded from Shri Mallikarjuna Rao it is established that Shri Mallikarjuna Rao has no financial capacity to participate in the sand reach business and to make the payment of bid amount of Rs.99,99,999/- to the Government. As per the court order, the DPO had issued a cheque of Rs.50,00,000/- as refund for not operating sand mines, which was immediately transferred to the account of Shri M.Satyanarayana, brother of the assessee and Shri Gogula Abbi Reddy in amounts of Rs.23,00,000/- and Rs.27,00,000/- respectively. The said sum of Rs.27,00,000/- was ultimately transferred to the account of Shri M.Satyanarayana, brother of the assessee. Thereby the entire amount of Rs.50,00,000/- reached in the hands of Shri Satyanarayana, brother of the assessee. Shri Satyanarayana as well as Shri Mallikarjuna Rao both have not responded to the summons issued by the AO during the assessment proceedings. Shri M.Satyanarayana also stated before the AO that he was working as a clerk for a monthly salary of Rs.4,000/- with the assessee in the statement recorded on 29.08.2007. He also further stated that the entire transport business was related to the assessee. From the statement recorded from Shri Mallikarjuna Rao, and Shri Satyanrayana it is established that both of them have no financial capacity to participate in the sand reach business. They are having meager incomes and the sand business does not belong to them and they had no share in the sand business, and Shri BhaskaraRao is having lion’s share in the sand reach business. The fact that the assessee is having 17.5% share was accepted by the assessee in the statement recorded. Though before the first appellate authority Shri M.Satyanarayana and Shri Bhaskar Rao have filed the affidavits, the affidavits are totally vague as to the factual particulars related to the investment and as to the parties who have invested as also to the entitlement of a sum of Rs.50,00,000/-. And the Ld.CIT(A) has given a finding that the assessee has not even specifically sworn the amount of investment made by him the percentage of share in the transaction. The affidavits filed by Shri Satyanarayana and Shri G.Abbi Reddy are also vague to the specific facts relating to the investments or transfer of amounts from Shri Mallikarjuna Rao. During the assessment proceedings, the assessee has not responded to the notices and did not cooperate with the department for completion of assessment by furnishing necessary information. The assessee and Shri M.Satyanarayana did not respond to the summons issued by the AO at the time of assessment. Though the AO held that the assessee is the master and the payment was received by Shri Satyanarayana, but the AO did not give any finding with regard to the destination of money where it has reached from Satyanarayana. Shri Mallikharjuna Rao, in his statement submitted that the assessee as well as Shri Muni Reddy were the parties in sand reach business @ 40:60 basis. The assessee has admitted that he was 17.5% share holder in the business. The Ld.AR submitted that the source of receipt is explained and the receipt is capital in nature and untaxable. All these issues are required to be verified at the end of the AO. Therefore the issue with regard Rs.50,00,000/- received from DPO require further verification why the said amount was transferred to the Shri M.Satyanarayana’s account and where the money has ultimately reached from Shri Satyanarayana. The second aspect in this case is role of Shri Muni Reddy who is also said to be another partner in the sand reach business. The other issue is taxability of the receipt. Since all these issues require further verification, we are of the considered view that the assessment should be remitted back to the file of the AO for conducting detailed enquiries and to decide the issue afresh according to law.

In the result, appeal of the assessee is allowed for statistical purpose.

TheCommissioner of Income Tax-2, Visakhapatnam

The Commissioner of Income-Tax(Appeals)-1, Visakhapatnam& Rajahmundry 5. ववभधगीयप्रनतननधध, आयकरअऩीऱीयअधधकरण, ववशधखधऩटणम /DR, ITAT, Visakhapatnam 6.गधर्ाफ़धईऱ / Guard file आदेशधनुसधर / BY ORDER ////