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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
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.
5. 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 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./ (�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 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.