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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
O R D E R
PER S. BALAKRISHNAN, Accountant Member :
This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-3 [for short, “CIT(A)”], CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur Visakhapatnam in dated 27.11.2020 for the A.Y. 2017-18. Cross objections are filed by the assessee. Revenue has raised the following grounds : i. The order of the Ld.CIT(Appeals) is erroneous both on the law and facts. ii. The Ld.CIT(Appeals) ought to have appreciated the fact that the Assessing Officer in the assessment order for the year under consideration, clearly stated that the claimed advance of Rs.1,74,52,500/- to the company from out of the cash receipt of Rs.5.20 crore was not acceptable in the absence of proof and also as this was neither admitted before the search authorities nor explained in the application filed before the Hon’ble ITSC. iii. The Ld.CIT(A) ought not have accepted the assessee’s claim of receipt of cash of Rs.5.20 crore in the absence of valid proof and should have rejected the mere entry in the creditor’s books of account.
2. Brief facts of the case are that the assessee is a proprietor of M/s Bharati Soap Works since 1981. He is also a Chairman and Executive Director of M/s Bharathi Consumer Care Products Pvt. Ltd. (herein after referred to as company). A search and seizure operation u/s 132 was conducted on 30.08.2016 in the group cases of the assessee. The assessee being the main person of the group, his residence as well as his business concerns was subjected to search. Consequently, a notice u/s 142(1) was issued to the assessee calling for the return of income filed for the A.Y.2017-18. The assessee claimed that in response to the notice u/s CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur 142(1), he has filed the return of income admitting total income of Rs.91,71,030/-. Subsequently a notice u/s 143(2) was issued and during the proceedings, meanwhile, the assessee has filed an application u/s 245C before the Hon’ble Income Tax Settlement Commission (ITSC), Chennai on 19.11.2018 for the A.Y. 2011-12 to 2017-18. In his application, the assessee admitted additional income as detailed in paragraph 3 of the order of the AO. Initially, ITSC vide order dated 26.11.2018 allowed the assessee’s application u/s 245D(1). However, vide its order u/s 245D(2C) dated 09.01.2019, the Hon’ble ITSC has treated the assessee’s application as invalid. Consequently, the assessment proceedings were revived and the case was posted for hearing vide this office letter dated 16.01.2019. The assessee then filed writ petition on 14.02.2019 before the Hon’ble High Court of Andhra Pradesh which was rejected by the Hon’ble High Court on 30.10.2019.
The AO then, proposed various additions as detailed in paragraph 4 of the assessment order for the A.Y.2017-18. The assessee vide letter dated 18.11.2019 filed his objections / explanations with regard to all the proposed additions except for Rs.2.60 crores as agreed by the assessee on account of income earned outside the books of account from real estate business and admitted as additional income in the application filed u/s CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur 245C before the Hon’ble ITSC, Chennai on 13.11.2018. Since the assessee could not file revised return online, the AO made addition of Rs.2.60 crores outside the books of account from real estate business as admitted by the assessee. It was observed by the AO during the course of assessment proceedings of M/s Bharathi Consumer Care Products Pvt. Ltd, (hereinafter referred as “company”) where the assessee is Chairman and Executive Director that the company has deposited an amount of Rs.1,74,52,500/- during demonetisation period of 08.11.2016 to 31.12.2016. The company stated that the amount of Rs 1,74,52,500/- was received from the assessee. The assessee submitted that the deposit was made out of loan repaid by M/s Gowtham Buddha Textile Park Pvt. Ltd. and the real estate income admitted before the Hon’ble ITSC. However, the AO has not accepted the explanation of the assessee and added Rs.1,74,52,500/- on protective basis to protect the interest of the revenue.
Aggrieved by the order of the AO, the assessee filed appeal before the CIT(A)-3, Visakhapatnam. The Ld.CIT(A), considering the submissions made by the assessee, observed as follows :
5.4. During the course of appeal proceedings, the Authorized Representative of the appellant contended that the Assessing Officer, while completing the assessment proceedings in the case of the company i.e. M/s Bharathi Consumer Care Products Pvt. Ltd. observed that the company has deposited an amount o fRs.1,74,52,500/- in the bank account during the demonetisation period and it was stated that the amount was actually received CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur from the appellant Sri Arunachalam Manickavel as loan and the source of such loan amount was amount received from M/s Gowtham Buddha Textile Park Pvt Ltd. and the real estate income admitted before the Hon’ble ITSC. However, the Assessing Officer did not believe the explanation and stated that eh appellant failed to furnish proof for the claim of money receipt from M/s Gowtham Buddha Textile Park Pvt. Ltd and added the amount of Rs.1,74,52,500/- in the hands of the company and also added the same in the hands of appellant on protective basis u/s 68 of the I.T. Act, 5.5. It was further contended that during the course of scrutiny assessment proceedings in the case of company i.e. M/s Bharathi Consumer Care Products Pvt Ltd., in response to the notice issued on 04.10.2018, it was clearly stated that a sum of Rs.1,74,52,500/- was deposited in the bank and it was out of the unsecured loan obtained from the director Shri Arunachalam Manickavel. It was also replied that the appellant has reflected this amount as an advance in the individual books of accounts maintained by him. The appellant company has proved the sources with individual balance sheets produced before the Hon’ble CIT(Appeals) and Hon’ble CIT (Appeals) has examined the data submitted and found that there are sources for the said loan obtained in the company M/s Bharathi Consumer Care Products Pvt. Ltd., The appeal was allowed.
Ld.CIT(A) after going through the assessment order of M/s Bharathi Consumer Care Products Pvt Ltd. for the A.Y.2017-18 observed that, wherein, similar addition of Rs.1,74,52,500/- was also made in the assessment of the company on substantive basis and also on the assessee on protective basis. The Ld.CIT(A) deleted the addition made by the AO on the ground that since the sources and creditworthiness were proved in the substantive assessment, protective assessment did not have legs to stand.
Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us. The Ld.DR argued that the assessee has paid an amount of Rs.1,74,52,500/- to the company by way of cash and no proof was provided for the same. The Ld.DR also argued that the assessee has not filed CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur necessary documentary proof regarding the receipt of money from M/s Gowtham Buddha Textile Park Pvt. Ltd. which was said to have been advanced to the above company. The Ld.DR relied on the assessment order and pleaded to uphold the assessment order.
On the other hand, the Ld.AR explained that the assessee has disclosed investments in his individual balance sheet for the A.Y.2017-18, which was also verified by the Ld.CIT(A). The assessee also admitted unaccounted income of Rs.3.65 crores for the A.Y.2015-16 and Rs.3.70 crores for the A.Y.2016-17 and stated that the copies of the revised returns have been filed. The Ld.AR also relied on the decision of DCIT Vs M/s Bharathi Consumer Care Products Pvt Ltd. by Hon’ble ITAT, Visakhapatnam in to 201/Viz/2020. The Ld.AR invited our attention to para No.12 in page No.36 of Hon’ble ITAT, which is reproduced below :
12. We have heard both the parties and perused the material placed on record. In the instant case, the assessee had explained the source and furnished the confirmation letter and also explained the source of source. The creditor of Arunachalam Manickavel is having credit worthiness and there is no dispute. The department also conducted the search against the creditors, thus there is no dispute with regard to identification and credit worthiness of the creditor. Therefore, there is no case for making addition in the hands of the assessee. If at all the AO disbelieved the source of source, the same required to be made addition in the hands of the creditor, but not in the hands of the assessee. Therefore, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.
CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur The Ld.AR also argued that since the addition has been proved to the satisfaction of the Ld.CIT(A) and has been deleted in the substantive assessment it cannot subjected to be taxed in the hands of the assessee while making protective assessment.
We have heard both the parties and perused the material available before us. From the submissions of the Ld.AR, we understand that the impugned addition of Rs.1,74,52,500/- was deleted in the substantive assessment, based on the evidences submitted by the company. If a protective assessment is to be invoked u/s 68 of the Act, the conditions laid down in section 68 should be satisfied. The assessee has offered explanation to the satisfaction of the AO on the credit worthiness and the source of funds deposited into the bank account of the company. This was not disputed by the AO in his order. The AO has also not rejected the explanation, by the company, where it is implied that the AO has accepted the source. In this case also the assessee has provided explanation regarding the source of cash deposits, and has also accepted the real estate income, filed revised return and discharged his liability in payment of taxes. We find from the order of Ld.CIT(A) in Para No 6, that the addition of Rs 1,74,52,500/- made on substantive basis since the loan creditor provided evidences to the satisfaction of Ld.CIT(A). As the assessee has CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur provided documentary proof for receipt of money during the substantive assessment of the company, the addition of the same on the basis of protective assessment does not have legs to stand. Therefore, we are of the considered view that the impugned addition of Rs.1,74,52,500/- shall be deleted and we uphold the order of the Ld.CIT(A) on this ground.
With respect to Ground No.3, we note that the assessee has advanced a sum of Rs.5.20 crores to M/s Gowtham Buddha Textiles Pvt. Ltd. out of the real estate income admitted by the assessee. We see from the record submitted by the Ld.AR that the assessee has shown the amount of Rs.5.20 crore as investment in his books of accounts. We also find that this fact was also recorded by assessee to Q No 7 in his sworn statement during the course of scrutiny assessment in the case of Gowtham Buddha Textile Park Pvt. Ltd, for the A.Y. 2014-15 to 2017-18 u/s 131 of the Act. We therefore find no merit in the argument of the Ld.DR and, we dismiss the ground raised by the revenue. In the result, appeal filed by the revenue is dismissed.
The assessee filed cross objections which are supportive in nature. Since the appeal of the revenue is dismissed, the cross objections of the assessee become infructuous, hence dismissed.
CO No.25/Viz/2021, A.Y.2017-18 Sri Arunachalam Manickavel, Guntur 9. In the result, appeal filed by the Revenue as well as the cross objections filed by the assessee are dismissed.
Order Pronounced in open Court on 16th March, 2022.
Sd/- Sd/- (दुव्वूरु आर.एल रेड्डी) (एस बालाकृष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याधयकसदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 16.03.2022 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. रधजस्व/The Revenue – Deputy Commissioner of Income Tax, Central Circle-1, Guntur 2. ननधधाऩरती/ The Assessee– Sri Arunachalam Manickavel, Prop. M/s Bharathi Soap Works, First Line, Indira Nagar, Guntur 3. The Principal Commissioner of Income Taxm (Central), Visakhapatnam 4. आयकर आयुक्त (अपील)/ The Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam