THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1),, VISAKHAPATNAM vs. TIRUMALA STEEL ENTERPRISES,, VISAKHAPATNAM

PER S. BALAKRISHNAN, Accountant Member :

The captioned appeal is filed by the Revenue against the

order of the Ld. Commissioner of Income Tax (Appeals)-1,

Visakhapatnam in ITA No. 10559/CIT(A)-1/VSP/2020-21, dated

16/09/2020 arising out of the order passed U/s. 143(3) of the

Act for the AY 2017-18. The assessee has filed the Cross

Objection.

ITA No.73/Viz/2021 (By Revenue)

in the business of trading the products of Iron & Steel filed its

return of income for the AY 2017-18 on 29/10/2017 declaring

total income of Rs. 3,99,04,090/- and the assessee revised the

return on 10/11/2017. Subsequently, the case was selected for

complete scrutiny as per the CBDT Guidelines. Accordingly, the

notice U/s. 143(2) of the Act was issued on 28/09/2018.

Thereafter, upon change in incumbent, a letter along with notice

U/s. 142(1) of the Act dated 17/09/2019 was also issued calling

for certain information. In response to the said notices, the

assessee filed the submissions through e-proceedings as called

3 for from time to time. A survey operation U/s. 133A of the Act

was conducted in the case of the assessee on 11/10/2017

consequent to the search and seizure operation in the case of

M/s. DRK Reddy Educational Society, Visakhapatnam. During

the search operation, it was unearthed that the assessee firm has

purchased Acres 2.515 cents of land in Anandapuram during the

period January, 2017 & March, 2017 for a total consideration of

Rs.5,45,88,000/- as per SRO value. During the course of survey,

the Managing Partner of the firm Shri Grandhi Ramjee was asked

to explain the cash payment made over and above the SRO value

for acquiring the said land. In his sworn in statement, the

Managing Partner admitted that the assessee-firm has paid Rs.

4,65,27,000/- in cash over and above the sale consideration

mentioned in the registered sale deed which the Ld. AO noted

that the assessee-firm had paid to Shri Dwarampudi

Satyanarayana Reddy Rs. 4,65,27,000/- over and above the SRO

value and the same was not recorded in the books of account of

any of his business concerns including M/s. Sree Tirumala Steel

Enterprises. It was also observed by the Ld. AO that the cash

payments were made during October, 2016 and February, 2017

relevant to the FY 2016-17. Therefore, the Ld. AO opined that

the said cash of Rs. 4,65,27,000/- is an unaccounted /

4 undisclosed income or cash during the FY 2016-17. The Ld. AO

however noticed that the assessee declared only the amount of

Rs.3,65,00,000/- while filing the return of income for the AY

2017-18 under the category “income offered at the time of survey

operations” as against the income admitted in the sworn

statement for Rs. 4,65,27,000/-, and after allowing the

expenditure, net profit is shown at Rs. 3,28,22,384/-. The

assessee took the telescoping benefit as requested in the sworn

statement regarding the income offered under the IDS income of

Rs. 1 Cr in the hands of the partners and firm. However, the Ld.

AO observed that the IDS income of Rs. 1 Cr was offered for

assessment years prior to AY 2017-18. The Ld. AO therefore

issued a show cause notice to explain as to why the undisclosed

income of Rs. 4,65,27,000/- which was offered during the survey

proceedings and admitted in the sworn statement, should not be

treated as unexplained cash and brought to tax under special

rates mentioned U/s. 115BBBE of the Act. In response to the

show cause notice the assessee submitted its reply on

18/12/2019 which is reproduced by the Ld. AO at para-4 of his

order. But the Ld. AO did not accept the submissions of the

assessee by holding that the amended provisions of section

115BBE w.e.f 15/12/2016 are retrospectively effective from

5 1/4/2016 ie., for AY 2017-18. Regarding the applicability of

telescoping, the Ld. AO discussed the issue at para-6 of his order

and denied the telescoping benefit on the IDS payment of Rs. 1

Crs in the hands of partner and firm which was declared by the

assessee during AY 2016-17. Accordingly, the Ld. AO concluded

that the amount of Rs. 4,65,27,000/- is undisclosed income of

the assessee-firm and shall be subjected to tax U/s. 68 r.w.s

115BBE of the Act. Aggrieved by the order of the Ld. AO, the

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

of the assessee and on perusal of the material available before

him, granted relief to the assessee and partly allowed the

assessee’s appeal. Aggrieved by the order of the Ld. CIT (A), the

Revenue is in appeal before the Tribunal by raising the following

grounds of appeal:

“1. The order of the Ld. CIT (A)-1, Visakhapatnam is erroneous on facts and in law.

6 3. The Ld. CIT(A) has erred in law in allowing the taxation of the aforesaid ‘unexplained’ amount of Rs. 4,65,27,000/- at normal tax rate instead of the tax rate applicable U/s. 115BBE of the Act, since the same is not warranted on facts of the case.

Rs. 4,65,27,000/-, the Ld. DR drew our attention to the finding of

the Ld. AO and stated that the assessee has clearly accepted in

the sworn statement recorded U/s. 131(1A) of the Act on

11/10/2017 that the cash payments to the extent of Rs.

4,65,27,000/- were paid between October 2016 and February

2017 and this time period overlaps with demonetization period

(9th November, 2016 – 30th December, 2016) and subsequent to

PMGKY scheme. Therefore, these cash payment shall also be

treated on par with undisclosed income detected during the

demonetization period. The Ld. DR further submitted that since

the assessee stated that these are business receipts generated

outside the books of account, but could not be linked to any

7 business transactions sources from which these cash proceeds

are generated. The Ld. DR further mentioned that the assessee

has opted neither IDS 2016 nor PMGKY scheme to disclose the

undisclosed income as intended by the Government of India

rather the assessee simply shown the said undisclosed income in

the said profit and loss account as other income ie., ‘income

offered at the time of survey operations’ claiming the tax rate at

30% and also expenditure against such incomes. The Ld. DR

also argued that if the survey U/s. 133A of the Act would not

happen on the assessee-firm, then the undisclosed income would

not come into existence. Therefore, the Ld. DR submitted that

the assessee’s case is clearly covered under the provisions of

section 115BBE of the Act as invoked by the Ld. AO. Further,

with respect to the issue that whether the assessee-firm is

eligible for telescoping benefit or not, the Ld. DR argued that the

IDS Scheme 2016 is only for the prior assessment years till AY

2016-17 only and not for the AY under consideration ie., 2017-

was made to disclose the undisclosed amounts of prior

assessment years cannot be considered for AY 2017-18. Hence,

the IDS amount paid by the assessee-firm and partner cannot be

allowed for the purpose of telescopic benefit. The Ld. DR further

8 submitted that without appreciating these facts, the Ld. CIT(A)

granted relief to the assessee and therefore, the Ld. DR pleaded

that the order of the Ld. CIT(A) be set-aside and that of the Ld.

AO be sustained.

the Ld. CIT(A) and reiterated the submissions made before the

First Appellate Authority and strongly argued in support of the

same. The Ld. AR argued that as per the sworn statement

recorded the assessee has explained the sources of cash as the

business receipts of M/s. Tirumala Steel Enterprises generated

out of the books of account. The Ld. AR vehemently argued that

the source is therefore explained. The Ld. AR further argued that

no material evidence was brought on record by the Ld. AO to

prove that it is not a business income. Since the source is

explained, the Ld. AO has erred in making the addition U/s. 68 of

the Act. The Ld. AR further submitted that since the provisions

of section 68 and 69 cannot be invoked, invoking the provisions

of section 115BBE is not valid in law. The Ld. AR also submitted

that the Revenue has not raised any ground regarding telescoping

benefit while filing the appeal. The Ld. AR therefore pleaded that

the order of the Ld. CIT(A) be upheld.

available on record as well as the orders of the Ld. Revenue

Authorities. The undisputed facts are that the there was a

survey U/s. 133A of the Act on 11/10/2017 in consequence of

search U/s. 132 in the case of DRK Reddy Educational Society.

The assessee had purchased Ac. 2.515 Cents for a consideration

of 5.45 Crs and the cash component of Rs. 4.65 Crs was paid

over and above the SRO value. This fact was also agreed by the

assessee in the sworn statement U/s. 131(1A) of the Act recorded

on 11/10/2017. It is also an undisputed fact that the amount of

Rs. 4.65 Crs was paid between October 2016 to November, 2017

which includes the demonetization period ie., 9th November, 2016

to 30th December, 2016. The assessee’s contention regarding the

source of income is undisclosed income generated outside the

books of account by the assessee-firm. The submissions of the

assessee before the Ld. Revenue Authorities as well as before us

is that an amount of Rs. 1 Cr was disclosed under IDS 2016 in

the AY 2016-17 and the remaining amount of Rs. 3,65,27,000/-

was disclosed as additional income in the AY 2017-18, while

filing the return of income. The case of the Ld. AO is that during

the survey operations there was no excess stock found in the

10 business and therefore the undisclosed income is considered as

unexplained. The Ld. AO also opined that since the payments are

made during the demonetization period, it is held as unexplained.

The Ld. AO while considering the reply of the assessee regarding

the telescoping benefit of Rs. 1 Cr which was declared under IDS

2016 also observed that the assessee has increased the value of

the land at Rs. 10.62 Crs which includes the cash payments of

Rs. 4.65 Crs. The Ld. AO further observed in his order the

increase in the asset value was balanced in the form of increase

of capital of the assessee-firm. Under these circumstances, the

Ld. AO held that the benefit of telescoping could not be allowed

to the assessee. Further, we find that the Ld. CIT(A) in para 4.14

of the order has verified the income declared under IDS 2016

which was filed by the assessee on 26/09/2016 and based on

such finding the Ld. CIT(A) has allowed the telescoping benefit

claimed by the assessee. Further, we find force in the argument

of the Ld. AR that the Ld. AO has not brought any material

evidence to prove that it is not the business income of the

assessee. Even before us, the Revenue has not produced any

records supporting the claim of the Ld. AO. Further, we find that

the Ld. AO has also failed to examine how the assessee generated

the cash deposit outside the books of account. No documentary

evidence was also gathered by the Revenue with respect to the

excess stock as contended by the Ld. AO. Further, from the

sworn statement of Sri Grandhi Ramjee, in response to Q. No. 15,

he had admitted that an amount of Rs. 4,65,27,000/- was

generated by the assessee firm outside the books of account

during the FY 2016-17. Further, in response to Q. No. 16, he

has also admitted that the assessee-firm has offered Rs. 1 Cr

under IDS scheme in the name of the assessee-firm and partners

and has requested to give the telescoping benefit to pay the tax

on the balance amount of Rs. 3,65,27,000/-. For the sake of

reference, we hereby extract below the Q. No. 15 and 16 and their

answers from the sworn statement of Sri Grandhi Ramjee:

“Q. 15. Please give the source of cash of Rs. 4,65,27,000/- paid to Sri Dwarampudi Satyanarayana Reddy for purchase of Anandapuram Land? A. The aforesaid cash of Rs. 4,65,27,000/- paid to Sri Dwarampudi Satyanarayana Reddy for purchase of Anandapuram land is out of business profit of M/s. Sree Tirumala Steel Enterprises generated outside the books of account during the Financial Year 2016-17. Q. 16. Since the aforesaid cash of Rs. 4,65,27,000/- is paid in cash from profits generated outside the books of account please state why it should not be considered as undisclosed income of your firm M/s. Sree Tirumala Steel Enterprises? A. I agree to admit the aforesaid cash of Rs. 4,65,27,000/- as additional income of our firm M/s. Sree Tirumala Steel Enterprises over and above the profit as per the books of account for AY 2017-18. However, I would like to state that we have admitted Rs. 1,00,00,000/- under the Income Disclosure Scheme in the name of our firm M/s. Sree Tirumala Steel Enterprises and its partners ie., myself and my wife in the month of September,

12 2016 and we have also paid entire tax by September, 2017. I, therefore, request you to kindly give telescopic benefit and allow me to pay tax on the balance of Rs. 3,65,27,000/- only.”

view that the Ld. CIT(A) has rightly held that the assessee had

explained nature and source of payment of Rs. 4.65 Crs vide para

4.10 of his order which is reproduced herein below for reference:

“4.10. In the instant case, the income of Rs. 4.65 Crs for the AY 2017-18 represents partly the transaction found in a search U/s. 132 of the Act. The transaction of the appellant was found in the search case of DRK Reddy Educational Society. The transaction has not been recorded in the books of account maintained in the normal course of business. Therefore, it is purely undisclosed income but cannot be unexplained as it does not form part of books of account. The appellant had also explained the source being cash generated out of business. It is for the Assessing Officer to examine how the sales were generated and the manner in which the undisclosed income is generated. The Assessing Officer’s contention that no excess stock was found has not basis in the absence of any details of stock. The only point on which the survey conducted is the value of investment and no other details. In the absence of such finding, I am inclined to the finding of the AO regarding the observation in stock. In my considered opinion, the appellant had explained that nature and source of payment of Rs. 4.65 Crs.”

this issue and hence we intend to dismiss the grounds raised by the

Revenue.

ground and hence there is no need to adjudicate the same.

C.O. No. 22/Viz/2023 (By assessee)

Pronounced in the open Court on 10th August, 2023.

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 :10.08.2023 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Sri Tirumala Steel Enterprises, 26-8-62, 1. Rajaram Mohan Roy Road, Velampeta, Visakhapatnam – 530001, Andhra Pradesh. राज�व/The Revenue – Assistant Commissioner of Income Tax, 2. Circle-1(1), Prathyakshakar Bhavan, Sector-8, MVP Double Road, Visakhapatnam – 530017, Andhra Pradesh. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �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