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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER BENCH :
The captioned appeal is filed by the Revenue against the order
of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam
[Ld. CIT(A)]in appeal no. 184/2017-18/CIT(A)-3/VSP/2019-20,
dated 31/10/2019 arising out of the order passed U/s. 143(3) r.w.s
153A of the Income Tax Act, 1961 [the Act] for the AY 2013-14.
Cross Objection is filed by the assessee in connection with the
appeal filed by the Revenue.
In this appeal, the Revenue has raised the following grounds
of appeal:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition U/s. 68 of the Act without appreciating the fact that the basic tenets for satisfying genuineness of the cash credits, being identify, creditworthiness of the lenders and genuineness of the transaction are cumulative and not isolated ie all three need to be satisfied? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition U/s. 68 of the IT Act without appreciating the fact that no prudent investor makes investment for lower interest at 3% per annum when banking / financial institutions offering higher rate of interest? 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of agricultural income added as income from other sources, even though the assessee failed to produce any evidence regarding agricultural activity.”
Brief facts of the case are that the assessee is deriving 3.
income from salary, business, house property, other sources and
agricultural income. The assessee has filed its return of income
for the AY 2013-14 on 24/12/2013 declaring a total income of
Rs. 39,00,000/- and an agricultural income of Rs. 1,04,522/-. A
search and seizure operation U/s. 132 of the Act was conducted
on 14/10/2015 in the case of the assessee, Sri A.T. Rayudu, Sri
Avnash, Smt. Ammaji and M/s. ATR Ware Housing Pvt Ltd,
Visakhapatnam simultaneously. During the course of search and
seizure proceedings, certain documents and loose sheets were
found and seized. A notice U/s. 153A of the Act dated
18/7/2016 was served on the assessee. In response to the said
notice, the assessee vide its letter dated 26/07/2016 stated that
the return of income filed u/s. 139 on 24/12/2013 may be
treated as the return filed in response to the notice U/s. 153A.
Further, notice U/s. 143(2) and 142(1) of the Act were issued and
served on the assessee called for certain information and to
furnish books of accounts, balance sheet, trading and profit &
loss account, audit report, bank account statements, copy of
wealth tax return filed, details of agricultural income, details of
shares held by the appellant in listed and unlisted companies
4 along with companies of D-mat account, confirmation letters in
respect of unsecured loans taken from the persons as per the
pages 140 and 141 of the seized material marked as
Annexure/A/ATR/PO/Res/1 etc. During the assessment
proceedings, the Ld. AO enquired as to why the sum Rs.
1,69,00,000/- appearing as “sundry creditors” should not be
regarded as genuine transaction and thus, be treated as
unexplained cash credit under section 68 of the Act. In response
the assessee, in addition to detailed submissions has also
submitted the confirmation letters from the respective creditors.
Not satisfied / convinced with the submissions of the assessee,
the Ld. AO made addition of Rs. 1,64,00,000/- treated the same
as unexplained cash credit u/s. 68 of the Act. The Ld. AO also
made addition of Rs. 7,54,500/- as unexplained cash credit u/s.
68 of the Act. The Ld. AO also disallowed a sum of Rs. 26,130/-
being 25% of the agricultural income claimed at Rs. 1,04,522/-.
Thus, the Ld. AO determined the total income at Rs.
1,30,07,294/-. Aggrieved by the order of the Ld. AO, assessee
went on appeal before the Ld. CIT(A).
On appeal, the Ld. CIT(A) after considering the submissions
of the assessee and discussing the issues at length, granted
5 partial relief to the assessee. Aggrieved by the order of the Ld.
CIT(A), the Revenue is in appeal before the Tribunal by raising
the above mentioned grounds of appeal.
Before us, with respect to Grounds No.1 & 2 the Ld.
Departmental Representative [Ld. DR] argued that the Assessing
Officer has requested for a detailed reply from the assessee
regarding the genuineness and creditworthiness of the lenders as
detailed in page 3 of the order. However, the Ld. DR contended
that the assessee furnished only part information. The Ld. DR
also further submitted that interest rate charged by the lenders
ie., 3% per annum and not acceptable and comparatively low
when compared to the prevailing market rates. The Ld. DR relied
on the judgment of the Hon’ble Supreme Court in the case of PCIT
v. NRA Iron & Steel Pvt. Ltd reported in (2019) 412 ITR 161 /103
taxmann.com 48 (SC). The Ld. DR pleaded that the order of the
Ld. AO be upheld.
Per contra, the Learned Authorized Representative [Ld. AR]
argued that the interest is not 3% per annum as submitted by
the Ld. DR but that 3% of interest is paid by cash out of the
books of account whereas the interest of 9% which was subject to
6 deduction of TDS and accounted in the books of accounts. Thus,
the assessee paid total interest @ 12% per annum [9% + 3% ].
The Ld. AR further submitted that the Ld. AO on ad-hoc basis
disallowed a sum of Rs. 26,130/- from the agricultural income
claimed by the assessee amounting to Rs. 1,04,522/-. The Ld.
AR pleaded that without any basis the Ld. AO has disallowed the
agricultural income and hence shall be allowed. The Ld. AR
therefore pleaded the order of the Ld. CIT(A) be upheld.
We have heard both the sides and perused material
available on record and also the orders of the Ld. Revenue
Authorities. In the present case, facts remain that the assessee
has taken an unsecured loan for Rs. 1.69 Crs but has paid
interest @ 9% through books of accounts and subjected it to Tax
Deduction at Source but however, paid an additional interest @
3% per annum outside the books of accounts by way of cash.
The Ld. AO has not disputed the payment of interest of 9% made
to the same lenders which is accounted in the books of accounts.
We therefore find that the loan taken by the assessee cannot be
considered as non-genuine as a part of the interest payments are
routed through books of accounts. It is also observed from the
loose sheets seized during the survey an additional amount of 3%
7 of interest per annum was paid to the lenders. The Ld. CIT(A) in
his order has held as detailed below:
“5.2.5. The discussions above bring out the following conclusions:
A) After this detailed examination of the entries in the loose sheets at the time of search, it is concluded that the same is an account of the interest receivable on monies lent to the assessee group / individuals. The mentioning of the correct names of the lenders and the amounts lent and the date of lending, all go to show that the transactions with the lenders are that of the loan that is taken and interest paid / computed annually. The assessee group has effected Tax Deducted at source on the interest wherever statutorily required and the same is mentioned in the tabulations at the summary. This also fortifies the claim of the assessee that the transactions are genuine and no a sham.
B) It is the case of the Assessing Officer that the Assessee Group have routed their own cash through various companies and has brought in the same through fictitious lenders. A careful and detailed analysis of the seized materials has not shown that the assessee group has paid cash to the extent of the loans received. In fact the seized materials themselves demonstrate and record that the assessee group has been paying interest both through normal banking channels, some by deducting Tax at source and also by cash.
This fact stand to prove the case of the assessee group and fortifies their claim of the genuineness of the borrowings.
C) More importantly, the search has brought out the true nature of the transactions. Cash and every document in the possession of the assessee has been examined at the time of search and during the assessment proceedings. There is no evidence that
8 there was cash payment of the principal amounts borrowed. The seized materials at pages 139 to 141 of Annexure/A/ATR/PO/Res/1 and pages 135, 136, 137 to 141 of A/ATR/PO Res 5, that have been analysed herein above, in minute detail, have shows that the assessee group has made payment of interest and principal and has not received back the cash as sough to be made out by the Assessing Officer. This is a question of fact that stands in favour of the assessee group. If it were to be the monies of the assessee that was routed back to them through the lenders, than the payment of interest for one’s own monies would not arise.
There being no cash trail found leading back to the assessee group and instead there being seized material to show that interest has been apid and demanded by the lenders, calculated on a day to day accuracy, the same vindicates the stance of the assessee that these are genuine business loans.
D) In view of the above, the addition made is not warranted and the same is deleted. The ground is allowed.”
The Ld. CIT (A) has rightly observed that the assessee was
paying interest through normal banking channels after deducting
Tax at source and also by way of cash. At the cost of repetition,
we once again find that the claim of the assessee regarding
genuineness of the borrowings has a true nature of the
transactions. In view of the above discussions, we therefore are
of the considered view that no interference is required in the
order of the Ld. CIT(A) with regard to addition U/s. 68, raised in
9 the Grounds No.1 & 2, and therefore we are inclined to dismiss
these grounds raised by the Revenue.
With respect to disallowance of agricultural income (Ground
No.3) as unexplained, the assessee has produced the land
records with the survey numbers and the details of crops and the
total yielding. It was further submitted that in the assessee’s
own case for the earlier years the ITAT, Visakhapatnam in their
order in ITA No. 325 to 331/Viz/2014, dated 10/07/2014 has
directed the Ld. AO to disallow 25% of the agricultural income
offered in the returns of income for the said assessment years.
The Ld. AO has followed the same for the impugned assessment
year without assigning any reasons and without considering the
facts and circumstances for the impugned assessment year. The
Ld. CIT(A) has therefore rightly concluded that the addition made
by the Ld. AO is without any basis and without bringing the facts
and circumstances on record. Therefore, we are of the considered
view that the Ld. CIT(A) has rightly deleted the addition and
therefore no interference is required in the order of the Ld.
CIT(A). Accordingly, Ground no.3 raised by the Revenue is
dismissed.
10 10. In the result, appeal of the Revenue is dismissed.
C.O. No. 27/Viz/2021 (In आयकरअपीलसं./ I.T.A. No.101/Viz/2020) (�नधा�रणवष�/ Assessment Year :2013-14)
This Cross Objection filed by the assessee for the AY 2013-
14 is in support of the decision of the Ld. CIT(A) who granted relief to the assessee in the order passed U/s. 143(3) r.w.s 153A of the Act. While adjudicating the appeal of the Revenue in ITA Nos. 101/Viz/2020, we upheld the decision of the Ld. CIT(A) on the issues raised therein and therefore the adjudication of the cross objection raised by the assessee becomes infructuous. It is
ordered accordingly.
In the result, Cross Objection filed by the assessee is dismissed as infructuous.
Ex-consequenti, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is dismissed as infructuous.
Pronounced in the open Court on the 21st December, 2022.
Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated :21.12.2022 OKK - SPS
आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Shri Anumolu Avnash, D.No.11-8-34, 1. Daspalla Hills, Visakhapatnam, Andhra Pradesh – 530017. राज�व/The Revenue – Deputy Commissioner of Income Tax, Central 2. Circle-2, Pratyakshakar Bhavan, Sector-8, MVP Double Road, Visakhapatnam, Andhra Pradesh – 530017. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals)-3, 4. Visakhapatnam. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam