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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SHRI A. K. GARODIA & SHRI VIJAY PAL RAO
disposed of by this common order for the sake of convenience.
2. First we take up the appeal of the revenue for the assessment year 2006-07 i.e. in ITA No.1118(Bang)/2013. The grounds raised by the revenue in this appeal are as under;
“1.The learned CIT(A) erred in fact and in law in deleting an amount of Rs.80.00 lakhs being the addition made by the AO towards accrued profits received from M/s BITPL in lieu of services rendered by the assessee.
Any other grounds which may arise t the time of hearing”
The ld. DR of the revenue supported the assessment order, whereas the ld. AR of the assessee supported the order of the ld. CIT(A).
We have considered the rival submissions and gone through the orders of the lower authorities and the material available on record.
We find that it is noted by the ld. CIT(A) on page-5 of his order that search u/s 132 of the IT Act, 1961 was conducted in the case of M/s Bharat Hightech Builders (BHTB) and also in the case of assessee on 31-01-2008. It was further noted that in the course of search in the premises of M/s BHTB, a document was found, as per which it was noted that as per a statement on 04-07-2007 on behalf of BITPL, the assessee will receive remuneration for the services rendered by him to the tune of Rs.1.6. Crores from the company and the assessee will offer the same for taxation as and when the amount is received. The AO held that the assessee was following mercantile system of accounting for these two years and therefore, this remuneration receivable from M/s BITPL has accrued to the assessee and he made addition of Rs.80.00 lakhs in each of these two years. When the assessee carried the matter in appeal before the ld. CIT(A), he has deleted the addition on the basis of the following observation on page-8 & 9 of his order:-
“ I have considered the rival contentions carefully, the appellant has denied any connection with the settlement. It is apparently between the two campmates admitting certain liability to the appellant. During the course of discussion, it is pleaded by the appellant that in fact, his investment which is due to receive from BITPL is to the tune of Rs. 2.09 Crores. And not Rs.1.60 Crores as mentioned in the alleged document. It is also pointed out that the MOA dated 17-05-2011 also strengthens their point that they are due to receive Rs.2.09 Crores which is basically the investment made by the appellant and not any remuneration. The MOA also strengthens this contention. If it were to be remuneration, there should be TDS and expenditure claimed in the case of the company. The appellant also filed the financial statements of M/s BITPL wherein, this liability is not reflected in the form of remuneration but the liability in the form of investment to the tune of Rs.2.3 Crores is shown by BITPL which is a issue for addition on account of difference of Rs.2.3 Crores in their books and Rs.2.09 Crores shown as investments in the hands of the assessee, which is dealt separately. Further, it is claimed by the appellant that he was never an employee of any other companies and that he was only a co-investor and associate of these companies. Since the companies cannot own agricultural lands, th3 lands were registered in his name being a local agriculturist keeping in view the Karnataka Land Reforms Act.
Under these circumstances, I am convinced that the amounts mentioned in the settlements, MOA etc. speak of liability on account of investment of the appellant and not on account of remuneration. Accordingly, the addition is directed to be deleted.
The AO suggested enhancement for the AYs 2006- 07 & 2007-08 vide report dated 29-05-2012. Accordingly, the enhancement notice was issued by me. For the detailed reasons discussed in my appeal order for the AY 2007-08, I find that there is no scope for enhancement for this AY”.
5. From the above finding of the ld. CIT(A), it is seen that as per the assessee, he was to receive a sum of Rs.2.09 Crores from M/s BITPL instead of Rs.1.06 Crores but such amount was receivable on account of investments made by the assessee and not on account of remuneration.
It is also noted that in the financial statement of M/s BITPL, the liability has been shown at Rs.2.3 Crores as against the amount claimed by the assessee as receivable of Rs.2.09 Crores. The ld. CIT(A) has given a categorical finding that the amount mentioned in the statement, MOU etc., speak of liability on account of investments of assessee and not on account of remuneration.
The ld. DR of the revenue could controvert this categorical finding of the ld. CIT(A) that the amount receivable by the assessee from M/s BITPL is on account of investment of assessee and not on account of remuneration. Hence, it is seen that about this fact that an amount of Rs. 1.60 Crores is receivable by the assessee from BITPL, there is no dispute because as per the assessee, the amount receivable is Rs. 2.09 Crores and as per BITPL, the amount payable to the assessee is Es. 2.3 Crores. The dispute is this as to whether the amount receivable is on account of remuneration or investments by the assessee. The revenue has not shown that the amount of Rs. 1.60 Crores is receivable by the assessee in addition to investments by the assessee. This is also an argument of the learned AR of the assessee that no amount is in fact received by the assessee from BITPL till date and it is not shown by the revenue that this amount is received by the assessee. As per real income theory, even if this amount was receivable as remuneration but was not actually received even after 8 – 9 years, it cannot be subjected to tax.
Under these facts, we find no reason to interfere with the order of the ld. CITA).
In the result, the appeal filed by the revenue is dismissed.
Now we take up the appeal of the revenue in ITA No.1119(B)/2013 for assessment year 2007-08.
The grounds raised by the revenue in this assessment year are as under:
“1. The ld. CIT(A) erred in facts and in law in deleting an amount of Rs.76 lakhs being the addition made by the AO towards liabilities appearing in the name of Sri Shivjoge Gowda (Rs.64. lakhs) Sri Mahesh (Rs.10 lakhs) and M/s Pinnacle Properties.
2. The ld. CIT(A) erred n fact and in law in deleting an amount of Rs.76 lakhs by admitting additional evidence in contravention to the provisions of Rule 46a of the IT Rules, 1962.
3. The ld, CIT(A) erred in fact and in law in deleting an amount of Rs.80 lakhs being the addition made by the AO towards accrued profits received from M/s BITPL in lieu of services rendered by the assessee.
4. The ld. CIT(A) erred in fact and in law in deleting an amount of Rs.12.50 lakhs being the unexplained amount credited in the bank account.
Any other grounds which may arise at the time of hearing”.
The ld. DR of the revenue supported the assessment order whereas the ld.AR of the assessee supported the order of the ld. CIT(A). He also submitted that no additional evidence was submitted by assessee in violation of Rule 46A and Remand report was obtained by CIT (A) and hence, there is no violation of Rule 46A of IT Rules, 1962.
In respect of ground no.3 of the revenue’s appeal, he submitted that this issue is interconnected with the issue raised by the revenue in its appeal for the assessment year 2006-07.
We have considered the rival submissions. Regarding ground no.3 of the revenue’s appeal, we find that this issue is inter-connected with the issue raised by the revenue in its appeal for the assessment year 2006-07 and in that year, we have upheld the order of ld. CIT(A) and therefore, in the present year also, we uphold the order of the CIT(A) on this issue for the same reason. Accordingly, ground no.3 of the revenue is rejected.
Regarding Ground no.1 & 2, we find that it is noted by the ld. CIT(A) in para-3.4 of his order that the assessee in support of his contention has filed loan confirmation letters from various loan creditors with an application dated 26-03-2013 under Rule 46A of IT Rules. He has further noted that these confirmation letters were forwarded to the AO for examination of the creditors and to report. Thereafter, he noted that the AO has submitted his report dated 28-03-2013 in which he has reported that two loan creditors Shri S. Gowda and Shri Mahesh have not produced evidence regarding source of funds provided to the assessee. Thereafter, in para-3.5 of his order, it is noted by the ld. CIT(A) that the assessee had submitted a rejoinder and in the rejoinder, it was submitted that the AO had not appreciated the fact that Shri Mahesh in his statement has also stated that apart from money mobilized by sale of land, he had also had income from agriculture. Before this, in [para-3.4 of his order, it is noted by the ld. CIT(A) that the AO in his report stated that copies of sale deed produced by the creditors were examined and a statement has been recorded from the said creditors. Hence, it is seen that neither the sale deeds nor the statement of creditors is new evidence furnished before the ld. CIT(A) for which remand report has not been obtained from the ld. CIT(A) from the AO and therefore, in our considered opinion, there is no violation of Rule 46A of IT Rules, 1962. Accordingly, ground no.2 of the revenue’s appeal is rejected.
Regarding the merit of the addition which was deleted by the ld.CIT(A) for which the revenue has raised ground no.1, we find that a categorical finding has been given by theld.CIT(A) in para-3.6 of his order that both these creditors i.e. Sri S.Gowda and Shri Mahesh have mobilized a sum of R.69,96,797/- by sale of land and out of this, they have paid a sum of Rs.64,00 lakhs to the assessee. Thereafter, in para-3.7 of his order, this finding has been given by the ld.CIT(A) that Shri Mahesh also had agricultural income in addition to the sale proceeds of lands sold by him of Rs.9.39 lakhs and therefore, the amount advanced by Shri Mahesh to the assessee of Rs.10.00 lakhs is from these two sources i.e. sale of land of Rs.9.39 lakhs and agricultural income. Based on these facts, the ld. CIT(A) has deleted the addition of Rs.76.00 lakhs in respect of loan taken from Shri S.Gowda and Shri Mahesh. These findings of facts given by the ld. CIT(A) regarding credit worthiness of these creditors could not be controverted by the ld. DR of the revenue and therefore, on this aspect also, we find no reason to interfere with the order of the ld.CIT(A). Accordingly, ground no.1 of the revenue appeal is also rejected.
Regarding ground no.4 in respect of deletion of addition made by the AO of Rs.12.50 lakhs, we find that para-3.13 to 3.16 from the order of the ld. CIT(A) are relevant and therefore, these paras are re-produced herein below;
“3.13 Addition of Rs.12,50,000/-. The AO in the assessment order has held that the Bank account of Sri Kempaiah, the appellant’s father was credited on 03-04-2006 with a sum of Rs.12,50,000/- from account no.228076 by way of transfer. The AO has brought the said amount of Rs. 12,50,000/- to tax protectively in the case of the appellant's father. The Appellant has filed his submissions on the above issue in his Written Submissions dated 14-03-2012, which are reproduced as under:-
"Credit of Rs. 12,50,0001- found in the Bank Account of Sri. Kempaiah: -
The Learned AD has held that a sum of Rs. 12,50,000/- as income of the Appellant and the same was assessed tax on Substantive to Basis (The same amount was assessed in the case of Sri. Kempaiah on Protective Basis). In this regard, the Appellant submits that he had sold lands in survey No. 159/5 measuring 1 acre 3 guntas to one Sri. S. Kariappa for a sum of Rs.52,50,000/-, out of which a sum of Rs.12,50,000/-was paid by cheque in favour of Sri. Kempaiah father of the Appellant and the said cheque amount of Rs. 12,50,000/- was credited into the Bank Account of Sri. Kempaiah.
The Appellant has already offered the Capital Gains arising out of the sale of lands in favour of Sri. S.Kariappa. Therefore, a part of sale consideration of Rs. 12,50,000/- obtained by way of Cheque in the name of Sri. Kempaiah Appellant's father cannot be held again as income of the Appellant. Therefore, the same is liable to deleted. The Appellant submits herewith a confirmation letter of Sri. S. Kariappa for kind perusal and consideration and the same is marked as Annexure - "F". The confirmation letters marked as Annexure - "A" to "F" were not in the possession of the Appellant at the time of Assessment Proceedings. Therefore, the said confirmation letters could not be produced before the AD. Hence, the Appellant submits that the confirmation letters may kindly be admitted for adjudication under Rule 46A of the I.T.Rules in the interest of advancement of substantial justice". 3.14 The submissions made by the Appellant in this regard are considered and the Appellant has also produced an Exhibit impounded relating to the mode and names of payments made by Sri. Cariappa as regards payment of sale consideration of Rs. 52,50,000/- to purchase the lands situated in Survey No. 159/5, Yelwala Village. It is found from the impounded material (copy of which produced by the Appellant at the time of hearing) that Sri. Cariappa has made the payment of Rs. 52,50,000/- as under:-
1.Sri. A Anand, DD No. 105499 Rs. 5,00,000 2.Sri Shankar, DD No. 105502 Rs. 5,00,000 3.Sri.Shankar, DD No. 105500 Rs. 5,00,000 4.Sri.Kempaiah by Cheque, SBM Rs.12,50,000 5.Sri.Sreenivasa by Cheque No.63056, dated 04-05-2006 Rs.20,00,000
Total Rs.52,50,000
3.15 On this, the appellant has admitted Short Term Capital Gains of Rs. 26,50,000/- . The A.R of the Appellant argued that Sri. Kempaiah was paid by Cheque a sum of Rs. 12,50,000/- on behalf of the Appellant, out the sale consideration of Rs. 52,50,000/- payable by Sri. Cariappa being the sale proceeds for purchase of land. The said cheque of Rs. 12,50,000/- was deposited into the Bank Account of Sri. Kempaiah, the Appellant father and the said amount was brought to tax on protective basis ignoring the fact that the Capital Gains arising out of the sale of lands in favour of Sri. Cariappa were offer to tax. A sum of Rs. 12,50,000/- paid by Sri. Cariappa to Sri. Kempaiah by way of Cheque was part of total consideration of Rs. 52,50,000/- which is already suffered to tax and therefore, no addition was called for on basis in the case of the Appellant.
3.16 I have considered the submissions and also the documents and I am of the view that as per the impounded material, Sri. Kempaiah, received by the cheque from Sri Cariappa towards part of sale consideration of Rs.12.50,000/- out of the total consideration of Rs.52,50,000/. Therefore, I am of the view that the AO was not justified to hold that the said sum of Rs.12,50,000/- was taxable in the case of the appellant and hence, the addition so made is deleted”.
From the above paras re-produced from the order of the ld. CIT(A), we find that even as per the assessment order, this amount of Rs.12.50 lakhs was credited in the bank account of Shri Kempaiah, the assesee’s father. This finding is also given by the ld. CIT(A) in para-3.16 as re- produced above that as per the impounded material, Shri Kempaiah, received a cheque from Shri Cariappa towards a part of sale consideration of Rs.12.50 lakhs out of total consideration of Rs.52.50 lakhs and therefore, he has held that the AO was not justified to hold that this amount of Rs.12.50 lakhs was taxable in the hands of the assessee.
The ld. DR of the revenue could not controvert these findings of the ld. CIT(A) and hence, on this issue also, we find no infirmity in the order of the ld. CIT(A) and therefore, we decline to interfere with the order of ld. CIT(A).
Accordingly, ground no.4 is also rejected.
In the result, appeal of the revenue for the assessment year 2008-09 is also dismissed.
In the combined result, both the appeals of the revenue are dismissed.
Order pronounced in the open court on the date mentioned on the caption page.