Case Law Details

Case Name : A. Ashok Simha Reddy Vs. DCIT (ITAT Hyderabad)
Appeal Number : ITA Nos. 962 to 968, 998/Hyd/2015
Date of Judgement/Order : 30/11/2017
Related Assessment Year : 2005-06 to 2011-12
Courts : All ITAT (5189) ITAT Hyderabad (305)

A. Ashok Simha Reddy Vs. DCIT (ITAT Hyderabad)

We have gone through the certificate issued by the Bank of India and find that the loan is given for purchase of a flat. The nature of the said flat purchased by the assessee, is not mentioned in the certificate. It could be a residential flat also. In view of the same, we deem it fit and proper to remand this issue to the file of the assessing officer with a direction to verify the nature of the property, and if it is found to be a residential property purchased by the assessee against which the assessee has been given loan by the Bank of India, then irrespective of the use of the building, the claim of deduction under section 80C of the Act shall be allowed in respect of the repayment of the principal amount, of course subject to the maximum limit. Thus, the grounds of appeal for all the assessment years on this issue are treated as allowed for statistical purposes.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

ITA Nos. 962 and 966 to 968/Hyd/2015 are assessee’s appeals for the assessment years 2005-06 to 2011-12 against the order of the Commissioner (Appeals) for the respective assessment years while ITA No. 998/Hyd/2015 is Revenue’s appeal against the order of the Commissioner (Appeals) for the assessment year 2008-09.

2. The learned Counsel for the assessee has filed a chart depicting various issues arising in all of these appeals and it is seen that most of the issues are repetitive in all the years. Therefore, we are disposing of the appeals on the basis of the issues arising therefrom.

3. The first issue in the appeals for assessment years 2005-06 to 2008-09 is the addition of the amount mentioned in the promissory notes found in the course of search as unexplained cash credits. Brief facts relating to this issue are that during the course of search under section 132 of the Act in the case of the assessee and others on 2-9-2010, certain promissory notes for the amount lent by him were found. The assessee’s contention that these promissory notes were obtained as security from the chit members, was not accepted by the assessing officer and accordingly, he made the addition. The Commissioner (Appeals), on the other hand, held that they are not cash credits, but represent unexplained investment and is to be brought to tax under section 69. Aggrieved, the assessee is in appeal before us for the relevant assessment years The learned Counsel for the assessee submitted that similar issue had arisen in assessee’s brother’s case and ITAT has remanded the issue to the assessing officer with some directions and reconsideration of the issue on merits. The learned Departmental Representative, however, relied upon the orders of the authorities below.

4. Having regard to the rival contentions and the material on record, we find that in the case of A. Pandu Ranga Reddy, the Tribunal at Para 13 to 15, has held as under: “Addition based on Promissory Notes :–

13. assessing officer made addition of Rs. 6 Lakhs in assessment year 2009-10 and 1,50,000 in assessment year 2010-11 on two promissory notes found in the course of search proceedings. assessing officer was of the opinion that an amount of Rs. 6 Lakhs was lent on 3-7-2008 against cash receipt to Shri A. Rajavardhan Reddy, which was brought to tax in assessment year 2009-10 and an amount of Rs. 1,50,000 lent on 31-12-2009 against promissory note to Shri V. Ravi Kumar was brought to tax in assessment year 2010-11. Similar to the ‘agreements of sale’ seized by the department, assessee contended that promissory notes were also obtained for securing the chit business. On the reason that assessee has not substantiated with any documentary evidence, learned Commissioner (Appeals) confirmed above amounts.

14. Before us, learned Counsel submitted that in the un-organised chit business conducted by the assessee and his family members, sometimes security was taken in the form of agreement of sale if the bidders are having properties and some times, by way of promissory notes for a higher amount than what was lent. It was submitted that these two transactions also pertain to chit business. It was further submitted that the relevant pro-notes were seized by the department and are available with them. learned Departmental Representative supported the orders of the learned Commissioner (Appeals).

15. On this issue also, we are of the opinion that assessing officer has not made out any inquiries. It is accepted that assessee is conducting un-organised chit business and as discussed earlier for the ‘agreements of sale’ found during the course of search, the modus oparandi has been accepted. In view of that, assessee’s contentions cannot be brushed aside without proper enquiry. Since the promissory notes are available with the department (by this time, they would have been time barred), it is necessary that assessing officer makes necessary enquiries with the persons who executed the promissory notes to ascertain whether assessee has advanced cash or obtained them towards security for the chit availed by them. Unless proper inquiry is made, it would not be proper to refuse assessee’s contentions, when part of the contentions with reference to ‘agreements of sale’ were accepted. In view of this, we are of the opinion that necessary inquiries with the persons who executed promissory notes is required to be conducted by the assessing officer to know the exact nature of a transaction and then take a decision whether the amount can be brought to tax as unexplained investment/unexplained asset or not. For this purpose, we set aside the orders of the assessing officer and Commissioner (Appeals) on this issue and restore the matter to the file of assessing officer for fresh enquiry. assessee should be given due opportunity and assessee is free to furnish the necessary evidences in support of his claim. With these directions/observations, the grounds in these two years are considered allowed for statistical purposes”.

For the reasons given in ITAT order in the case of Shri A. Pandu Ranga Reddy in ITA Nos. 797/Hyd/2015 to 803/Hyd/2015 for the assessment years 2005-06 to 2011-12 vide order dated 21-9-2016 as above, this issue in the assessee’s appeals for 2005-06 to 2008-09 is remitted to the file of the assessing officer with similar direction.

5. The second issue in all the assessment years is the treatment of agricultural income as “income from other sources”. We find that this issue also has arisen in the case of A. Panduranga Reddy and ITAT in para 6 of its order has held as under :–

“6. We have considered the rival contentions. There is no dispute with reference to the fact that assessee owns agricultural land and also purchased 4.71 guntas of land in September, 2004. Considering the value of the land purchased and the extent of agricultural income offered, the assessing officer’s contentions seems to be partially correct. Since assessee is not in a position to furnish any evidence to substantiate the incomes earned and returned, we have no option than to estimate the agricultural income at a reasonable basis. assessee’s submission that it has grown Paddy, Grapes and Vegetables on a piece of land of 1.27 acres cannot be accepted as it is not possible to cultivate all the three in small piece of land. However, since assessee owns some agricultural land in the impugned years, we are of the opinion that income at Rs. 10,000 per acre can be justified as a reasonable income earned on the said lands. Accordingly, assessing officer is directed to accept income at Rs. 10,000 per acre for assessment year 2005-06, 2006-07, 2007-08. The balance of the income in each year is confirmed as ‘income from other sources’ as was done by the assessing officer. assessee’s grounds are partly allowed”.

For the above reasons, and also in view of the fact that the assessee is the owner of agricultural land and has claimed to have grown similar crops, we are inclined to direct the assessing officer to accept Rs. 10,000 per acre as agricultural income. This issue is also treated as partly allowed.

6. The third issue in the appeals for the assessment years 2006-07 to 2011-12 is the dis allowance of the assessee’s claim of deduction under section 80C of the Act. The assessee has claimed the maximum sum of Rs. 1.00 lakhs allowable as a deduction under section 80C of the Act for all the assessment years The assessee claimed LIC payment and also the payment of housing loan as a deduction under section 80C of the Act. The assessing officer observed that the assessee did not submit proof of payment of LIC premium. Further, regarding the repayment of housing loan principal, he observed that the loan was said to have been taken for commercial building and since the deduction is available only for a residential house, he held that assessee’s claim is not allowable. Thus, he brought the entire amount of Rs. 1.00 lakh to tax by disallowing the claim of deduction under section 80C of the Act. Aggrieved, the assessee filed appeals before the Commissioner (Appeals) along with proof of LIC premium and interest certificate of Bank of India narrating the purpose of the loan as for the purchase/reconstruction of house/flats. On appeal, Commissioner (Appeals) accepted the payment of LIC premium, but as regards the repayment of housing loan, she held that the assessee has not furnished any rental agreement to substantiate his claim that it is a residential property. In view of the same, the Commissioner (Appeals) restricted the claim of deduction under section 80C of the Act to LIC premium only and the assessee is in appeal before us against the relief denied by the Commissioner (Appeals).

7. The learned Counsel for the assessee has drawn our attention to the certificate issued by the Bank to state that the loan was taken for a residential property and therefore, repayment of principal of such loan is to be allowed under section 80C of the Act subject to the maximum of Rs. 1.00 lakh. We find that the Commissioner (Appeals) has held that the interest certificate given by Bank of India does not establish that the said property was used as a commercial property and also that the assessee has not filed any rental agreement during the appellate proceedings to substantiate his claim.

8. We have gone through the certificate issued by the Bank of India and find that the loan is given for purchase of a flat. The nature of the said flat purchased by the assessee, is not mentioned in the certificate. It could be a residential flat also. In view of the same, we deem it fit and proper to remand this issue to the file of the assessing officer with a direction to verify the nature of the property, and if it is found to be a residential property purchased by the assessee against which the assessee has been given loan by the Bank of India, then irrespective of the use of the building, the claim of deduction under section 80C of the Act shall be allowed in respect of the repayment of the principal amount, of course subject to the maximum limit. Thus, the grounds of appeal for all the assessment years on this issue are treated as allowed for statistical purposes.

9. Fourth issue only for the assessment years 2008-09 & 2009-10 is enhancement of income as accretion to capital. Brief facts are that during the appellate proceedings, from the capital account furnished by the assessee, the Commissioner (Appeals) observed that as on 31-3-2007, there is an increase of Rs. 6.38 lakhs in its capital account for assessment year 2008-09. He observed that the assessee has shown total income of Rs. 3.34 lakhs in its return of income filed for the assessment year 2008-09 and therefore, he asked the assessee to showcause as to why the increase of capital of Rs. 3.04 lakhs should not be treated as unsubstantiated and should not be treated as unexplained investment under section 69 of the Act. In effect, the Commissioner (Appeals) asked the assessee to prove the source of investment of capital. The assessee submitted that on the occasion of his birth day, he has received a gift of Rs. 5.00 lakhs from his paternal uncle and further that he had received a gift of Rs. 2,08,460 and Rs. 52,000 from his father and mother respectively which are the sources of his investment. The Commissioner (Appeals) was not convinced with the contentions of the assessee. He therefore, held that the assessee’s contentions are nothing but an afterthought and treated the sum of Rs. 3.04 lakhs as unexplained investment under section 69 of the Act. Similar addition of Rs. 3,28,000 was made in the assessment year 2009-10 as well and the assessee is in appeal before us.

10. The learned Counsel for the assessee reiterated the submissions made by the assessee before the lower authorities and submitted that the assessee has income in the earlier assessment years sufficient to explain the increase in its capital during the assessment year 2008-09 and 2009-10. He has also filed before us copies of his capital account and statement of affairs of the assessee for the relevant previous years to explain the source for the increase in the capital. On perusal of the same, we find that the assessee has not been maintaining any books of account prior to the date of search and has prepared the capital a/c and statement of affairs only from the assessment year 2005-06 onwards. It is seen that from the assessment year 2005-06 onwards, the assessee has shown opening capital and there is increase in capital year after year. The source is also explained as income from chit fund business and past savings. We therefore, deem it fit and proper to remand this issue in both the assessment years to the file of the assessing officer for verification of the above sources for increase in the capital.

11. The fifth issue arising in these appeals is the addition made as unexplained investment based on the documents other than relating to chits, found during the course of search. We find that for the assessment years 2006-07, 2007-08, 2009-10, 2010-11 & 2011-

12. the assessing officer has made the additions towards unexplained investment. Brief facts are that during the course of search and seizure operation under section 132 of the Income Tax Act, certain property documents were found and seized. The assessee was asked to explain the nature of the transaction and the source of funds for such investments in the respective assessment years 12. For the assessment year 2006-07, The assessee explained that the assessee has purchased agricultural land measuring 1.22 acres in survey No. 371 & 371 E of Mangalapalli Village, Ibrahimpatnam for a sum of Rs. 2.00 lakhs which is being reflected in his HUF return of income, and that an extent of Ac 5.02 gts of agricultural land in survey No. 7, Sahubguda, Mangalapaly, Ibrahimpatnam was purchased for a sum of Rs. 6,31,500 and the same is also being reflected in his HUF returns of income. The assessing officer, however, held that the assessee has not produced any evidence in support of his contention that these investments are declared in the assessee’s HUF returns. He therefore, made the addition of Rs. 8,31,500. The Commissioner (Appeals) also confirmed this addition.

13. For the assessment year 2007-08, the assessee has stated that he has purchased Ac 2.11. gts of agricultural land in survey No. 285, 284, 284A and 283 in Penjarla Village, Kothur Mandal, Mahaboobnagar for a sum of Rs. 1,26,500 and that the same is being reflected in the his HUF return of income. As regards the source of investment in other agricultural land as stated in Table 3 & 4 of the assessment order for the relevant A.Y, the assessee explained the source to be from sale proceeds of agricultural land at various places, particularly, Thumaloor Village. The assessing officer, however, was not convinced with the assessee’s contention and made the addition of Rs. 44,04,075. On appeal, the Commissioner (Appeals) confirmed the addition of Rs. 1,26,500 as the assessee could not produce books of account of the HUF and also because there was no mention of HUF in the purchase deed of the property. As regards the sources for investment in other properties, the Commissioner (Appeals) accepted the source to the extent of Rs. 34,77,575. The Commissioner (Appeals) gave the benefit of telescoping of Rs. 7.00 lakhs out of the balance of the sale proceeds of Rs. 15.00 lakhs out of Thumaloor land and confirmed the addition of Rs. 8.00 lakhs.

14. For the assessment year 2009-10, the assessee has shown to have purchased a plot at Tummalakunta Village for a sum of Rs. 30,35,000. The assessee could not explain the source of investment, therefore, the assessing officer made addition of this amount as unexplained investment and brought it to tax. Before the Commissioner (Appeals), the assessee reiterated his submissions, but after verifying the cash in hand of the assessee for the previous assessment year, the Commissioner (Appeals) confirmed the finding of the assessing officer that the assessee has failed to prove with necessary evidence, the source for such investment.

15. The assessee is in appeal before us against all these additions for the relevant assessment years

16. For the assessment year 2006-07, the learned Counsel for the assessee reiterated the submissions made before the assessing officer but has not been able to produce any evidence in support of his contention that they are reflected in HUF returns. In the absence of any evidence in support of his claim, we are not inclined to interfere with the order of the Commissioner (Appeals). The assessee’s grounds of appeal relating to the additions of Rs. 8,31,500 are therefore, rejected.

17. In the assessment year 2007-08, there are two additions. As regards the sum of Rs. 1,26,500, we find that the assessee has not been able to produce the balance sheet of the HUF to demonstrate that the property worth of Rs. 1,26,500 is reflected in the HUF return of the assessee. Therefore, we confirm the addition of Rs. 1,26,500.

18. As regards addition of Rs. 8.00 lakhs, we find that at pages 60 to 62 of the paper book, the assessee has filed the copy of the capital a/c and the statement of affairs as on 31-3-2006 to demonstrate that as on 1-4-2005, the assessee had an opening capital amount of Rs. 30,87,987 and the closing balance of Rs. 53,46,710. The assessee has explained this amount to be the source for investment of Rs. 8.00 lakhs. We find that neither the Commissioner (Appeals) nor the assessing officer have actually verified this claim of the assessee. Therefore, we deem it fit and proper to remit this issue to the file of the assessing officer for verification of the assessee’s claim and if it is found that the assessee had sufficient capital for making the investment of Rs. 8.00 lakhs during the previous year relevant to the assessment year 2007-08, then no such addition shall be made. In the result, the grounds against the addition of Rs. 8.00 lakhs are treated as allowed for statistical purposes.

19. As regards the addition of Rs. 30,35,000 in the the assessment year 2009-10, the assessee has explained the source as (i) cash in hand as on 31-3-2008 and (ii) loan amount from his HUF. We find that the Commissioner (Appeals) has verified the cash book of the assessee and found that the closing balance of cash in hand was Rs. 4,263. Further he did not accept the balance of investment of Rs. 12.00 lakhs as loan from his HUF because the assessee failed to produce any documentary evidence, much less the books of account of HUF. Even before us, the assessee has not furnished any evidence in support of his contention. However, since the assessee has claimed to have sufficient balance in his capital a/c on the opening day of the relevant previous year and for the assessment year 2007-08, we have referred the matter to the file of the assessing officer to consider its acceptability as a source of investment, we deem it fit and proper to remit this issue for this year also to the file of the assessing officer for verification and decision in accordance with law after giving the assessee a fair opportunity of hearing. However, as regards the sum of Rs. 12.00 lakhs which is explained to be the loan amount from his HUF a/c, the assessee has not filed any evidence before the authorities below or even before us to consider the same. Therefore, the addition of Rs. 12.00 lakhs is confirmed. Grounds relating to this addition are therefore, treated as partly allowed for statistical purposes.

20. For the assessment year 2009-10, there is an additional issue of addition of Rs. 12,02,000 as unexplained cash credit. During the course of search, the assessing officer found certain documents showing that the assessee has paid Rs. 2,32,000 as fees to Orchid School and Rs. 8,00,000 to Matrusri Educational Society towards development fund. With regard to the source for such payments, the assessee explained that the fee paid to Orchid School is reflected in his HUF return and that the sum of Rs. 8.00 lakhs was deposited by his uncle in his Bank A/c and the assessee has drawn the DD in favor of Matrusri Education Society. In the absence of any evidence to prove this contention, both the assessing officer and the Commissioner (Appeals) did not accept the contention of the assessee. The assessee has not filed any evidence even before us. Therefore, the addition of Rs. 12,02,000 is confirmed.

21. For the assessment years 2010-11, the addition under section 69 of the Act is to an extent of Rs. 1,37,63,400. The assessee had explained the source as the amount received back from his debtor. It was submitted that he had given a loan of Rs. 80.00 lakhs to one Mr. Mohd. Suleman and as a security for the said loan, Mr.Suleman through his partner, has offered the property bearing Municipal No. 16-6-33/P, Chaderghat, Hyderabad and an agreement of sale from GPA was executed to protect the assessee’s interest. The assessing officer was not convinced with the assessee’s contention and treated the amounts mentioned in the GPA, MOU and also the receipts as unexplained investment. The said addition was confirmed by the Commissioner (Appeals).

22. The assessee has filed an application dated 8-4-2017 before us, requesting us to admit the additional evidence filed by the assessee and to remand the same to the file of the assessing officer for verification. In the additional evidence, the assessee has filed copies of (1) bank a/c statement of Bank of India, Malakpet Branch, Hyderabad for the period Feb. 2009 to Jan. 2011 and (2) Encumbrance certificate dated 22-3-2013 reflecting that the GPAcum- POA dated 23-2-2010 was cancelled in March, 2011. It is submitted that if these two documents are considered, it would be evident that the assessee has advanced the loan of Rs. 80 lakhs to Mr. Mohd. Suleman and further that all the other documents are executed only to secure such transaction.

23. The learned Departmental Representative objected to the admission of this additional evidence.

24. We find that the documents now filed by the assessee are only bank statements and the encumbrance certificates which are issued by the bank authorities and the govt. agencies respectively. In our opinion, these documents, being third party records, can be admitted. Similarly, for the assessment year 2011-12 also, the assessee has filed the additional evidence being the Bank A/c copy and the encumbrance certificate for the very same property. Therefore, we are inclined to admit the additional evidence filed by the assessee and remit the same to the file of the assessing officer for verification and we direct the assessing officer to consider the allowability of the assessee’s claim in accordance with the law. In the result, assessee’s ground of appeal for the assessment years 2010-11 & 2011-12 against these additions are treated as allowed for statistical purposes.

25. For the assessment year 2008-09, there is an appeal filed by the Revenue. In this appeal, the Revenue is aggrieved by the order of the Commissioner (Appeals) deleting the addition of Rs. 40.00 lakhs which was made by the assessing officer as unexplained investment under section 69 of the Act. The Commissioner (Appeals) has accepted the assessee’s contention that the agreement of sale in respect of agricultural land in survey No. 191 & 192 of Mankhal Village, Maheswaram Mandal, was taken only as a measure of security against the prize money for the chit business run by his father Shri A. Narasimha Reddy. We find that this issue is similar to the issue in the assessee’s brother’s case i.e., Shri A. Pandu Ranga Reddy in ITA No. 797/Hyd/2015 to 803/Hyd/2015 for the assessment years 2005-06 to 2011-12 and the Tribunal at Para 12 of its order has observed that the assessing officer did not make inquiry with regard to the contention of the assessee and therefore, had remitted the matter to the file of the assessing officer with a direction to verify the assessee’s claim and also allow the assessee to furnish necessary documents/evidence/confirmation/affidavits in support of his contention. Respectfully following the decision of the Coordinate Bench on similar set of facts, this ground of appeal raised by the Revenue is also remitted to the file of the assessing officer with similar direction.

26. In the result, Revenue’s appeal is treated as allowed for statistical purposes.

27. To sum up, assessee’s appeals for the assessment years 2005-06 to 2011-12 are treated as partly allowed and Revenue’s appeal for assessment year 2008-09 is treated as allowed for statistical purposes. Order pronounced in the Open Court on 30th November, 2017.

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