SRI PAVAN KUMAR AGARWAL vs. DY. CIT, NIZAMABAD.

Appeal Under Section 260 ( A) of the lncome Tax Act, 1961 aggrieved by the order dated 27-06-2005 in l.T A. No. 686/ Hyd/2000 (A.Y.1996-S7) on the file of the lncome Tax Appellate Tribunal, Hyderabad Bench "A" Hyderabad preferred against the order of the commissioner of lncome tax (Appeals-ll) Hyderabad, dated 09-06- 2000 in Appeal No.13/AC.NZB/ClT(A) ll/1999 2000 preferred against the order of the Assistant iommissioner of lncome Tax, Nizamabad, dated:3'1-03-1999 in PAN/GIR No.P-722 [ 33111 IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY, THE TWENTY SECOND DAY OF FEBRUARY TWO THOUSAND AND TWENTY THREE PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL No: 83 OF 2006 Between: Sri Pavan Kumar Aganrval, Prop. M/S Shri Rani Satiji Trading Co. 4-2-124111D' Rani Satiji Colony, Adilabad. ...Appellant AND DY. ClT, Nizamabad., Dy. Commisioner of lncome Tax, Nizamabad' t " 'R6spondent counsel for the Appellant: sRl. A v A slvA KARTIKEYA Counsel for the Respondent: Ms. SAPNA REDDY' J V PRASAD (sc FoR lNcoME TAX) The Court delivered the following: JUDGMENT , i : i I I I I I II i

THE F ON'BLE TH CHIEF CEU AND I I}] I{ON'BLE SRIJUSTICE N.TUKABA\t-t! I.T.T.A.N .83 of 2006 LUDGIIEN] (F.r ltu llon'btt rttt ChieJ'lutt* U1lat Bhuyatt) AI.IlIrllAN Hcar< Mr. A.'y'.A.Siva I(artikcya, lca rne<_l (()Lrnscl for the appella t and Ms. Sapna Reddv, lcarnecl courrscl jbr the respondents 2. -.l',his p real has been prelcrred br. thc ass(::ice undcr tn Sectior 2(r0 \ of the lncomc 'I'ax Act, 19(r1 ftr:ie tlr ,thc ,,\ct, hereinaftcr) lgailrsr th,3 order dared 27.06.201)5 paij,jd by the Incomc 1'a r Appellate Tribunal, I{vderabacl lr. nch .A,, f{ydcrabad (briefly 'thc Tnbunal' trererr rL liet ) I.'I.A.No.68 '/Hvd/2000 for rhe assessmenr ycar 1\D,S 97 3. I'hougT tfLis appeal was admitred on 14.01.2006, no substanual c :e stron olt law was framed. I Iowever., apf,ellant has propose L the Fcrllowing questlons in thc rnemo of zLppeal as substantia questions of law: I I I ' I I I :

't (i) NThether on the tacrs and rn the circumsrances of the case, 'l'ribunal u'as jusrified ir.r sctting rside the order oI thc Commissioncr of Incornc Tax (Appeals) and susraining rhe addirron of Rs.6,90,876.00 made by rhe asscssing officcr on account of undisclosed invcstment in stock ? (ii) Whether on rhe facrs and rn the circumsrances of the case, Tribunal was jusuFrcd in settrng aside the order of the Commissioner of Income Tax (Appeals) and sustaining the addition of Rs.2,56,772.00 made bv rhc assessing officer on account of unaccountcd investment in property ? 4. Appellant is an assessec under the Act having thc status of an individual carrying on rhe busincss o[ sale of clectronic goods. For the assessment vear 1,996-97, assessee filed return of income on 1,7.03.1,997 admlttlng income of Rs.2,43,320.00. Assessing officer, in the course o[ the assessme nr proceediflgs, noticed that as per the statement filed by rhe assessee along ' *ith th. retum of income, the closing stock was quafltified at Rs.26,25,634.00 whereas asscssing officer worked out the closing stock as on 37.03.1996 ar Rs.19,34,758.00. Ir was ' found that assessee had admitted excess stock of I llll

- 3 i il I Rs.6,!t0,87 .C0. Ilxpianauoo [Jlven by rhc asst.ssr:,: r''.e s found fti be not ;a isfactor1,. Assessrng o[ficcr therelcr( f rrsrLlnL.Li that assess :e had in.rcstcd income lrom undrscl : s;e d sources and accor( ingly addcd Rs.6,90,876.00 ro rhe in:omc o[ the AS SCS SEC 5 Inso al inr.estrrent in housc properw is :onccrned, assessing rI iccr noted that thcre rvls a srrr'-cv unclcr Sccrion i3 iz^. rf thr: Act at the prelTrrses of rlrr: iLSSCSSee. ,'\ssessee , orrlcl not explain propcrly the sorr:r:e oI the vouchcrs I ru nd ar the rime of surwcy. \ccor <ling to the asscsslng o fir:er, an amouflt of Rs.6,50,73.1.00 rvas found to bc unexplaine, investment in housc pr()pety. Acc, rr,Jrnr3ly, thc same was a lded ro the income of the assessee uide tl-.e crdcr of assessment dated 31.(13.1999 6. Aggr:vecl by the above, AS SCS SCE preferrr:d appg2l beForc thr Sommisrsroner of Income _'j'ax rr\ ppeals-lI), -) I I I

4 I Iyderabad ([or short 'CIT(;\)' hcreinaftcr). I]v thc appellate ordcr dated 09.06.2000, CIT(A) dcleted both thc addirions 1. Thereafter, fevcflue prc[crrcd appcal bcfore the Tribunal. By the order dated 27.06.2005, Tribunal set aside the order o[ the CIT(A) and restored thc order of the assessing ofFrccr dated 31.03.1999 insofar invcstment in stock is concerned. Insofar investment in h<;usc proPcrq' is concerned, Tribunal noted that instcad of lts.6,50,734.00 added by the assessing officer, there was no cxplanatron lor an amount of Rs.2,56,772.00. Accordingly the order of CIT(A) dated 09.06.2000 was set aside and thc ordcr o[ rhe assessing officet dated 27.06.2005 was restoted to thc cxtcnt of addition of Rs.2,56,772.00 8. I-earned counsel for the appellant submits that there was no justification at all for t-he Tribunal to reverse thc well- -zl- considered order of the CIT(A). Insofar invcstment in stock is concetned, appellant had declared the exccss stock in the ,. ,/

-- : I I I l>ookr o1t i j('()Luti anai als() madc the neccss lr| pi.,,rncnt. I lls \\'ts norcc l ,r rtrc t_11 (n). \\,ithout anv drlati,t rr on sLrcl.r lr.ding re rclcr,:d bv thc first appelratc aurho.rr,, 'r-riblrnal Incchrrnrca v sr:r asitlc rhc ordcr ol CfT( \) ii nil:rrl1., hc subrirts rh t l'ribunal was not jusuFred in nraking addrrion on thc ground ol'uncxplr ncd invcstment in horrsc pro:reny whcn rul'rPclhnr h d cjcarlv shorvn that such invcst rn<:n t i ,\,er j ntllLlc f , rilrrvrng c e ,.lit obtaincd lrom banking sourccs as rvell as on lrcc()ullt of incorne crrned ciuring the relc,,.:tnt pl e,.,-rorLs 1,s111. \\'irirout ct nr;idcring rhc abor.e aspecr, 'l ribunal wls n( )r jtrstrfied in 1 ar tirrliy suting asidc the order of r.JI,l,(lr). i 9. ])er n ra, I\{s. Sapna Rcddy, learncd cour:;(..1 f.Jr th( lso cft or ( )r rcspondenr ras raken the Court ro the. ord(.rs pa;s,:d by thc rcvcnuc au rorirv an,i submrts that therc rn firmity rn ,hc findings rendercd by the TribLrnal She has also raken tl : l}rurt to Section 69 of the Act an,l s:l:,mr:s thqt \r thc saitl orr vision has been duly applied lry th,: Tribunal. 'l hcrc[rrre, d c eppcal shc_ruld bc dismissed. I I I I i I I I I I

6 .-r 10. We have heard learned counscl for the partics ancl perused thc matcrials on record' 1 1. Insofar the hrst issue z'e', investment in stock is concerned, the hnding of CIT(A) reads as follows: Thc Crst ground in this appeal is torvards diffcrence in stock During the course of astcssmcnt proccedings, the AO found that the closing stock admitted by the appellant was Rs'26,25,634 00' In this regatd, the assessee was asked to prodr-rcc thc closing stock inventorics and thc stock books The assessee derued having maintained any stock rcgisters. Futther, the AO observed that when compated with the stock admitted and the stock found at the time of surwey and worked out thc stock as per these inventories, the assessec has admitted excess stock of Rs.6,90,876'00' As per the AO, since the assessee was unable to explain the sources for the excess stock admitted in the rcturn of income, when compated with the stock inventory taken and rewotked out till 31.03 1998, it is to be presumed that the assessee has invested income ftom undisclosed sources in the form of stock which is to be assessed. Accotdingly, the AO has added the difference of Rs.6,90,876.00'

--- I i 7 Durirg rhc coursc oi hcaang, rt rs sratr:ci that t'rc appellant has admrtted thc r.alut oi thc :losing s,or:k ro bc Rs.26,25.63.1.00. .fhc -.\() rin at the t alue of rhr: lt,: otlter ! t()ck at nl th( lrr; in harl atriled R s. 1 9,.i.1,7:r8.0t) tl-e rlilferencc cannot be the income r,f thc z1r:;ellant arrd the ap,pellant lias already credited the c losi,.rg stoclt valuc of Rs.26,25,634.00 to the p&L ar:counr rs againsr the amounr of Rs,19,34,r5g.00 It is i|tlrcr contende d thar bI admrttrng thr: r:,osir.g tr ck morc than thc stock fbund al dre ir-re ()f r\ entorlr, tl-rc appcllant has, in fact, drsclose j note rc:rnrc ancl as such. tircrc rs no point rr l\O r).rkinl rr:htr adclirion in rlus tegarcl. T,h"reiot,,, it ii t :qrued t() celcte the abor.e addition In rhis rcgard, it is submir r.d drat 8l\ren my careful considet.ation of the appellanr,s AR. I a rcenrent u!th the argumcnts oF the learnecl r._r( oi tl e appellant. 'Ihe appellant showed highet .,,rrlue fr r rhe closin,q stock than the value arrir ed at l>r the .\ sessing Officcr, which nrean rhat the appellant ac -lr;tte d 1lor,3 incomc in the teturn of incomr filed b1 hirn lry admitting more closrng s rc,clc fl :r,:fc,tc, the AO is nor iusdned in making furtirct ad iLorL of Rs.6,90,g76.00. In vierv of rhe abcr<:, I op -re that thc abor-e additron neecls to be del:tl.d. 'fh -,\Cr is accordingly drecred ro delete the alr:r,c ad< iti rn. I have s rb nissions -.?i*i-&,&'*''-

.- 8 12. -l'hus, wc find that according to CI.I'(A), assessce haci shown higher value for the closing stock than the value arrir.ed at by the asscssing officer, meaning thereby, that assessec had admrtted more income in thc rcturn o[ income filed bv him br admrtting more closing stock. That being the position, CIT(A) was of the opinion chat addinon made by the asscssing officer was not jusufied and accordingly, the same was deleted 1,3. Whcn the matter reached the Tdbunal, a view was takcn by the Tribunal that the only conclusion possiblc was that assessee had suppressed sales amounting to Rs.6,90,876.00 which was ut-ilized for making investment towards purchase of goods reflected in the closing stock as oo 31,.03."1996 14. We are afraid, there was no rrra;tenal on record to support such a conclusion reached by the Tribunal. As / pointed out by the CIT(A), when the assessee himselt had disclosed higher stock, question of taking a view that assessp3 had suppressed sales for making investment towards purchasc r\

9 I 15. Sectir n 59 ,of the r\ct deals unth utrextlained lnvestrnentl It says that whcrc in the hrrrrnciz.l year immccliarcl, ;rte cedin,q thc assessmcnt vear, the irs icss;ee has madc invcs n rcnrs u,hrch are flot iccorded in * r: books of accounr, if .ny, murintaineci bl hirn lor any sourc( of ircome, and rhe ass rsricc offcrs no crplanation about the r'raturc and not appcar o bc reasolable source of tl : n.restrnr:nts or the explanation ofler,:cl by him is not, in the :pinion c I the assessing officer. sans fhctory, the r.alue of tht invcstmcnts may bc deemed to be th,: tncome of thc assessee in sr-rch financial year. of goocis l hrch rs rcflccred in rhc itigher st()ck fir,]urcs docs 16. r\s w, L'ar.c noted above, the quanrum of c o;ing; stock I such closin I stcck is reflected in the books ,tl account, :- was reflecte I in the books o[ accounr of the asses;e e. \ffhen asscssing of icer was not justified in holdir-rg rhat z srsessec had 'madc inves r-rents, rvhich arc not rccorded in the, bo,rks o[

:: l0:r account. There is no matcrial on record to )ustift. such a finding. The closing stock discloscd by rhe asscssee cannor bc said to bc invcstment o[ the assessee in the form of closing stock not rcflected in the books of account. Therefore, such addition made by thc assessing officer and affitmed by the Tribunal cannot be sustained 1.7. 'I'his brings us ro rhe next issue o[ investment in house property. Wc have already noriced thc addirion madc by rhc asscssing officer undcr this head ro the tune ofRs.6,50,732.00. CIT(A), while dealing with this ground of appeal, held :- AS [ollows: The last gound of apped is an addition of Rs.6,50,734.00 on account of investment in construction. The AO found that there wete numbet of vouchets and bills relatiog to the construction, which was completed in the year 1998. During the course of survey, the AO found cerlain papers amounting to Rs.6,50,734.00 for which the AO has asked the appellant to mention whether he maintained the

I I bo, r I1( )t expl and amo inr.cl I APPC Sta re COIIS has a VDII Its.3 \VAS L appel , rffcrr as in 'fhere lo exl the a on\'I Icques explair I] of drc the cc ::II:: s ol acc() rrrl tirr rortstrucdon acr ount o; f,rr rvlnclr rhc appcllarrt catcgori<:ali,, ined that he drrl rtot rnlintain anr, bocl.:. h,:r-r,:c, thc .-\O Iras rrcatcLl th,, ent lr: n of lts.6,50,731.00 as unexplain:cl _fIrent. r this rep;arcl, ir is sul>mittcd r trar r re aru borro,r'cd a surn of lls.3.5 lakirs irort Blnk of I Ir-cicrabarl. \dilalrarl Ilranch firr u:tion oi rhc burltirnrr anrl thc arpt,Iia tt sr. dcclarcrl tn tnr()unt o[ ]is.3 lacs und,:r . ['hercfbrc, rl is sr:rrcrl that t]rc in<ome oI acs derir.ecl durirrs I992 93 rc ':991-c,[, rhzed in construcrion of rhc building. T,L<: rnt rrlso submrttcd that thc, appell,Lnt hz s I an additonal arnounr of lts.1,50.000.01 otne fot the t'ear rrndcr considcratiorr. ble, it is statcd tl.rat thc appellant is abl: lan thc sources for about Ils.g lacs an,l rcunt corresponding to construcrion it s.(i,50,734.00. In vicrv of thc abor e, it i; 'etl to hold this arnount invested ar; ecl and rcquesred to dclcte rhis addjtion, arc carefullv consiclcrcd thc submssions a; pr:llar-rr's .{ll. I arn in agrccmcn r u,ir} lt(rnions of the \ [{. I opine rh,rt thc \

-I ,.I',1.- Asscssing O lficcr ought to havc compared thc acual cost with thc cstimatcd cosi and differcncc, if any, mrght have becn considered. The total bills found by the AO aggtegated to Rs.6,50,734.00 but, thc appellant produced proof for the sourccs to an extenr of Rs.S lakhs in the way of borrowing a sum of Rs.3.5 lakhs from SBH, Adilabad, declaration of Rs.3 lakhs made undcr VDIS and admission of additional income of Rs.1,50,000/-. F-urther, if the AO got anv doubts, he should have relctred matter to the \raluation Cell and got cstimated the cost of construction by the Valuauon Ccll. In view of the above, I am sausfied that the appellant proved sources to an extent o[ Rs.8 lakhs. 1'herefore, I am unablc to sustaifl the action of the assessing officer in making the addition in this regard. Hence, I am of the view that this addition also needs to be deleted. The AO is accordingly directed to delete the above addition. { 18. Thus, according to CIT(A), assessing officer found certain papers in thc coursc o[ survey amounting to o fficer wery' Rs.6,50,734.00, which according to the assessing

::l-l:: 1 br AS ttrtcrIl2i11c I Ln','cstnr,-'nt rrt rht consrructior ol- [i notecl rhlrt asscsscc ha,-l L,or:.,rve,l a sunr thc asscssc r. (-I'l (r\) ol Rs.3.5 alihs frorn Starc I]ank of Flvrlcrrb:1,i. ,\dilabad l;ranch fo -h,j purpose of construction oi tlL,:: butlding Iiurthcr, as ;cilscc hac also dcclared an am()Llnt o. Rs 3 lakhs Lrnclcr the ' 'l )lli 2.r., 'i/olunr:rr1' I)isclosure oi' Jnc()n)c Schernc I'har rrpart. ir comc oi Rs.3 lalihs cicrir.ccl fr,,r.n thr, year 7992- rhc construcur,r-r oi tt-re bLrildin.g ,\sscssce a io (,ffere ci an aclcLtior-ral rnc()mc of lts. 1.5 lakh Iil t rc asscssfilent vcrr undcr consider.ation. T]rus, accorcling o thc Cl I'(A), asscssee was aL-lc to trxplain the of Rs.6,50./34.t)0 CI'I'(A) accepteci the crp)anrrion o[ thc cxtent,rf Rs.B lal<hs 2.e., (1) bv rvar, r, ' bor rou,rng Rs.3.5 lakt; frcm thc State l]ank of l-ly<lcrub;rl. Adilabad branch (2) lt cl:rration of Its.3 Iakhs under rhc VI)rIS and (3) addiuonal n<;ornc oi Rs.1.5 lal<hs lor thr a:iseismclr ycar tt-.r, t ( tl( )usc !)3 tr,r utilised I r) '1 91)4 9ii rvas I nc()me source for Lborrt lts.8 asscssee [o tn which rvas morc thr !r thc figu1'c lakhs undcr con id eration. CI'I (A) .vithou t lurther lor rncl

r -r- :: l4:: referring the mattcr to thc dcpartrncntal valuauon cell, assessing officcr was not justificd in making the addition. Accordingly, the addition otRs.6,50,734.00 was deletcd 19. When the matte r reached the Tribunal, 'Iribunal adoptcd a strangc procedure. 'l'hc departmental rcpresentative had filed extracts fron-r the valuatron rep()rt to the rune o[ Rs.24,73,037 .00. -Asscssec had shown invcstment to thc tune of Rs.19,29,058.00. 'I hereaftcr, Tnbunal noticcd that certain goods were rcccived by the asscssee but sourcc of payment was not explaincd. After grving credit for Rs.3 lakhs disclosed on account of VDIS and a futther amount o[ Rs.84,962.00 on account o[ income disclosed, there s till remained a gap ol Rs.2,56,772.00, which according to the Tribunal remained I unexplained. Accordingly, Tribunal modified the order.bf CIT(A) dated 09.06.2000 and upheld the order of the assessing of[rcer dated 31.03.1999 to the tune of Rs.2,56,712.00. i i I I !II t I I ! :

I I 5 I 2l) \\''c ar e lf raicl rvc calnn()t slrbscr.rl>c t<, t r< 1_-roccdur.c aclol>tcd b ttre -l'ribtural lcrr rn<.rrc than onc rcaso r \ ( t 20'l llclr al1\r Valua obscr vcd r reporr fr<r corfect 6E 'I ribunal, rhc valuat 'fribunal, r har.c bcer iurntshing on the cx jusuficd b1 re thc OJ-I'(A), asscssing officc,. cici : ot producc ion rcporr. As a matrer of facr. I I'l .,\) had rat tsscssrng officcr could vcn r,.cll hrt: obtained a n thc dcpxrtlnentrrl r.aluarlrn ct ll rc, lLu.ir.,: at the rr: of investmcnr in hor-rsc l)r()i)err\,. lJc irrc the :rc <lcpart,ncntal rcprcsenrativc rilcd ( )i]rlrcts from )r report. Iiront a readrng ol rhe l,rdcr of the is not drscerniblc as to how sr rch e <t.acrs could filed bcFore thc Tribur-ral r l-rar ,; o rvithour :cp)' to the assesscc. In our r.ic,.v, pla<;r nu rcliance r2.cts lroln the valuaUon repot.t waj no: at all tt e Iribunal. 20.2. 'I'hat al)ar:r, (ll'f (A) had clearlv n1e nri( )ned _.r at l.ssessee had obtain d lc,an from the llank ro rhe turre of Fis.3. r lakhs. In adciition l'ribunal itself gar,c credit frrr a surn oI Its 3 lakhs

:: l6:; on account ()[ \1DIS. 'l har apert, 'fribunal also gavc crcdit For disclosing incomc of Rs.84,962.00. Il thc thrcc figures are added i.e., Ils.3.-5 lakhs+Rs.3 lakhs+11s.84,962.00, thc total figure is much hrgher than the alleged uncxplained invcstment hgure of Rs.6,50,734.00. 'l'hat being thc position, we set aside the aforcsaid ftnding of the Tribunal as wcll 21,. Consequendy, b<>th the substantial qucstions answered in favour of the appellan t/ asscssee and against the respondent/ revenue 22. Appeal is accordingly allowed. No costs As a sequel, miscellaneous peut-ions, pcnding it any, s tand closed. Lre sd/-K sBlNrIt?$sR I QD sEcTlotloFFlcER I /ITRUE COPY// To, 7. Two CD CoPies kam VH r{ 1 . The lncome Tax Appellate Tribunal' Hyderabad Bench "A' Hyderabad 2. The Commissioner of lncome tax (Appeals-ll) Hyderabad 3. The Assistant Commissioner of lncome Tax' Nizamabad 4. One CC to SRI A V A SIVA KARTIKEYA' Advocate IOPUCI 5. one cc to SRr. J v pRAsAD (sc FoR TNC.ME TAX) Advocate topucl 6. One CC to Ms SAPNA REDDY' Advocate IOPUC] I I i! I #-^*- - :---- _ - _: ':' :- ' - __ ' "'a | 1-'

HIGH COUR-' DATED:2210, 12023 JUDGMENT ITTA.No.83 o'2006 ITTA lS ALL(,WED fln -:'-r' , ,,t.1.,, ' l; .: 1\'a,.A-:. ')"' ,-.-.::=i" "(]' \ Cs a.J 6 a Lol9\.) /','' ;. I ir J