LATE AT RAYUDU INDIVIDUAL REPRESENTATIVE BY AVINASH ,VISAKHAPATNAM vs. THE COMMISSIONER OF INCOME TAX, APPEALS-3,, VISAKHAPATNAM

PER BENCH :

All the captioned appeals are filed by the assessees against the orders of the Learned Commissioner of Income Tax (Appeals)- 3, Visakhapatnam [Ld. CIT(A)] in appeal No. 195/2017- 18/CIT(A)-3/VSP/2019-20, dated 31/10/2019 in the case of Sri A. Tirupathi Rayudu (HUF); appeal No.191& 192/2017- 18/CIT(A)-3/VSP/2018-19, dated 28/09/2018 in the case of Late Sri A. T. Rayudu for the AYs 2014-15 and 2015-16 respectively arising out of the orders passed U/s. 143(3) r.w.s 153A of the Income Tax Act, 1961 [the Act]. Since the issues raised in these appeals as well as the assessees are interconnected, for the sake of convenience, these appeals are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.

3 आयकरअपीलसं./ I.T.A. No.96/Viz/2020 (�नधा�रणवष�/ Assessment Year :2013-14) [A. Tirupathi Rayudu (HUF)] 2. This appeal filed by the assessee against the order of the Ld. CIT(A)- 3, Visakhapatnam for the AY 2013-14.

11,63,250/- and agricultural income of Rs. 5,14,000/-. Subsequently, search and seizure operations u/s. 132 of the Act were conducted on 14/10/2015 in the case of the assessee and its members and M/s. ATR Ware Housing Pvt. Ltd., Visakhapatnam simultaneously. Subsequently, a notice U/s. 153A was issued to the assessee on 18/07/2016. In response to the notice, the assessee submitted that the return of income

filed on 31/12/2013 may be treated as return in response to notice U/s. 153A of the Act. Thereafter another notice was also issued to the assessee on 15/11/2016 requesting to file the return electronically for which assessee replied that return was filed electronically on 23/11/2016 declaring the same income as filed U/s. 139(1) of the Act. Consequently, notice U/s. 143(2) was issued on 19/06/2017 and served

on 20/06/2017. Thereafter notice U/s. 142(1) was issued on

4 21/07/2017 and the same was served on the assessee on 25/07/2017.

The assessee’s Representative appeared on 17/08/2017 and furnished

the information called for by the Assessing Officer (Ld.AO). The Ld. AO

considering the submissions observed that the assessee did not intend to

furnish the information / explanation with respect to the unsecured

loans of Rs. 26,00,000/- taken from two persons viz., Sri A. Kannaiah

and Sri A. Satyanarayana and therefore the Ld. AO treated the same as

unexplained cash credits U/s. 68 of the Act and added to the returned

income. Further, the Ld. AO also disallowed the unsecured loan for a

sum of Rs 1.52 crores u/s 68 of the Act, agricultural income for Rs

88,500/-and also treated a sum of Rs. 3,92,242/- advanced by the

company M/s. ATR Ware Housing Pvt Ltd., to the assessee which holds

45% of the shares in the company as deemed dividend U/s. 2(22)(e) of

the Act. Accordingly, the Ld. AO assessed the income at

Rs.1,94,43,992/-. Aggrieved by the order of the Ld. AO, the assessee

filed an appeal before the Ld. CIT(A).

representative on the unsecured loans taken by the assessee,the Ld.

CIT(A) allowed a sum of Rs 1.52 crores. With respect to the balance Rs.

26 lakhs, the Ld. AR contended that it was repaid and should be treated

as genuine was not accepted by the Ld. CIT(A), as the Ld. AR has not

produced any confirmation even before the Ld. CIT(A). Further, the Ld.

CIT(A) also upheld the order of the Ld. AO with respect to the deemed

dividend as the assessee is having substantial interest in the company

namely M/s. ATR Ware Housing Pvt Ltd. Aggrieved by the order of the

Ld. CIT (A), the assessee is in appeal before us.

“The order of the Ld. CIT(A) is bad and unsustainable in the eyes of law as the same is passed without proper application of mind, as it is also contrary to the spirit and provisions of the Income tax Act, 1961: (i) That having regard to the facts and circumstances of the case, the present assessment pursuant to section 153A is not justified as the search conducted on the appellant was based on illegal search warrant. (ii) That having regard to the facts and circumstances of the case, the present assessment is not justified as no incriminating material was found in the course of search. (iii) That having regard to the facts and circumstances of the case, the Ld. AO has not erred in passing the impugned assessment order which was passed pursuant to a notice issued U/s. 153A which itself was perverse in law. (iv) The Ld. CIT(A) has erred in law and on facts in considering the unsecured loans in from A. Kannaiah and A. Satyanarayana amounting to Rs. 26,00,000/- as unexplained cash credits under section 68 of the Act. (v) The Ld. CIT(A) has erred in law and on facts in considering the advance by ATR Warehousing Private Limited as deemed dividend under section 2(22)(e) amounting to Rs. 3,92,242/-.”

Additional Ground of Appeal:

“On the facts and in the circumstances of the case, whether the addition of Rs. 3,92,242/- made by the assessing Officer towards deemed dividend is beyond the scope of additions that can be made in the assessment U/s. 143(3) r.w.s 153A of the Income Tax Act, 1961.”

6 6. At the outset, the Ld. Authorized Representative [Ld. AR]

argued that since the assessee has repaid the loans it should be

treated as genuine loan and pleaded for allowing the same.

Further, the Ld. AR also pleaded that the advance given by M/s.

ATR Ware Housing Pvt Ltd., Visakhapatnam on short term basis

cannot be treated as a deemed dividend u/s. 2(22)(e) of the Act

and hence pleaded to delete the additions made by the Ld.

Revenue Authorities. Further by way of additional ground the

Ld.AR questioned the addition of Rs 3,92,242/- as deemed

dividend as no incriminating material found during the search.

Per contra, the Ld. Departmental Representative [Ld. DR]

relied on the orders of the Ld. Revenue Authorities.

available on record and the orders of the Authorities below.

Grounds Nos. (i), (ii) and (iii) pertain to justification of the

search conducted and consequential order passed by the Ld.

AO which was considered perverse. It is not the fact that no

incriminating material found during the search operations.

The Ld. AO in his order has clearly corroborated the evidences

found at the time of search and seizure in para 5.5 of the order

and quoted the reference to the Annexure/A/ATR/PO/Res/1.

7 Based on the seized material the Ld. AO then proceeded to

further verify the creditworthiness, identity of the lenders.

These evidences were not produced before the Ld. AO and

therefore the Ld. AO made addition to the extent of Rs. 1.78

Crs. Further it is seen from the order of the Ld. CIT(A), the

assessee has submitted details in respect of the unsecured

loans to the extent of Rs. 1.52 Crs before the Ld. CIT(A) and

therefore the Ld. CIT(A) has allowed the same. However, the

Ld. CIT(A) has not allowed an amount of Rs. 26 lakhs since no

evidences / confirmation letters / creditworthiness of the

lenders namely Sri A. Kannaiah and Sri A. Satyanarayana were

produced before the Ld. AO or before the Ld. CIT(A).

It is a settled law that once a search was made U/s. 132

of the Act the Assessing Officer is bound to issue notice U/s.

153A of the Act to the assessee. Consequently, the Ld. AO is

also empowered to assess or reassess the total income of the

assessee for a period of six assessment years. In the instant

case, it is also found that some incriminating material with

respect to the unsecured loans has been seized by the Ld.

Revenue Authorities. Assessments and reassessments pending

on the date of search shall abate and it empowers the Ld. AO

to re-do the assessment with the same. In respect of non-

8 abated assessments if any incriminating material is found for

the relevant assessment year, section 153A empowers the Ld.

AO to reassess the income with respect to the assessment year

in which the incriminating material was found. In our

considered opinion this would be correct understanding of the

provisions of section 153A of the Act as otherwise the necessity

of bifurcation of abated and non-abated assessment in section

153A would become redundant and would lose its relevance.

In the instant case, the incriminating material found at the

time of search with respect to unsecured loans has been

reassessed by the Ld.AO with respect to the non-abated

assessment for the impugned assessment year. Therefore, we

are of the considered view that these grounds raised by the

assessee do not have legs to stand and hence dismissed.

Having dismissed the legal grounds we now proceed to

adjudicate the other grounds raisedby the assessee on merits.

Admittedly the assessee has failed to produce any confirmation or

evidence with respect to the obtaining of unsecured loans from

Sri A. Kannaiah and Sri A. Satyanarayana aggregating to Rs. 26

lakhs wherein a sum of Rs. 18,50,000/- has been obtained by

way of cash and Rs. 7,50,000/- by way of cheque. The assessee

also failed to produce any information or explanation for

obtaining unsecured loans in the form of cash. Further, it is also

observed that the assessee has neither paid interest nor provided

any evidence with respect to payment of interest and Tax

Deduction thereon. In the absence of any cogent evidence, the

Ld. CIT(A) has rightly rejected the claim of the assessee and

upheld the order of the Ld. AO. The findings of the Ld. CIT(A) is

extracted herein below for reference:

“7.1. During the appellate proceedings it was submitted that the loans were repaid and should be treated as genuine. I have considered the assessment order and submissions of the appellant. As regards, to the addition of Rs. 26,00,000/-, it is seen that the appellant has not furnished any information. As no confirmation was produced even during the appellate proceedings, the addition made as above is confirmed and the ground No.4 is rejected.”

taken by the Ld. CIT(A) is in accordance with law. Therefore even

on merits we find no infirmity in the order of the Ld. CIT(A) and it

does not call for any interference. Accordingly, the Ground

No.(iv) raised by the assessee is dismissed.

dividend income of Rs. 3,92,424/- U/s. 2(22)(e) of the Act.

Section 2(22)(e) of the Act is extracted below for reference:

Sec. 2(22)(e): Any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

follows:

“On the facts and in the circumstances of the case, whether the addition of Rs. 3,92,242/- made by the assessing Officer towards deemed dividend is beyond the scope of additions that can be made in the assessment U/s. 143(3) r.w.s 153A of the Income Tax Act, 1961.”

amount of Rs. 3,92,242/- as deemed dividend which is beyond

the scope of additions that can be made u/s. 143(3) r.w.s 153A

of the Act. However, on reading the assessment order we

observe that the Assessing Officer has noticed payments by

way of advances to the assessee by M/s. ATR Ware Housing Pvt.

Ltd., Visakhapatnam. On merits, we find that the Ld. CIT(A) has rightly

11 upheld the addition made by the Ld. AO with respect to deemed dividend

U/s. 2(22)(e) of the Act to the extent of accumulated profits of the

company.

assessee is having a running current account. Funds are being

used by the assessee on a short term basis and later on repaid to

the company M/s. ATR Ware Housing Pvt Ltd., depending on

their requirements. Even though these accumulations are on a

short term basis, section 2(22)(e) of the Act prohibits the same.

Section 2(22)(e) clearly state that when a person who is a

beneficial owner of shares in which the public are not

substantially interested, any advance made to such persons shall

be treated as deemed dividend to the extent to which the

company possess the accumulated profits. Accordingly, the Ld.

Revenue Authorities had rightly held the sum of Rs. 3,92,424/-

as deemed dividend U/s. 2(22)(e) of the Act and therefore we are

of the considered view that there is no interference required in

the order of the Ld. CIT(A) on this issue. Thus, the Ground No.

(v) and additional ground raised by the assessee is dismissed.

12 आयकरअपीलसं./ I.T.A. No.613/Viz/2018 (�नधा�रणवष�/ Assessment Year :2014-15) [Late Sri A. T. Rayudu (Individual)]

CIT(A)-3, Visakhapatnam for the AY 2014-15.

sustenance of addition of Rs.1,32,990/- by the Ld. CIT (A).

during the assessment proceedings on perusal of the seized

13 material the Ld. AO noted that certain advances received by the

assessee from Sri Mallikharjuna Rao and Smt. K. Shilpa. In this

regard, after considering the submissions and the explanations

given by the assessee, the Ld. AO found that they are not

satisfactory and held that since the amount to the extent of

Rs.6,38,335/- was not reflected in the books of accounts of the

assessee on account of payments, the Ld. AO treated the same as

unexplained expenditure U/s. 69C of the Act and made addition

of Rs. 6,38,335/-. Aggrieved by the decision of the Ld.AO, the

assessee went on appeal before the Ld.CIT(A). On appeal, the Ld.

CIT(A) after considering the submissions of the assessee and on

perusal of the documents produced by the assessee, the Ld.

CIT(A) granted partial relief to the assessee to the extent of Rs.

5,05,345/- and sustained the addition to the extent of Rs.

1,32,990/-. Not satisfied with the decision of the Ld. CIT(A), the

assessee came up before the Tribunal vide Ground No.4 of the

Grounds of Appeal.

disallowance of expenditure considering the amount payable by

the assessee and has upheld the order of the Ld. AO to the extent

of net of amount to be received and amount payable by the

14 assessee. The Ld. AR therefore pleaded that the difference

amount of Rs. 1,32,990/- should also be allowed. The Ld. DR

relied on the orders of the Ld. Revenue Authorities.

available on record and the orders of the Ld. Revenue

Authorities. In the instant case we find that the Ld. AO has

made an addition of Rs. 6,38,335/- on account of payments

which is not reflected in the books of accounts. The Ld. AO

relied on the confession statement of Sri K. Mallikarjuna Rao, the

lender, that the payment was received from the assessee as

interest. The Ld. AO treated the sum of Rs. 6,38,335/- as

unexplained expenditure U/s. 69C of the Act as the assessee did

not offer any satisfactory explanation regarding the said

expenditure. Further, it is admitted that Sri K. Mallikarjuna Rao

has received Rs.6,38,335/- during the FY 2013-14 itself. The Ld.

CIT(A) considering these facts and also noticing that a sum of Rs.

5,05,345/- which is payable in the books of accounts of the

assessee netted the disallowance to differential amount of Rs.

1,32,990/- and has directed the Ld. AO to delete the addition of

Rs. 5,05,345/- which is payable by the assessee. We are

therefore of the considered view that since the Ld. CIT(A) has

15 rightly considered the receivables and payables and has directed

the Ld. AO to disallow a sum of Rs. 1,32,990/-, and hence no

interference is required in the decision of the Ld. CIT(A). We

therefore, dismiss this ground (Ground No.4) raised by the

assessee.

to that of the Grounds No. 1, 2 and 3 raised by the assessee in

its appeal for the AY: 2013-14 in I.T.A. No.96/Viz/2020. While

adjudicating the grounds raised by the assessee pertaining to the AY

2013-14, we have discussed the issues involved therein at length and

dismissed the grounds raised by the assessee. Since the issues raised in

the present appeal are identical to that of the ones raised by the assessee

in I.T.A. No.96/Viz/2020, our decision given therein (ITA No.

96/Viz/2020) mutatis mutandis applies to the instant appeal also.

Accordingly, Grounds No.1, 2, 3 & 5 raised by the assessee are

dismissed.

आयकरअपीलसं./ I.T.A. No.614/Viz/2018 (�नधा�रणवष�/ Assessment Year :2015-16) [Late Sri A. T. Rayudu (Individual)]

CIT(A)-3, Visakhapatnam for the AY 2015-16.

deemed dividend U/s. 2(22)(e) of the Act ie., in ground no.4 & 5.

This issue is identical to that of the Ground No.(v) in ITA

No.96/Viz/2020. Since the issue is similar as well as the facts

17 and circumstances of the case, our decision given thereof while

adjudicating the Ground No.(v) in ITA No.96/Viz/2020 in this

above paragraphs of this order, mutatis mutandis applies to the

Ground No.4 of the instant appeal also. Accordingly, the decision

taken by the Ld. CIT(A) is in accordance with law and there is no

interference is required. Thus, Grounds No.4 & 5 raised by the

assessee are dismissed.

that of the Grounds No. 1, 2 and 3 raised by the assessee in its

appeal for the AY: 2013-14 in I.T.A. No.96/Viz/2020. While

adjudicating the grounds raised by the assessee pertaining to the AY

2013-14, we have discussed the issues involved therein at length and

dismissed the grounds raised by the assessee. Since the issues raised in

the present appeal are identical to that of the ones raised by the assessee

in I.T.A. No.96/Viz/2020, our decision given therein (ITA No.

96/Viz/2020) mutatis mutandis applies to the instant appeal also.

Accordingly, Grounds No.1, 2 & 3 raised by the assessee are dismissed.

Pronounced in the open Court on the 21st December, 2022.

Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER Dated : 21.12.2022 OKK - SPS

आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee– (i) A. Tirupathi Rayudu (HUF), D.No. 11-8- 1. 34, Daspalla Hills, Visakhapatnam, Andhra Pradesh – 530003. (ii) Late Sri A. T. Rayudu (Individual), Represented by Sri Avinash, Legal Heir, D.No.11-8-34, Daspalla Hills, Visakhapatnam. (iii) Late Sri A. T. Rayudu (Individual), Represented by Sri Avinash, Legal Heir, D.No.11-8-34, Daspalla Hills, Visakhapatnam.

राज�व/The Revenue – Deputy Commissioner of Income Tax, Central 2. Circle-2, MVP Colony, Sector-8, Pratyakshakar Bhavan, Beside Post Office, Visakhapatnam, Andhra Pradesh – 530017. (ii) Office of the Commissioner of Income Tax (Appeals)-3, Visakhapatnam. (iii) Assistant Commissioner of Income Tax, Central Circle-2, Direct Taxes Building, Sector-8, MVP Colony, Visakhapatnam.

19 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. आयकरआयु�त (अपील)/ The Commissioner of Income Tax(Appeals)-3, 4. Visakhapatnam. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ DR,ITAT, 5. Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam