SRI GOLUGURI NAGI REDDY,VIJAYAWADA vs. AASISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1,, RAJAHMUNDRY
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
Both the captioned appeals are filed by the assessee against the orders of the Ld. Commissioner of Income Tax-12, Hyderabad [Ld. CIT(A)]
2 in appeal Nos.10087/2018-19, dated 14/2/2022 (ITA No. 139/Viz/2022)
and 10172/2018-19, dated 18/02/2022 arising out of the orders passed
U/s. 143(3) r.w.s 153A (AY: 2014-15) and U/s. 143(3) (AY: 2017-18).
Though the issues raised in these appeals are different, since both the
appeals are pertaining to one assessee, for the sake of convenience, they
are clubbed, heard together and disposed off in this consolidated order.
Appeal wise adjudication is given in the following paragraphs of this
order:
ITA No. 139/Viz/2022 (AY: 2014-15)
At the outset the Ld. AR mentioned that there is a delay of 81 days
in filing the appeal before the Tribunal. The Ld. AR drew our attention to
the affidavit filed by the assessee wherein the assessee explained the
reasons for filing the appeal before the Tribunal beyond the prescribed
time limit and sought for condonation of delay of 81 days. The Ld
Authorised Representative (Ld.AR) submitted that no proper notice was
issued and served on the assessee. Further, the assessee was aware of
the appellate order only when consequential order has been intimated to
the assessee. The assessee has filed his affidavit as follows:
“1………
3 2. The appellant is not well educated and do not have any knowledge about the Income Tax Law procedures. On receipt of the order he thought that the appeal was finalized in favour of the appellant and did not even consult his authorized representative due to lack of sufficient knowledge. Later when the Department has informed that he need to pay the entire demand raised along with interest, he came to understand that the appeal was dismissed. He immediately approached Authorized Representative who has suggested for further appeal to the Tribunal. Hence the delay is caused due to the unawareness of knowledge. 3….. 4……. 3. On perusal of the explanation given by the assessee for belated
filing of the appeal before the Tribunal, we find that the assessee was
prevented by a reasonable and sufficient cause in filing the appeal with a
delay of 81 days. Considering the same, we hereby condone the delay of
81 days in filing the appeal before the Tribunal and proceed to adjudicate
the appeal on merits.
Brief facts of the case are that the assessee is an individual deriving
income from business and other sources filed his return of income for
the AY 2014-15 admitting a total income of Rs. 4,69,334/- and
agricultural income of Rs. 60,000/- on 18/11/2014. The return was
summarily processed U/sd. 143(1) of the Act. Subsequently, a search
and seizure operation U/s. 132 of the Act was undertaken on 18/1/2017
in the case of Nexus Group. Consequently, the warrant was executed in
the name of the assessee and search and seizure operation was carried
4 out in the assessee’s premises. Pursuant to the search and seizure
operation the case was centralized with Central Circle-1, Rajahmundry
from the erstwhile jurisdiction of ITO, Ward-1, Bhimavaram vide order
U/s. 127(2)(a) of the Act passed by the Ld. Pr. Commissioner of Income
Tax, Rajahmundry in F.No. 62/Juris./CIT/RJY/2017-18, dated
28/8/2017. Accordingly, notice u/s. 153A was issued on 10/02/2018
and served on the assessee on 16/2/2018. In response, the assessee
filed its return of income on 18/3/2018. Subsequently, notice U/s.
143(2) of the Act was issued on 25/05/2018 and served on the assessee
on 31/5/2018. A detailed questionnaire was also issued U/s. 142(1) of
the Act on 13/8/2018 and the same was served on the assessee. In
response the assessee appeared and furnished the details / information
called for. The Ld. AO found that a registered affidavit in the name of the
assessee containing the details of investment of Rs 25 lakhs as on
30/11/2013 in Annexure-A/NFL/SN/77 and noticed that the assessee
has not disclosed the investment in his financial statements. The Ld. AO
found that in the balance sheet submitted for the AY 2014-15 this
investment in share capital was not disclosed. The Ld. AO therefore,
issued a letter dated 4/12/2018 asking him to show cause as to why the
above mentioned amount of Rs. 25 lakhs should not be considered as
unexplained. Since the assessee did not give any reply but merely stated
that it is shown as sundry Debtors in the balance sheet which is
5 representing the investment. The Ld. AO considered the reply given by
the assessee is not acceptable as it is only an afterthought of the
assessee to escape tax liabilities and treated it as unexplained
investment U/s. 69 of the Act. Aggrieved by the order of the Ld. AO, the
assessee filed an appeal before the Ld. CIT(A)-12, Hyderabad. Before the
Ld. CIT(A), the Assessee’s Representative made written submissions on-
line to the Ld. CIT(A). The Ld. CIT(A) found that the submissions made
by the assessee that the investment of Rs. 25 lakhs in the affidavit was
made for enabling the sanction of loan by banks to the related parties
where the assessee stood as a guarantor. The Ld. AR submitted before
the Ld. CIT(A) that the affidavit was made only for the bank purposes
and solely for taking the loan by the company. The Ld. CIT(A) rejected
the explanation of the assessee and confirmed the order of the Ld. AO.
Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before
us.
The assessee has raised eight grounds in its appeal however, the
crux of the issues are:
(i) Legal validity of the notice issued U/s. 153A/153C of the
Act; and
(ii) Treating the amount of loan of Rs. 25 lakhs as unexplained
amount by the Ld. Revenue Authorities.
6 6. With respect to the validity of the notice issued U/s. 153 of the Act,
the Ld. AR submitted that the Ld. AO relied on the affidavit found in the
premises of Nexus Group where the search and seizure operation was
carried out during January 2017, but during the search and seizure
operations in the assessee’s premises no such incriminating material was
found and hence notice issued u/s. 153A of the Act is invalid and the
assessment based thereon is void-ab-initio. The Ld. AR relied on the
decision of the ITAT, Delhi “C” Bench in the case of DCIT vs. Shivali
Mahajan (ITA Nos. 5585/Del/2015 and others) and also the decision of
the “G” Bench of the Delhi Tribunal in the case of Mr. Trilok Chand
Chaudhary vs. ACIT in ITA No. 5870/Del/2017, dated 20/08/2019.
Therefore, the Ld. AR pleaded to quash the assessment order passed
U/s. 143(3) r.w.s 153A of the Act.
Per contra, the Ld. DR submitted that the assessee cannot question
the validity of the notice whether it is issued U/s. 153A or U/s. 153C of
the Act since the assessee’s premises was also subjected to search
operations. The Ld. DR further submitted that it is a curable mistake
U/s. 292B of the Act. The Ld. DR therefore pleaded that the order of the
Ld. Revenue Authorities be upheld.
We have heard both the parties and perused the material available
on record and the orders of the Ld. Revenue Authorities. Admittedly the
7 affidavit was found in the premises of Nexus Group when it was
subjected to search during January, 2017. No such corroborative
evidence was found during the search operations carried out in the
assessee’s premises. The Ld AO has also not discussed about any
corroborative/incriminating evidence and its seizure in the premises of
the assessee. We find merit in the argument of the Ld. AR that in the
absence of any incriminating material found in the premises of the
assessee, notice U/s. 153A of the Act cannot be issued. In the instant
case, the affidavit was found in the premises of Nexus Group vide
Annexure-A/NFL/SN/77, page 151 to 153, but any corresponding
corroborative evidence was not found in the premises of the assessee. In
the absence of any evidence or incriminating material found in the
premises of the assessee, issuance of notice U/s. 153A could not be
made and the assessment could not be framed U/s. 153A of the Act. The
case law relied on by the Ld. AR in Mr. Trilok Chand Chaudhary vs. ACIT
(supra) by the Coordinate Bench of the Delhi, wherein it was held that
separate search warrant has been issued in the case of the assessee as
well as in the case of other party and where the Assessing Officer has
used the material found in the case of the other party in the assessment
made U/s. 153A of the Act is not permitted in view of the express provision
of the law. Similarly, the Delhi Bench of the Tribunal in the case of DCIT
vs. Smt. Shivani Mahajan [ITA No.5585/Del/2015, dated 19/3/2019]
8 relied on the various decisions of the Hon’ble Delhi High Court and held
that during the course of assessment under Section 153A, the
incriminating material, if any, found during the course of search of the
assessee only can be utilized and not the material found in the search of
any other person. Respectfully following the above precedents, we are of
the considered view that the assessment made by the Ld. Revenue
Authorities U/s. 153A of the Act is not valid in law and therefore
considered as void-ab-initio. Therefore, we are inclined to quash the
assessment order passed by the Ld. AO.
Since the legal ground raised by the assessee is adjudicated in his
favour, the other issues raised by the assessee are academic in nature
and therefore they are considered as infructuous.
In the result appeal of the assessee is allowed.
ITA No. 140/Viz/2022 AY: 2017-18
At the outset the Ld. AR mentioned that there is a delay of 77 days
in filing the appeal before the Tribunal. The Ld. AR drawn our attention
to the affidavit filed by the assessee wherein the assessee explained the
reasons for filing the appeal before the Tribunal beyond the prescribed
time limit and sought for condonation of delay of 77 days. The Ld
9 Authorised Representative (Ld.AR) submitted that no proper notice was
issued and served on the assessee. Further the assessee was aware of
the appellate order only when consequential order has been intimated to
the assessee. The assessee has filed his affidavit as follows:
“1……… 2. The appellant is not well educated and do not have any knowledge about the Income Tax Law procedures. On receipt of the order he thought that the appeal was finalized in favour of the appellant and did not even consult his authorized representative due to lack of sufficient knowledge. Later when the Department has informed that he need to pay the entire demand raised along with interest, he came to understand that the appeal was dismissed. He immediately approached Authorized Representative who has suggested for further appeal to the Tribunal. Hence the delay is caused due to the unawareness of knowledge. 3….. 4……. 11. On perusal of the explanation given by the assessee for belated
filing of the appeal before the Tribunal, we find that the assessee was
prevented by a reasonable and sufficient cause in filing the appeal with a
delay of 77 days. Considering the same, we hereby condone the delay of
77 days in filing the appeal before the Tribunal and proceed to adjudicate
the appeal on merits.
Briefly stated the facts of the case are that the assessee is deriving
income from business and other sources filed his return of income
10 admitting a total income of Rs. 3,62,550/- for the AY 2017-18 on
27/01/2018 besides the agricultural income of Rs. 1 lakh. The return
was processed U/s. 143(1) of the Act. Subsequently, a search and seizure
operation U/s. 132 of the Act was undertaken on 18/1/2017 in the case
of Nexus Group. Consequently, the warrant was executed in the name of
the assessee and search and seizure operation was carried out in the
assessee’s premises. Pursuant to the search and seizure operation the
case was centralized with Central Circle-1, Rajahmundry from the
erstwhile jurisdiction of ITO, Ward-1, Bhimavaram vide order U/s.
127(2)(a) of the Act passed by the Ld. Pr. Commissioner of Income Tax,
Rajahmundry in F.No. 62/Juris./CIT/RJY/2017-18, dated 28/8/2017.
Accordingly, notice u/s. 142(1) was issued on 16/02/2018 and served on
the assessee on 22/2/2018. In response, the assessee requested to treat
the return of income filed on 27/01/2018 as return filed in response to
notice U/s. 142(1) of the Act. Subsequently, notice U/s. 143(2) of the Act
was issued on 25/05/2018 and served on the assessee on 31/5/2018.
A detailed questionnaire was also issued U/s. 142(1) of the Act on
13/8/2018 and the same was served on the assessee. In response the
assessee appeared and furnished the details / information called for.
During the search and seizure operation 2250.41 gms of Gold Jewellery
was found and out of that 400.99 gms was seized from the premises of
the assessee. When the assessee was confronted to explain the sources
11 for the jewellery, the assessee in his statement recorded u/s. 132(4) of
the Act admitted that he has purchased Gold Jewellery and submitted
four bills for the same. The Ld. AO found that the bills were in other
person’s name and not in the assessee’s name. Since no evidence was
produced by the assessee, the Ld. AO treated the same as unexplained
jewellery to the extent of 1822.21 gms net weight (2011.70 grms gross
weight) which was valued at Rs. 46,78,756/- and treated the same as
assessee’s income u/s. 69A of the Act for the impugned assessment year.
Further, the Ld. AO based on the seized material from the assessee’s
premises noticed that the assessee has sold plots to Sri Gontla Venu
Gopal. The Ld. AO issued summon U/s. 131(1) of the Act to the assessee
on 23/12/2018 which was served on the same date. The assessee
appeared on 24/12/2018 and admitted that he has sold 9-10 plots and
agreed to offer those incomes and pay taxes in the current assessment
year. The Ld. AO found that the assessee has converted his agricultural
land and divided it into plots and three plots were sold in the FY 2016-17
relevant to the AY 2017-18 for a consideration of Rs. 23,71,000/-. Since
the assessee converted the agricultural land into plots and sold the
same, the Ld. AO treated it as business income and assessed it in the
hands of the assessee during the AY 2017-18. Further, the Ld. AO also
observed that from the documents seized from the residence of the
assessee, loans amounting to Rs 4 crores were advanced to different
12 people and interest was received from them in cash. Consequent to the
summons issued by the Ld. AO, the assessee admitted that he has given
Rs. 4 Crs as loans to various parties and has received interest on the
same in cash. The assessee also admitted that the source for the loan
was an OD account in the Punjab National Bank, Bhimavaram which is
in the name of his wife who is the proprietor of M/s. Sai Nagendra
Timber and Saw Mill. Based on the admission of the assessee that the
interest income was not offered for tax by the wife of the assessee, the Ld
AO treated the amount of interest receipts amounting to Rs. 4,34,310/-
as income of the assessee for the AY 2017-18. Aggrieved by the above
additions in the order of the Ld. AO, the assessee filed an appeal before
the Ld.CIT(A). The Ld. CIT(A) considering the Central Board of Direct
Taxes [CBDT] Instruction No. 1916, dated 11/5/1994 allowed 1600.00
gms of Gold Jewellery and directed the Ld. AO to treat the balance of
222.21 gms of Gold Jewellery as unexplained. Further, the Ld. CIT(A)
also found that the assessee could not produce any cost details
pertaining to the plotting of land and directed the Ld. AO to treated the
entire sale consideration of Rs. 23,71,000/- as income of the assessee.
Similarly, since the interest income of Rs. 4,34,310/- was not disclosed
in the hands of the wife of the assessee, Ld. CIT(A) directed the Ld. AO to
consider the entire sum as income in the hands of the assessee.
Aggrieved by the order of the Ld. CIT(A), the assessee filed the present
appeal before us.
The assessee has raised the following grounds in his appeal:
“1. The Ld. CIT(A) and Assessing Officer have erred in facts and law while passing the order. 2. The Ld. CIT(A) would have considered that the appellant right in the statement given u/s. 132(4) deposed that the gold found belong to himself, his wife and daughter staying abroad and also belonging to other relatives who are residing along with him and therefore would have allowed the benefit for the entire gold and jewellery under appellant’s possession as per the CBDT Circular. 3. The Ld. CIT(A) would have appreciated that each male and female members residing along with the appellant are allowed to possess certain quantity of gold and jewellery as per the CBDT circular out of the quantity found during the search and therefore would have allowed such benefit to the gold and jewellery belonging to such persons before upholding the addition made by the Assessing officer treating the entire gold as unexplained. 4. The Ld. CIT(A) ought to have considered the plea of the appellant that credit for Gold and jewellery to the extent supported by the purchase invoices may be given even though they belong to the other members other than the appellant and his wife. 5. The Ld. CIT(A) would have appreciated that only the profit element out of the sale proceeds of the plots to be taxed and therefore would have allowed appeal to such an extent.] 6. The Ld. CIT(A) would have appreciated that the addition made by the Assessing Officer Rs. 4,34,310/- as unexplained interest income received from many persons is not valid and proper without bringing any cogent evidences in proof of receipt of such interest income. 7. The appellant craves to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”
14 14. Grounds No. 1 and 7 are general in nature and need no
adjudication.
Grounds No. 2, 3 & 4 pertain to the treatment of 222.21 gms of
Gold Jewellery as unexplained in the hands of the assessee. The Ld. AR
argued that 222.21 gms of Gold Jewellery belong to the granddaughter of
the assessee who is not staying with the assessee but has kept in the
premises of the assessee. He therefore pleaded that the benefit of the
Board’s Instruction (supra) shall be granted to the gold belonging to the
granddaughter of the assessee. Per contra, the Ld. DR submitted that
the Ld. CIT(A) has already granted benefit of the Board’s Instruction
(supra) to the family members of the assessee and strongly objected to
the plea of the Ld. AR for allowing the balance of 222.21 gms of Gold
Jewellery which is allegedly belonging to the granddaughter of the
assessee.
We have heard both the sides and perused the materials available
on record and the orders of the Ld. Revenue Authorities. Admittedly, the
Ld. CIT(A) has rightly followed the Board’s Instruction No. 1916, dated
11/5/1994 and has allowed the Gold in the possession of the assessee to
an extent of 1600 gms in accordance with the family members in the
premises of the assessee. The Assessee’s Representative could not
substantiate with evidence that the balance of 222.21 Gms of Gold
15 Jewellery belongs to the granddaughter of the assessee who had kept
their jewellery in the assessee’s premises. Neither the Ld. AR produced
any copies of bills for claiming the jewellery being purchased by the
assessee. In the absence of any material evidence to substantiate the
holding of addition gold in the premises of the assessee we find that the
Ld. CIT(A) has rightly given the benefit of Board’s Instruction (supra) and
accordingly treated the balance gold of 222.21 gms as unexplained. We
are therefore inclined not to interfere in the decision of the Ld. CIT(A) on
this issue. Accordingly, these grounds raised by the assessee are
dismissed.
With respect to Ground No.5 regarding sale consideration of plots
of Rs. 23,71,000/- considered by the Ld. AO as income of the assessee,
the Ld. AR submitted that the agricultural land converted into plots and
sold by the assessee and should be considered as capital gains. The Ld.
AR strongly objected to the treatment of the income as business of the
assessee by the Ld. AO. The Ld. AR further submitted that the assessee
has developed the land and the cost of development should be considered
before treating the same as income of the assessee. The Ld AR pleaded
that alternatively if it is considered as business turnover, the income
may be estimated.
16 Per contra, the Ld. DR submitted that the cost of acquisition of the
land the cost of development of the land into plot was not produced
before the Ld. Revenue Authorities and hence it cannot be considered.
The Ld. DR therefore pleaded that the order of the Ld. Revenue
Authorities be upheld.
We have heard both the parties and perused the material available
on record and the orders of the Ld. Revenue Authorities. Admittedly the
assessee has sold three plots in the current year by converting the
agricultural land into non-agricultural land which is considered as
business income by the Ld. AO. It was also observed by the Ld. CIT(A)
that the assessee has not submitted the Fair Market Value (FMV) on the
date of conversion of the land for the purpose of considering it as capital
gains and subsequently, the FMV of the land on the date of conversion
was also not submitted before the Ld. Revenue Authorities for
considering the same as expenses / cost of acquisition by the assessee
for the sale of plots. Further, we also find that the assessee has not
submitted the details of land development charges and has not produced
copies of any bills either before the Ld. Revenue Authorities or before us.
In the absence of any cogent evidence regarding the cost of acquisition of
the agricultural land / conversion into plots, obviously certain expenses
would have been incurred by the assessee in acquiring the agricultural
17 lands and cost towards conversion of the agricultural land in to plots.
We find that considering the peculiar circumstances of the case it would
be reasonable to estimate the business income at 20% on the sale value
of Rs 23,71,000/-. We therefore, direct the Ld AO to compute the
business income as decided above and thus, this ground raised by the
assessee is partly allowed.
With respect to Ground No.6 regarding the addition of interest
made by the Ld. Revenue Authorities, the Ld. AR argued that the loan
amount belongs to the wife of the assessee wherein the wife of the
assessee has taken a loan on OD facility from Punjab National Bank,
Bhimavaram for Rs. 4 Crs which was the source for the loans given by
the assessee for interest. Per Contra the Ld DR relied on the orders of
Revenue authorities.
We have heard both the parties and perused the material available
on record and the orders of the Ld. Revenue Authorities. As admitted by
Ld AR we find that the interest was not disclosed in the hands of the wife
of the assessee. However incriminating evidences was seized with respect
of interest by the assessee in the impugned AY. In view of this the Ld.
Revenue Authorities have rightly considered it as income of the assessee
during the impugned assessment year and hence we are inclined not to
18 interfere with the decision of the Ld. CIT(A) on this issue. Thus, this ground raised by the assessee is dismissed.
In the result, appeal of the assessee is partly allowed.
Pronounced in the open Court on the 28th February, 2023.
Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER Dated : 28.02.2023 OKK - SPS आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee–Sri Goluguri Nagi Reddy C/o. CA M.V. 1. Prasad, D.No. 60-7-13, Ground Floor, Siddhartha Nagar, 4th Lane, Vijayawada, Andhra Pradesh – 520010. राज�व/The Revenue –The Assistant Commissioner of Income Tax, 2. Central Circle-1, Aayakar Bhavan, Rajahmundry, Andhra Pradesh – 533101. 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. आयकरआयु�त (अपील)/ The Commissioner of Income Tax (A)-12, 4. Hyderabad. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ 5. DR,ITAT, Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
